Hotel investment... advisable or not?

Not sure whether my post will be tolerated here... I am curious to know what people feel about investing in a project that'sd been conceived, set up and will be managed by a hotel.

It seems to be a copy of a concept apparently popular in some western countries (but I am none too familiar with it).


It goes something like this:

A group of business types have formed an association with the aim of setting up a hotel complex in a very touristy locale.

They have obtained land-lease rights from the local government.

The project calls for the erection of several buildings 2 to 5 storeys high, forming a separate quarter that will be a main attraction for tourists, with shops on the gbround floors, cafes, bars and restaurants on the first floor, and guest rooms on the upper floors of those buildings that have 3 or more floors.


Investors are sought for the purpose of injecting RMB 100'000 per hotel room.


At this stage I don't know how much these rooms will cost the developer (the association of businessmen).

They promise an annual return on investment (but not specified in figures or percentages). Management will be answerable to investors, with the option of dismissing any manager who is found to be wanting in his zeal or diligence.

The property rights are as follows: The hotel owns the facilities but you are allowed to live in "your" guestroom for a limited number of nights every year, free of charge; thgis in addition to your ROI.

After ten years, the rooms fall into the possession of the hotel, who will repay you the investment amount (the principal).

The offer sounds pretty attractive but I wish to read from more experienced forumites. I am wary of investments in general; if the management of this hotel goes bankrupt for one reason or another I stand to lose my investment, of course (although they say the bank will guarantee the investors' injections).

I also don't know whether my investment would sort of cross-subsidise the shops and other facilities; shops and restauration facilities seem to make up around 50% of the combined building volume, so if they cannot let shops or bars to takers (because the rentals are too high) then that would naturally increase my risk.


What other considerations would I have to make?

We will leave this up but please dont push this in the direction of soliciting further investment for this project. Thanks

I am not soliciting for investment money. THanks to posters who have given me feedback.

This kind of investment is available in Canada. Basically you buy a share (ie an apartment or hotel room or suite) and use it when you want (perhaps within some restrictions) and also get ROI or income from a rental pool minus the management fee. I haven't heard that after X years you must sell it back though.


In Canada the details are laid out in a prospectus and the contract. Also, Canadian laws protect investors more than one would expect if entering into your particular investment.


Try googling "investment properties" or "recreational investment" or "fractional ownership" and you might get some more information.

Thank you, Aemom, for your most helpful hints.

The property in question is going to be constructed in the Mainland; what I am interested in is whether there are any comparable ventures in, say, Macau or Hong Kong - to glean information on how those investors have fared.

"Trust the company"?

I never "trust" any business; I expect to be asked to sign a host of agreements and contracts. Do they hold water?

THerein is the dilemma... Some contracts may be worthless. In the above case, it interests me to know of any parallel cases and whether these investment cases ever presented the investors with any unforeseen adversities.

It is to be noted that the Mainland has adopted as per 1st of October a new piece of legislation that formally puts private ownership under the same protective umbrella as State-owned properties. Freehold leases hitherto limited to 70 years can be "automatically" renewed.

Aemom's hint led me to visit some websites that dealt with time-sharing/fractionalised ownerships. These seem to be popular in Canada, the U.S> of A. and in South Africa. You actually buy a lifetime holiday hotel room for a limited time every year.

In China, peolple invest in residential property. The above is not an estate with villas and blocks of flats; it's a hotel and business district. In the West you get little ROI as the leisu7re factor seems to be the main reason for investment; in China it's a sort of long-term investment with a view of reaping big profits.

THanks, Saikunga, for yhour pertinent observation.

I have just had an interview with them. Here are a few more details: First, I was in error in saying that the contract is for ten years; they sign it for twenty years.


They also promise you an interest rate (ROI) of 7 percent.


No bank is involved in the whole deal.


BUt there are many ponderables and imponderables... The exact ratio of commercial premises on levels one and two to the number of hotel guestrooms has not been decided yet. The commercial premises go for 20'000 yuan per square meter, which is a bit steep; hotel rooms are available for a fraction of this but that too is still a bit high. Well considering the current market forces...I shouldn't quibble.


The project seems to boil down to a developer recruiting private investors in lieu of a bank; why not a bank? I suppose the interest payable to banks would be too high, comparatively. And the concept of this venture is too new for the banks to evaulate its merits.

From what I gleaned online, fractionalised properties are holiday residences where you take turns holidaying. In this case, you can take your holiday in the hotel - but you are the only "fractional owner" of it while the hotel manages it.


I wonder what will happen in twentyh years' time: The property becoming my sole property, I will have to pay the hotel an exorbitant management fee.


I suppose. Or resell it - if I find a taker.