Dubai real estate firm SKAI Holdings is offering deed ownership on hotel rooms at its new $1bn hotel and resort project on the Palm Jumeirah, becoming the first developer in the emirate to offer such a scheme.
Last month, SKAI began construction on the Viceroy Palm Jumeirah complex, which will be located on the trunk of the manmade island and will include 481 rooms and suites, 221 residences and six villas.
As part of its the sales strategy for the project, SKAI is offering hotel rooms for sale, priced from AED1.65m to AED1.8m, with 20 percent paid upfront and the remaining 80 percent on completion of the project in late 2016.
While the concept is has been offered by developers in many western cities such as London and New York, this is the first time investors in the UAE have been given the chance to own deeds to a hotel room and avail of a monthly yield in return.
“We have sold this residential component, three villas, all the townhouses and now the hotel rooms. It is the first time purchasers and investors can buy hotel rooms [in Dubai],” said SKAI Holdings CEO Kabir Mulchandani.
“The yield per square foot (sq ft) for hotel rooms is much higher than commercial, residential or retail,” he claimed. “Between a hotel apartment and hotel room on a per sq ft basis, I will give you some numbers: 500 sq ft hotel room in a particular project goes for AED1,800 ($490) a night, so about AED3.6 per sq ft per night
“A 1,100 sq ft apartment in the same project goes for AED1,100 ($299) a night, as it is a longer term lease. So that is AED1 per sq ft. So that is a three and half times kicker on the yield. The finish between a hotel room and a hotel apartment is the same and the cost of building it is the same.
Mulchandani said the difference between the SKAI proposal and other similar schemes was the fact all the rooms are put into a joint rental pool, meaning the rooms owned by the hotel owners and the operator aren’t sold first and the investors left until last, as has been the complaint in some similar setups abroad.
“This is the fairest pool as the units we have held and the units Viceroy owns and the investor units are all put in the same pool so there is no segregation,” says Aloki Batra, a financial analyst at SKAI.
“What happens is most of the time is the hotel and operators’ units get sold first, but our units get sold in the same pool. Therefore, it is a revenue share, not a profit share. We are giving 40 percent [of revenue] straight off to the investors. This is paid out monthly, so [for example] as we’ve just finished May the investors on June 20 would get a statement and payment.”
“People want title deed, it is not fractional ownership and this is not a timeshare. You own the real estate, you own it and you lease it back to us,” he explains.
SKAI said investors’ annual rate of return on the hotel rooms was estimated to be around 12 to 14 percent, in line with current market conditions. Batra said about half of the hotel rooms had so far been sold.
According to the latest HotStats figures released by TRI Hospitality Consulting ME, Dubai’s hotel sector maintained comparable levels to last year, with slightly lower performance levels. Revenue per available room (RevPAR) fell by 1.9 percent to $321.75.
However year-to-date performance levels remained strong with RevPAR growing 7.2 percent to $325.40, driven by a growth in occupancy and average room rate by 2.7 and four percent respectively.
Managing director Peter Goddard said: “Although the performance of hotel in Dubai was slightly lower in April, the Emirate continues to outperform 2012 with average occupancy reaching 88.2 percent for the first four months of the year.”