Investors win with branded residences
There is one investment vehicle that has bucked the trend – the increasing popularity of branded hotels and residences
It’s no secret that 2020 was an extremely challenging year for the tourism industry. However, there is one investment vehicle that has bucked the trend – the increasing popularity of branded hotels and residences.
Three lifestyle trends that have emerged during the pandemic that are likely to remain include, demand particularly from families for large natural surroundings and private interior space; the emergence of the long-staying digital nomads; and the consequence of travel restrictions, which have given staycations a whole new lease of life.
We are also seeing an increasing number of developers and hotel groups adopting cutting-edge technology to market and sell their branded residences, a necessity for many as a result of Covid-19. Virtual imagery, 360-degree virtual tours, virtual reality, immersive project apps and video calls are all contributing to the ease of viewing and investing from anywhere in the world, at any time of the day.
The growing acceptance of cryptocurrency is also making it more efficient, practical and secure, especially when transferring large sums of money.
According to Knight Frank, Dubai is a standout example of the popularity of this sector. The branded residences market in the emirate has evolved significantly over the last decade with the space for high-quality, well designed property becoming more competitive.
So, we can safely assume that demand for accommodation that ticks these boxes will not only be sustainable – post pandemic – but also become even more popular.
Turning to the investors, a growing trend towards investing in branded residences was reflected in a recent survey carried out by Knight Frank. It revealed that more than 26 percent of investors across 44 countries said they were more likely to buy or invest in a second home as a result of the pandemic.
As a second home, branded residences – particularly those that are managed by a renowned hospitality brand and come with hotel or resort facilities and services – offer significant benefits over privately leased apartments or independent local brands.
First of all, there is the rental return factor. Tenants can be sourced directly by owners or they can hand over their property to the operator, which is then added to the hotel inventory and managed by the hotel. There’s no need for the added expense of a property manager and/or leasing agent.
Investors benefit from the marketing reach of an international branded hotel chain. Their investment is safe and secure, maintained and cleaned to five-star standards. Speaking of which, five-star hotels have new cleaning protocols that are accredited by international quality standards due to Covid-19. These intense cleaning regimes are not going away and will be sought out by potential guests long after the pandemic has gone.
Rates for residences managed by hotel brands go in line with demand, but they always carry a premium that guests are willing to pay for. They are looked after by an experienced reservations manager, who will yield at every given opportunity.
Secondly, investors can secure specific periods of time when they have the property for personal use. A ‘free’ holiday in a five-star resort.
Then there is the capital return on the property value. In addition to rent and personal use, investors have the added benefit of capital returns. Now, most seasoned investors would claim this is nothing exceptional. However, I beg to differ.
Ordinarily, the wear and tear on a privately rented investment property takes its toll. The odd scratch, chip and spill over time, as well as damage to electrical items and white goods, not to mention that perennial favourite – locks, handles and catches. All of these cost money to repair, replace or refurbish. You either pay before it goes on sale or, inevitably, all of that has a negative effect on the price when you do decide to sell.
The difference with branded properties is that they are inspected between each five-star guest. They are professionally cleaned each day, sheets washed and changed, carpets and bathrooms cleaned, minor scratches and other damage repaired. I could go on, but you get the picture. The difference is as obvious as night and day.
Bottom line? Your investment is kept in better condition and will attract a higher capital return relative to the initial sales price.
So, potentially a higher rental return, higher capital return and a ‘free’ holiday in a five-star resort.
Music to the ears of any savvy investor, I’m sure.