WITH the rapid growth of the South African tourism market over the past few years, hotel suite investments are fast becoming one of the popular ways for South Africans to invest in the property market.

However, as this is a relatively new concept in the country, a lot of people do not fully understand this type of property investment.

Solomon Brothers Property Holdings director Jeffrey Solomon says a hotel suite investment is a direct investment that enables investors to purchase a suite in a hotel development in terms of the Sectional Titles Act, just as they would a sectional title apartment.

The unit is then contracted to the hotel and forms part of what is known as a “rental pool”, where the revenue of the hotel is distributed to the individual rental pool participants. But Solomon says investing in a hotel suite is not the same as investing in a property syndication. In a property syndication, investors collectively buy into a single property and own an individual share in it.

As such, they do not hold a title to their property in their own names.

He says property syndications are unlisted investment schemes and can be structured in various ways, with several cost layers.

“They are not subject to the rules and regulations of a formal exchange and … there is often scope for the creators of those schemes to manipulate property values and investors.”

On the other hand, Solomon says that the returns generated from hotel suite investments should more than cover the investors’ finance charges. As such, the revenue should not experience any liquidity problems at all.

“In addition, the sale of this investment should be quicker than a regular sectional title apartment, as it has a regular income stream attaching to it.”

Nevertheless, he says it is recommended that a direct property investment forms a part of investors’ overall investment portfolios, which should include some liquid assets in case they need access to cash in a hurry. “I believe that rather than being a drawback, an investment in a sectional title hotel suite can be an advantage, as it provides you with a far greater degree of control over the selection of your asset than what is possible through listed property or a property syndicate,” Solomon says.

“Firstly, you have exposure to South African tourism, which has huge growth potential, as well as the benefit of professional management and marketing of your unit as part of the hotel.”

He says a sectional title ownership is “a safe, well-regulated” and tried and tested method of property ownership in SA.

As the unit is part of a rental pool, the total hotel revenue is pooled and shared between all the investors, so investors’ revenue does not depend on the occupancy level of the unit.

Solomon says occupancy rates for five-star hotels in Cape Town were in the region of 72% to 76% for the first four months of this year and, with several international sporting and cultural events taking place in the city over the next two years, the rates are set to improve.

Source: Business Day