◆ Profitable real estate discussion / ① Sales-type hotel ◆
As the number of Jeju sales-type hotel operators increases, the number of businesses experiencing setbacks in the sales process is also increasing. The photo is a panoramic view of the hotel business site near Seogwipo, Jeju Island. Since construction could not begin after grading the land, only construction information signs are left lying around.Due to low interest rates, the profitable real estate market is now in its heyday. As investment sentiment in anticipation of rental income as well as capital gains increases, funds are flowing into the market. The problem is investment, no questions asked. We will analyze the brightness and darkness of profitable real estate three times, dividing them into △sale-type hotels, △officetels, and △new city shopping malls.
The Ramada Encore Hotel in Seogwipo, Jeju Island, which officially opened in June, is a leading figure in the investment boom in sales-type hotels that has been heating up since two years ago. At the time, it was so popular that the first batch of 100% was sold out in 3 weeks. When I visited the hotel on the 5th, the peak of the summer vacation season, the first floor lobby was crowded with Chinese tourists, young people in their 20s and 30s, and families. However, the daily rate for a standard single room, which was expected to be around 90,000 to 100,000 won, dropped to an average of 60,000 to 70,000 won. This is because the number of Chinese tourists visiting Jeju has stopped in the aftermath of the MERS outbreak.
An industry official said on the 9th that despite the MERS outbreak, it was fortunate that the room occupancy rate was at least this high thanks to an aggressive dumping strategy that lowered room rates by about half and word of mouth through social networking services (SNS).
As a result of Maeil Business Newspaper's investigation into the operational status of Jeju's sale-type hotels, which began sales in 2013 and opened in earnest this year, the light and dark spots were clearly divided. Despite the aftermath of the MERS outbreak, Ramada Encore Jeju Seogwipo Hotel's room occupancy rate exceeded 70%. Vistacay Seogwipo, which began operation on July 1, was also crowded with customers. However, 'The Island Marina Hotel' in Seongsan-eup and 'Days Hotel' in Seogwi-dong, whose projects were halted due to the bankruptcy of the construction company, began to reorganize. In the Jeju Island area, there were many projects that were put up for sale but had to stop construction due to failure.
The problem is with investors who purchased rooms expecting profits of more than 10% every year. At the time of sale, the developer promised to pay investors a confirmed profit of 11% for one year after the start of business. The problem comes after the actual operating profits are paid. Hotel sales are determined by room prices and operating rates, or in other words, supply and demand. This is because concerns over oversupply are growing as investors flock in the wake of low interest rates. The supply of pre-sale hotels in Jeju, which was only 257 rooms in 2011, increased to 2,009 rooms in 2013 and 5,092 rooms in 2014. As of April this year, another 1,257 rooms have been sold, and the cumulative volume in the first half of this year is already approaching 10,000 rooms.
However, sales fever is still hot, especially in Gangnam Station, Yangjae-dong, and Jongno in Seoul.
According to Remax Korea, a building information company, on the 9th, there are 9 hotels for sale in Jeju Island, including the Howard Johnson Hotel in Yeondong, Jeju City and the Kenny Story Hotel in Seogwi-dong, Seogwipo City, with 2,623 rooms. Just near the Yangjae Telephone Station intersection, promotional centers for 'Vista K 3~4', 'Days Hotel Jeju City', 'Golden Tulip Incheon Airport Hotel & Suites', and 'Ramada Jeju Hamdeok 2nd Hotel' are concentrated in a row.
Experts explain that the reason for the surge in sales-type hotels is that liquid funds have become abundant in the market due to the low interest rate trend, and sales-type hotels have emerged as a profitable product that produces golden eggs. Not only are sales-type hotels available in small quantities ranging from 50 to 200 million won, they can be purchased with just a down payment of 10%, and the initial financial burden is low, so they have established themselves as profitable real estate alternatives to new officetels in the past 2-3 years. The revision of the Enforcement Decree of the Public Health Management Act also had an impact on the rapid increase in sales-type hotels.
However, according to the Bank of Korea's Jeju headquarters, the room utilization rate is expected to drop to 63% in 2018 due to the slowdown in the growth rate of tourists in the Jeju region and oversupply. According to the expected rate of return calculated by the Jeju headquarters, the average annual expected rate of return for Jeju pre-sale hotels since 2018 is only 5.1%. It is only half of the confirmed rate of return (10~15%) suggested by the sales-type hotel developer. An official at Jeju A Luxury Hotel said, “Traditional hotels generate a large portion of revenue from auxiliary facilities such as seminar rooms and restaurants, but sales-type hotels often use only rooms to lower prices, and often minimize the size to increase profits.” He said that if the price falls below 50,000 won, the distinction between it and other lodging industries such as guesthouses may disappear.
Developers usually offer a fixed rate of return of 10 to 151 TP3T per year, but you should carefully look at the clauses behind the guarantee contract. Even if it is guaranteed, it is usually limited to one year or less. If the developer goes bankrupt, the problem becomes more complicated.
Unlike apartment sales, sales-type hotels are not guaranteed by Korea Housing Guarantee, and if the developer goes bankrupt, there is no way to get the down payment back other than through litigation. Follow-up management must also be considered.
■ <Terminology>
▷ Sales-type hotel: Instead of investors taking ownership of each room through separate registration like an apartment or officetel, it is operated in a way that professional operators entrust the operation and return the profits. There are many products with an investment of around 200 million won.
[Reporter Shin Soo-hyun / Jeju = Reporter Seung-yoon Lee]
[ⓒ Maeil Business News & mk.co.kr, unauthorized reproduction and redistribution prohibited]
