Thinking about investing in an overseas hotel or student hostel project?

By The Folks @PropTalk - March 30, 2015 No Comments

It was report in The Sunday Times last weekend that about 200 Singaporeans are facing the prospect of losing about $20 million after investing in botched hotel and student hostel projects in Britain.

They had bought units in nine projects by British property developer Key Homes, which became insolvent and was put into administration last year.

Many of the investors are aged 40 and older, with a number using their savings from the CPF to buy these housing projects.

Singaporeans have been buying Key Home projects as early as 2011. In total, they bought more than 300 units costing around £39,500 to £60,000 each ($89,000 to $122,000).

In return, they were assured of getting annual rent of around 5 to 8% of the property's cost.

Among the affected group are several people who have invested more than $400,000 each in the investment, buying up several units in the project. The reasons given for investing include affordable prices ("For the same amount of money, I probably can just get one property in Singapore") and hassle-free rental arrangement ("I was attracted because I didn't have to bother about getting tenants as the British property management firm would handle it").

The wife and I had the "misfortune" of buying into an overseas hotel development when we first started investing in foreign properties some years ago. The developer went bust one year after we had put in the investment. Luckily for us, the money was held in trust with the developer's lawyer so not only did we get back the full sum, we actually made a small profit on the foreign exchange difference. But that little episode made us decide to "invest in hotel project no more".

And as far as student accommodation is concern, this is one type of property investment that we will not consider. The reasons being:

1. For student accommodation, you cannot (legally) rent the apartment out to anyone else other than (yes guessed it) students. This limits the rental pool that you are able to get with this type of housing.

2. We have heard horror stories (and from quite a few sources) of how the apartment are "thrashed" by the occupants after the one- or two-year lease period. Although the repair can be offset by the rental deposits, it may be a challenge going after the tenant for any shortfalls. And there is also the hassle of coordinating repairs/refurbishment from overseas.

3. These projects are more often than not undertaken by lesser-known developers, which do not exude the same level of confidence with us. 

So even though the investment quantum is much smaller than your typical run-of-the-mill residential projects, the corresponding risks are (in our opinion anyway) much higher...

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