Singapore and Australia are two of the most coveted Asia Pacific locations for hotel investors, based on a recent survey conducted by HSR Hospitality, a unit of HSR Property Consultants, a leading real estate consultancy based in Singapore.
The study evaluated transactions over a 5-year period and analysis of more than 50 regional hospitality investors (institutional funds, REITs, private equity and high net worth investors) in over 120 transactions, taking account of investors purchasing properties outside their country of origin.
Other countries making the top 10 list include China, Japan, Thailand, Indonesia, New Zealand, India, South Korea and Maldives (in order from favourable to least).
Singapore is ranked behind Australia, not because it was less favorable but due to 'price barriers' of entry. According to Donald Han, Special Adviser at HSR Property Consultants, "Singapore hotel market saw a 38% jump in capital values in the last 3 years making it difficult for foreign investors to get a piece of the action due to rising price expectations. Nobody was selling and yet everything can be for sale but at a hefty premium. Asking and bid price gap can typically be as wide as 30% versus in other parts of Asia of between 5 to 15%.”
Foreign investors have recently been active in Singapore purchasing Raffles Hotel, Park Regis, Crowne Plaza and most recently the Hotel Grand Pacific was sold to an Asian consortium. The 1,051-room Mandarin Orchard Hotel and its adjacent mall, Mandarin Gallery, received an expression of interest in September from a party believed to be of Middle Eastern origin.
"Australia provides Asian investors with higher yield ammunition in excess of 7% pa, one of the highest in Asia Pacific. The country has a transparent regulatory framework, freehold land tenure within a well-established legal Torrens system and low pipeline supply, unlike the inadvertent huge supply seen in markets like China and Thailand due to speculative Asian construction boom,” said Han.
A good geographic investment mix is to have hotel portfolios in Singapore and Australia - two of Asia Pacific's strongest markets. "Singapore hotels provide longer term capital growth supported by strong external demand from record tourist arrivals but occupancy and room rates are vulnerable in the event of a regional calamity or economic crisis. Accelerated supply of rooms in the next few years created by continued sale of government land sites for building hotels and other hotel developments may put pressure on room occupancy and rates if there is no increase in room demand. Generally, Australia provides higher yield play and stability, dominated by strong domestic demand and tight room supply, for example Sydney, Perth and Melbourne," said Michael Kum, Chairman of M&L Hospitality who own hotel properties in Singapore, Australia, Japan and New Zealand.
Singapore Stock Exchange’s debutant, Far East Hospitality Trust whose assets are all based in Singapore, is looking to double its portfolio between now and 2017, as it aims to expand its footprint across South-East Asia as well as Australia. But while countries such as Vietnam and Myanmar offer opportunity, they also come with added risks and Australia is deemed as a low-risk market, will help balance out its portfolio.
"In Australia, the hospitality yields are quite good," Chief Executive Arthur Kiong said in a recent Singapore media briefing, adding that, “yields can be in the range of 8 to 10 per cent.”
Asia Pacific hospitality investors who have been active prowling in Australia include Singapore-based Ascendas (Ascendas Hospitality Trust), CDL Hospitality Trust, UOL/Parkroyal Group and M&L Hospitality, Langham Group of Hong Kong, Rajawali Group of Indonesia, TCC Group from Thailand and Malaysian based TA Group & Starhill REIT.