Sectional Title Hotels explained
Explaining the differences between sectional title and fractional ownership
Sectional title hotel suites or Condominiums as they are commonly known in the USA are a convenient way for people and businesses to own, and use serviced hotel rooms, suites and lodges for a defined period each year.
Sectional title hotel shares are typically purchased as a personal or corporate investment, which can be utilised each year for use, together with expected capital returns. Although sectional title hotels, Private residence clubs and Fractional ownership appear to be the same thing – there are some distinct differences between them.
Sectional title ownership is outright ownership of a particular suite or room in the hotel, with each owner holding a title. Sectional titles shares can be purchased with finance obtained through the major lending institutions.
Fractional ownership and Private residence clubs is shared ownership of one or more properties, with multiple or fractional shares being issued through a company entity. The entity owns in-turn owns the asset (properties) outright, with individual shareholders becoming directors of the entity.
At the time of writing this, the major South African lending institutions do not offer finance packages to the public purchase fractional ownership interests.
Usage & Rooms revenue agreement explained
The Sectional title owners enter into an agreement directly with the hotel owner and operator. This agreement is commonly known as a Rooms revenue agreement. These agreements will include usage of the hotel rooms or suites for a defined period each year.
The hotel operator then exercises the right to lease out the remaining time available in the rooms and suites, and the profits (after operating fees) are then pooled and distributed amongst the sectional title owners within the hotel.
Some hotels and resorts offer a guaranteed fixed annual income return from the hotel lease pool, this is generally for a limited period only, however the returns are regardless of the actual income or occupancy received by the hotel during this period. This provides the owners with the comfort of knowing exactly how much they will receive from their investment each year.
Although fractionals and private club memberships are commonly bought as an alternative to 100% of a holiday home, Fractionals are viewed as a long term ‘shared’ ownership / investment of luxury real estate.
The commonalities are the shared usage of common property, however with sectional title hotels offering managed pooling of leasing income.
Why Sectional title hotel ownership?
Owning shares in a sectional title suite, penthouse or room offers a convenient and alternative form of managed leisure property ownership, Owners simply ‘check in’ to their room or suite and enjoy their stay from the moment they arrive, exactly the same they would if they would be if they were checking into a hotel.
Some of schemes offer flexible local and global exchange options, whereby owners can swop or exchange their allocated time into other affiliated hotels, resorts and destinations around the world whether travelling on holidaying or business.
If you consider how much money you and your family spend on renting holiday accommodation over a 10 year period, Sectional title hotel ownership can be a flexible and cost effective way of staying in a host of hotels and resorts around the world over the same period.
Shared ownership of hotels suites in South Africa
South Africa offers investors world class hotels and resorts to invest in. Sectional title hotels are becoming very popular in Century City in Cape Town, Sandton, Uhmlanga near Durban as well as a host of exclusive golf, country, wine and wildlife estates around the country.