Are branded residences a good investment?

Are branded residences a good investment?

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Luxury branded developments come with intrinsic value built into the proposition. Extensive amenities, attentive service and lifestyle benefits and the backing of internationally recognised hospitality brands.  

With the sector now booming, international high-net worth buyers also seek security in buying a branded product in unfamiliar markets.

Buyers of branded real estate can expect to pay a premium of around 31% versus non branded developments, but the good news is that data shows that branded residences also appreciate to a larger extent. Indeed looking at Four Seasons properties around the world with a residential component, there are regular transactions suggesting appreciation of 20% to 25%.

The limited supply of branded residences also serves to protect prices. Add to that continued investment from the brand into the scheme and there is long-lasting appeal for buyers.

Andaz Residences Grace Bay Turks and Caicos

There may also be greater ease for owners to rent out there apartments in hotel-branded residences given the brand recognition and also the fact that many of them will have their own rental pools or programmes already set up along with an existing pool of potential clients with an affinity for the brand.

Indeed many schemes offer in-built and guaranteed rental yields depending on various factors, including when the property was purchased and how much it is used per year.

The Residences at The West Hollywood Edition

In some instances brands offer rental management agreements where the branded residence acts mainly as an investment product, with the owner having limited use of 4 to 12 weeks per year. 

Owners of branded residences sometimes also gain access to an operators loyalty programme, which delivers further discounts and benefits.  

Most operators, in an effort to maintain transparency and good relations with owners, will publish monthly or quarterly reports regarding the operation of the residences in terms of revenue income and expenses. 

Given most operators report approximately 70% to 90% of owners take up the rental pool option, this approach appears prudent. For those owners who don’t wish to participate in rental operations, this level of openness still provides comfort in regards to the ongoing maintenance of the overall asset.

Given the in-built value drivers and long term price protection, it would seem branded residences are a safe bet.

Top 5 benefits of buying branded real estate

Value Proposition

Luxury branded developments come with intrinsic value built into the proposition. Extensive amenities, attentive service and lifestyle benefits and the backing of internationally recognised hospitality brands.

  • Typically located in prime locations
  • Cutting-edge interior design, technology and architecture
  • Trust and credibility in development delivery and quality
  • ‘Trophy’ status and stronger resale values
  • Higher rental income with professional operator management
  • Hassle-free ownership
  • Concierge services
  • Owner benefits, e.g. residents’ discount card, access to the operator’s properties in other locations

Services and Experiences

Increasingly operators are looking at the experiences on offer, as well as the services, as a way of tempting buyers.

  • Use of hotel amenities
  • Round-the-clock security built-in
  • Elevated status on hotel loyalty schemes
  • The full range of concierge services
  • Spa and salon services
  • Housekeeping
  • In-residence dining and catering
  • Personal shopping
  • Childcare services
  • Pet care

Price Premiums

The ultra-luxury condominium market is performing strongly, with the hotel brands attached to projects acting as a guarantee for high levels of service, quality and ongoing management and oversight, which adds a lot of value for buyers.

It is precisely these value-adds that contribute to the price premium seen in the market, generally in the region of 30-40% over comparable developments, but which also add to the strong resale values available.

Price premiums are certainly location driven between different global destinations and also within particular locations within cities. In many cases branded residence do not adhere to localised comparables and in many cases ‘re-set’ the market.

Rental Yields

There may also be greater ease for owners to rent out their apartments in hotel-branded residences given the brand recognition and also the fact that many of them will have their own rental pools or programmes already set up along with an existing pool of potential clients with an affinity for the brand.

Indeed many schemes offer in-built and guaranteed rental yields depending on various factors, including when the property was purchased and how much it is used per year. Target returns typically range from 3-5% net yield (6-9% gross). Some new projects are offering guaranteed yields of up to 5% over 5 years.

Location

The latest data shows that most global branded residences are in city locations, which remains the preferred approach due to higher occupancy and stronger returns. However the scarcity, high costs and challenges of securing prime urban land and buildings has seen resort-located branded residences increase their market share.

Regardless of location, branded real estate will almost certainly be located in prime and super-prime areas, another factor which helps retain value and protect re-sale values.

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