Hotel units are one of several key alternative property assets that are growing increasingly popular as investors seek to diversify their portfolios and find better returns than they can get from mainstream real estate. But is it worth obtaining fractional ownership of a hotel unit, or is this just not as worthwhile as owning a whole unit outright?
This is the kind of deal that has recently, prominently been offered by Novotel Suites Manila, a 41-story luxury development due for completion in 2019. Novotel Suites Manila is to become the final, sixth tower of Acqua Private Residences, and will contain 149 full residential suites and 310 Novotel Units. This is not, however, the only fractional ownership opportunity around, and due to its relative prominence it could spark off future opportunities if the bold plan proves a success. Nonetheless, opportunities at present are rather thinner on the ground than out-and-out hotel room purchase opportunities. This relative restriction of both choice and availability is, in a sense, one of the key disadvantages of fractional ownership.
But assuming you find an opportunity you are happy with, then things start to look rather more positive. Leaving aside the obvious questions that apply to any hotel unit investment, such as demand in the individual hotel’s location and market sector, fractional ownership does seem attractive on many levels. On the face of it, this kind of investment allows investors to access many of the same benefits they would have from full ownership of a hotel unit – albeit scaled down in proportion to their share of ownership. Returns are proportionally similar to those offered by full ownership opportunities in an equivalent hotel, and added benefits such as a certain amount of personal usage per year are also present and correct.
At the same time, fractional ownership will naturally be more affordable than full ownership of an equivalent unit. This makes hotel investments more accessible to investors who might not want to sink so much capital into their purchase, or opens up higher-end, more luxurious hotels to investors who would otherwise be looking at more standard, mid-market developments. This latter point is not only a boon when you come to exercise your personal usage rights – though this is undeniably a plus – but opens up a whole different market sector for equivalent capital outlay. At times when higher-end hotels are forecast to outperform their counterparts, this could be significantly more attractive from a purely investment-focussed viewpoint.
One possible drawback may rear its head when the time comes to exit your investment. Despite their rising popularity, hotel units still face a fairly unestablished resale market. This is largely down to the fact that they have only recently begun rising to prominence, and have done so with a focus on new developments. As fractional ownership of a hotel unit is even more niche than full ownership, part-owners of units may find their sale options all the more limited. Nonetheless, fractional ownership does allow investors to access many of the benefits associated with hotel investment in general, and carries certain advantages of its own.
For more information on fractional hotel ownership opportunities in the UK, please contact Hopwood House