HK investors add London hotel rooms to buying list

LONDON: Hong Kong investors in the British property market are diversifying into non-conventional forms of property ownership including hotel rooms and fractional units.

One-third of guest rooms at a Holiday Inn hotel near London's Canary Wharf have been sold off-plan to Hong Kong investors. When completed in the first quarter of 2012, the four-star hotel will have 252 guest rooms.

Hong Kong investors bought 83 of the rooms over the period from May to November this year, according to Stuart Johnson, new-business development manager at sales agents Experience International.

The £32 million (RM158.2 million) Holiday Inn West India Dock Road will be the flagship hotel in London's Docklands for operator Intercontinental Hotels Group.

In hotel room investment schemes, guest rooms are maintained by the hotel which shares income from letting them out with investors. Holiday Inn investors will not have free use of the guest room they buy. They must book to use the room they own like other paying guests.

Guest room prices start at £189,000. This is 19% below the Royal Institution of Chartered Surveyors (RICS) valuation of £232,000.

Johnson said guest rooms were sold at below the RICS valuation to reflect "the subdued market and because it is being sold off-plan".

Sales were strong to Hong Kong investors because they were attracted to the high yields, Johnson said. Intercontinental Hotels forecasts yields of 6.5% in the first year of operation, rising to 10.7% in the fifth year when occupancy levels will have increased as the hotel establishes itself in the market.

"There is not much of this type of project in the market," Johnson said. "It has a very good yield. It costs a lot more to buy a property in central London and you only get a yield of 3% or 4%, even though rents are high, but with a hotel room it is all about nightly rates."

Hong Kong buyers are also investing in fractional properties. In a fractional ownership scheme, a share of the property is purchased which entitles the buyer to use it for some of the year. Normally, a fractional property is shared between four to twelve owners.

In London's Mayfair district, Hong Kong investors have bought fractions of serviced apartments at 47 Park Street Grand Residences by Marriott. About 10% of its fractional owners, known as members, are from Hong Kong and Singapore. Members can use their apartments for 21 days each year.

Ownership of 47 Park Street's 49 residences will be shared by a maximum of 637 members when fully subscribed. Fractional sales prices start at £100,000. Annual maintenance fees start at £5,000.

Christian Jensen Broby, vice president of Marriott Vacation Club International, said Hong Kong members bought fractions at 47 Park Street because it was less expensive than buying a home or staying in a hotel.

"The cost per square foot if you had to purchase a flat is very high," said Jensen Broby. "If you know you are coming to London for only 30 days a year then it is a lot of money to have standing there."

The number of fractional investments offered to Hong Kong buyers is growing. This week, the Landmark Mandarin Oriental Hotel hosts an exhibition of The Residences at Pittormie, a set of 20 apartments, on the outskirts of St Andrews, Scotland. The two- and three-bedroom apartments can be bought as wholly-owned units or in fractions. Fractions are offered at prices starting from HK$1.25 million (RM506,688.04) each.

Pittormie fraction buyers can choose between a 6% guaranteed net rental return for the first two years or two weeks' usage of their residence. Fractional owners can access the famous St Andrews golf courses. — South China Morning Post