INCREASING tourism numbers attracted to the South West has not made life for many tourism operators any easier with some battling to survive.
INCREASING tourism numbers attracted to the South West has not made life for many tourism operators any easier with some battling to survive.
More than 6,000 beds are planned for the South West over the next eighteen months – most as strata title developments.
What concerns some existing operators is the effect such development will have on occupancy rates and the resultant value of their properties.
Already occupancy rates in the cape to cape region have dropped from about 70 per cent a year to 50 per cent.
Strata title tourism development has only emerged as a force in the past few years.
The real test will come when the guaranteed returns attached to these developments expires and the value is representative of current occupancy rates only.
According to some, strata title prices could drop substantially.
WA Tourism Commission Southern Area Manger Mark Exeter said despite this there was still gaps in the market place for some forms of accommodation.
For example the Pemberton area has a shortage of motel accommodation capable of handling coaches.
There also is a need for meeting facilities in Margaret River, Mr Exeter said.
But the influx of strata-titled developments in general is causing some to issue warnings to unsuspecting investors.
Hegney Property Valuations managing director Gavin Hegney says people buying a property with a guaranteed rental return could be paying as much as 10 per cent above the true market value.
This was because a proportion of the rental payments is incorporated into the price of the property.
“The true rental price for the property will be tested when the guaranteed rental period ends,” Mr Hegney said.
“If the property is poorly managed, then the owner may find it hard to sustain the level of rents ...achieved during the guaranteed rental period.
“Unfortunately, many people investing in property are blinded by the attraction of a guaranteed rental return.
“The reality is that they can be paying a premium price for this guaranteed rental return.
“On a property valued at $200,000 they could be paying $220,000,” He said.
“This means the buyer is paying a premium price for this guaranteed rental return.”
Mr Hegney said the way it worked was quite simple.
“The operator of the property guarantees a return to the purchaser usually at 5 per cent to 7 per cent,” he said.
“The operator will let the property on a daily or weekly basis to gain higher tariffs which allows them to pay the rental and hopefully yield a profit.
“It usually takes two to three years for the operator to break even and their loss over this period is included in the purchase price.
“We have already seen some developers reduce the actual rental returns to investors below their expected level as the supply of rental stocks available swells.
“The supply will further increase as the pre-GST buildings are completed in the coming months putting a further pressure on rental returns,” he said.
Mr Exeter believes if the resort is well designed and has strong mechanisms in place there should be no problems.
The important thing for potential investors is to do your homework as to what the occupancy rates are in the area and what management structure is in place, he said.
“Strata title investments still represent a good opportunity,” Mr Exeter said.
More than 6,000 beds are planned for the South West over the next eighteen months – most as strata title developments.
What concerns some existing operators is the effect such development will have on occupancy rates and the resultant value of their properties.
Already occupancy rates in the cape to cape region have dropped from about 70 per cent a year to 50 per cent.
Strata title tourism development has only emerged as a force in the past few years.
The real test will come when the guaranteed returns attached to these developments expires and the value is representative of current occupancy rates only.
According to some, strata title prices could drop substantially.
WA Tourism Commission Southern Area Manger Mark Exeter said despite this there was still gaps in the market place for some forms of accommodation.
For example the Pemberton area has a shortage of motel accommodation capable of handling coaches.
There also is a need for meeting facilities in Margaret River, Mr Exeter said.
But the influx of strata-titled developments in general is causing some to issue warnings to unsuspecting investors.
Hegney Property Valuations managing director Gavin Hegney says people buying a property with a guaranteed rental return could be paying as much as 10 per cent above the true market value.
This was because a proportion of the rental payments is incorporated into the price of the property.
“The true rental price for the property will be tested when the guaranteed rental period ends,” Mr Hegney said.
“If the property is poorly managed, then the owner may find it hard to sustain the level of rents ...achieved during the guaranteed rental period.
“Unfortunately, many people investing in property are blinded by the attraction of a guaranteed rental return.
“The reality is that they can be paying a premium price for this guaranteed rental return.
“On a property valued at $200,000 they could be paying $220,000,” He said.
“This means the buyer is paying a premium price for this guaranteed rental return.”
Mr Hegney said the way it worked was quite simple.
“The operator of the property guarantees a return to the purchaser usually at 5 per cent to 7 per cent,” he said.
“The operator will let the property on a daily or weekly basis to gain higher tariffs which allows them to pay the rental and hopefully yield a profit.
“It usually takes two to three years for the operator to break even and their loss over this period is included in the purchase price.
“We have already seen some developers reduce the actual rental returns to investors below their expected level as the supply of rental stocks available swells.
“The supply will further increase as the pre-GST buildings are completed in the coming months putting a further pressure on rental returns,” he said.
Mr Exeter believes if the resort is well designed and has strong mechanisms in place there should be no problems.
The important thing for potential investors is to do your homework as to what the occupancy rates are in the area and what management structure is in place, he said.
“Strata title investments still represent a good opportunity,” Mr Exeter said.
