Aparthotels – A growing trend amongst SA investors

Aparthotels have become an important part of the property industry.What is this trend all about?

South Africa’s property sector is a healthy and diverse mix of three major property types which account for most of the real estate ownership transfers. These are:

Vacant Land

Vacant land is an option which is mostly available away from cosmopolitan areas. As land prices and values have increased, it takes good amounts of money to secure land. The listing and transaction process is significantly simpler and there are no structural inspections, floor plans, or insurance issues to address.

Residential Property

Residential property is by far the most popular with both new and experienced properties being part of the mix. These include new and old separate homes, townhouses, flats, etc.

Commercial Property

Commercial property can be empty land zoned for commercial use or an existing business building. This includes office buildings, supermarkets, shopping malls, industrial buildings, gas stations and other commercial property types.

Arising out of this fast expanding property landscape and product offering in South Africa is the concept of Aparthotels.

Rise of Aparthotels

A report conducted by The Apartment Service indicates a global increase in aparthotels since 2008. In Africa alone, there was an increase of 89% in aparthotels over the 2015/16 period. While North America still holds the largest share of the world’s aparthotel locations, this same report shows a growth rate of 34% for Africa – the second fastest growth after Europe at 42%. The 2020 report estimates that worldwide serviced apartment supply has increased by 14.75% since 2018, rising to 1,254,743 including corporate housing units.

What is an Aparthotel?

An apartment hotel (also known as residential hotel, or extended-stay hotel) is a serviced apartment complex that uses a hotel-style booking system. It is similar to renting an apartment, but with no fixed contracts and occupants can “check out” whenever they wish.

An apartment hotel complex usually offers a fully furnished apartment. These complexes are usually custom built and similar to a hotel complex containing a varied number of apartments. The length of stay in these apartment hotels is varied with anywhere from a few days, to months and even years.

The people who stay in apartment hotels use them as long-term accommodation; therefore, the hotels are often fitted with most things the average home would require. An apartment hotel provides one or more of the following services: housekeeping, telephone, desk, furnishing, laundry service, etc.

In short, these are self-catering units typically linked to a hotel offering and often referred to as “aparthotels”.

Why should one invest in an Aparthotel ?

For investors, this presents an opportunity for profitable conversions into other real-estate assets.

Advantages of investing into aparthotel rooms

• An attractive fixed rate of return, usually guaranteed.

• The investor has no risks pertaining to the management of the hotel including maintenance.

• Apart-hotel rooms earn steady returns and offer the same security of ownership of traditional property.

• In some cases, hotel rooms can also be reserved for personal use: many investors and management companies agree on a timeframe during which the investor can enjoy his purchase.

• Apart-hotel rooms are a profitable and alternative option for investors looking to diversify their portfolio.

• Aparthotels represent a quick, more risk-averse exit strategy than conventional hotels, as they can easily be sold off on a sectional-title basis as micro apartments or co-living apartments.

What to consider when investing in aparthotels

• Like any property, location, price and what the market is looking for is the first rule of due diligence.

• Check exactly how long the lease runs for, and the terms of the lease.

• Investors should be considering buildings with high quality facilities in prime central locations, with easy access to transport links and the area’s attractions and amenities.

• Investors should also review the return and determine if the advertised is a NET return, and whether it includes service costs and maintenance.

• If you are buying into apart-hotels offshore, make sure you know the market and seek professional advice from those that do. As with any offshore investment, you will need to do extra research.

Next time you think of property and investment, let aparthotel be part of the conversation.

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