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Residential real estate in Dubai can be a snakes and ladders game as we all know from experience, and an increasing number of prospective buyers are considering opportunities outside of the remit of a traditional buy-to let apartment or villa, with hotel apartments becoming a hot investment ticket.
As a developer with historic focus on the hospitality sector and a portfolio that includes high-profile hotel brands, Seven Tides is a staunch advocate of the hotel apartment investment model and its potential for return on investment (ROI).
For many investors with the requisite capital, gone are the days of securing a trophy asset to boost their portfolio profile; today it's all about identifying those high yield opportunities where a sound return on investment with a long-term play are an asset in their own right.
And if Dubai's tourism sector growth forecast is anything to go by, high-end hotel apartments will win out over conventional property with inbound visitor numbers to the emirate set to increase to 20 million by 2020 as Dubai looks to achieve a Compound Annual Growth Rate (CAGR) of 7-9 per cent in both leisure and business visitors in the next few years.
But what if there's another downturn in the market? This is a question I'm often asked and it's definitely something that all investors should be aware of and prepared for — assuming they've done their homework. Even in a negative market situation, as a high yield option the hotel apartment sector can buck the trend, especially if tourism inflow continues apace.
Additional numbers to support my argument include these: some 13.2 million tourists visited Dubai last year, which, according to Dubai's Department of Tourism and Commerce Marketing (DTCM), was a year-on year increase of 8.2 per cent. This is significantly higher than the global average of just 4.7 per cent.
Another positive factor is Dubai's hosting of Expo 2020 followed by the country's golden jubilee year of celebration, which has prompted huge investment into leisure and tourism infrastructure. Last year the emirate had 88,000 available rooms and that is set to grow between 140,000 to 160,000 by 2020 as it follows through on its grand plan to become the world's top-rated family tourism destination.
More families equal increased demand for apartment-style accommodation in all categories, and with the average length of stay rising to 3.9 days last year, and an increase in guest room nights from 41.58 million in 2013 to 44.66 million in 2014, strong demand and high yields are fairly assured.
Dubai's appeal as a year round destination also takes it out of a high-low season seesaw equation to one where an investment property could be occupied for a significant percentage of the year.
However, with predicted over-supply and reduced revenue opportunity in the hospitality sector a future possibility, it is important that investors think carefully about any prospective hotel apartment investment.
We are extremely selective when it comes to choosing hotel partners, and our decision to work with renowned brands delivers not only a hallmark of service excellence but has additional investor benefits.
Ownership of a hotel apartment product brings with it the security of knowing that your investment is being managed on a daily basis by a reputed hotel chain from the availability and bookings process to asset maintenance and actual 24/7 property security.
Seven Tides also offers potential buyers the opportunity to enter into its residences hotel scheme, which gives the owner access to their own property for four weeks a year, with the remaining weeks let and managed by the resort.
With zero mortgage facility for off-plan projects and a rise in the number of sellers looking to offload their investment, hotel apartments can be an extremely attractive proposition for investors for whom a guaranteed ROI is a prerequisite.
Last year, in conjunction with real estate experts Asteco, we undertook market research to evaluate and compare the ROI between a conventional buy-to-let investment on the Palm Jumeirah and the Anantara buy-to let management programme.
Our research showed that a hotel room (or residence with access to five star hotel resort facilities) could generate as much as Dh190,200, almost double the Dh100,000 annual rent of a Shoreline apartment.
The figures may have changed a bit since then, but the percentages haven't, and investors can still realize more than 8 per cent return on investment, not to mention the capital appreciation.
And we're looking to prove the model right again with the DUKES Oceana, Dubai residences. We are guaranteeing ROI of 10 per cent net per annum for the first five years — a very healthy investment indeed.
Dubai is a global gateway with an enviable reputation both from a business and leisure perspective, and with our product offerings we find that international high-net-worth individuals are attracted by the combination of location appeal and investment potential, which is where Palm Jumeirah, especially, ticks all the right boxes.
Source: Abdulla Bin Sulayem, Special to Property Weekly
The author is CEO of Seven Tides