Property: Invest with aplomb

by Jesseline Poh 17 Nov 2014

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Singapore is no stranger to investments in both residential and commercial property. But what about hotels? We delve into the world of hotel investment with Singapore-based Castlewood Group to find out more

Real estate investment in overseas markets have proven to be highly lucrative, with both commercial and residential markets in countries such as Australia, Thailand and the UK booming.

Hotel investments, until recently, have been less common. With recent reports showing that hotel investments into Asia Pacific grew by 200 percent last year, PropertyGuru spoke to Chris Comer, CEO, Castlewood Group.

Castlewood Group is a Singapore-based commercial real estate developer specialising in providing investors with practical solutions through luxury hotel development. Based on what we found out, it’s a wonder why more investors have not caught on to hotel investment.

Investment made easy

Pioneered by Donald Trump himself, hotel investment is relatively hassle-free when compared with other types of property investment. As Comer says, “There are no agents as a hotel is fully managed – maintenance costs are borne by residents of the hotel, and room rates can be adjusted to include inflationary increase and market demand.”

This aspect of hotel investment is very different from signing a tenancy agreement, whereby one would be tied to a fixed amount of money, usually for two years. This gives investors the opportunity for higher ROI, without having to worry about furnishing or maintaining the property, attracting tenants, or agents’ commission fees.
Furthermore, daily international tenants mean a steady flow of profit, while seasonality allows for increased room rates and, in turn, increased revenue for stakeholders. Though hotel investment hasn’t been widely practiced in Singapore or other parts of Southeast Asia until recently, it is a tried and tested concept in Europe and the USA.

Buy-to-lease, buy a lease

Castlewood Group uses a buy-to-lease model, which is reminiscent to the traditional buy-to-let scheme where investors buy a second property, funded by the leverage of equity in properties already owned, or simply borrowed via a mortgage from a high-street bank.

With Castlewood Group’s hotel investment vehicle, investors buy leases, as opposed to the hotel rooms themselves. Comer explained: “Castlewood Group has established an easy-to-understand leaseback opportunity where investors purchase leases from the developer, then immediately lease back to the developer’s management company to manage the lease and return (the) dividends.”

As for how long the investment lasts, investors have the option to choose either a short-term investment term – which takes them through to 2016, or the full investment term which has a pre-determined exit strategy in place at the end of 2020.

Financing options

Whilst most residential buy-to-let investments require investors to use equity from properties they already own, another popular choice is to take out a mortgage from a bank. However, Comer says that the majority of Castlewood Group’s investors have no need to go down this route, thanks to the firm’s affordable starting price point of S$35,000.

For investors that are keen to take out a payment scheme that doesn’t involve bank loans, they can consult with the company to work out alternative payment options which includes their no-fee developer payment plan.

As for returns, investors have the choice of fixed annual returns, or, for those seeking to capitalise on the hotel’s performance, they can opt for the variable rate which is determined by key profit indicators which include the Average Daily Rate (ADR) and average occupancy levels.

A unique situation

Castlewood Group, which has operations in the UK, Dubai, Thailand, China and Mauritius, seems to have carved a very specific niche for itself in the property market. The company currently has only one project, because it “only develops on a one-by-one basis”.

The project in question is their luxury award-winning flagship Hotel & Spa, situated close to Bang Tao Beach in Phuket, just a stone’s throw from the beautiful Laguna Resort, Thailand. Thanks to Castlewood Group’s “one-by-one” practice, full attention is paid to ensuring the hotel delivers on all counts, generating solid returns for investors.

As Comer puts it: “We start a project, deliver a project, and move onto the next project. It’s important for Castlewood Group to deliver each project without any distractions, and it’s also very important for our investors to have a timely delivery of their project.”

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