Why Asians are Buying Australian Hotel Properties — and How You Can Get In on the Action

International commercial real estate firm CBRE has released an interesting new report. According to their Asia Pacific Hotels MarketView, Australian hotel properties are hot right now.

In the first half of 2015, more than $2.5 billion worth of hotel transactions were completed. That’s the second largest hotel property market in the Asia Pacific region. Only Japan is hotter in terms of number of transactions. And Hong Kong narrowly wins out for total transaction value.

Thanks to the low Australian dollar, a lot of interest is coming from overseas. Specifically, buyers from across Asia. It’s a different form of the same thing we’ve seen with foreign investment in housing. Asian buyers are more likely to already have connections with Australia, having visited, studied or worked here. With relation to hotels, they may be super aware of how Aussie tourism is ramping up. After all, most of the growth in visitor numbers is coming from Asian countries.

Wayne Bunz is the senior director of CBRE Hotels. He explained what foreign hotel buyers are looking for. ‘Foreign investors continue to inject capital into Australia’s hotel market, seeking out quality assets in major locations such as Melbourne and Sydney, as well as other capital cities that offer attractive and less-competitive opportunities,’ said Mr Bunz.

The largest transaction undertaken in the first half was the purchase of the Hilton in Sydney. The upmarket hotel sits in a prime spot on George Street in the CBD, in between Park Street and Market Street. Bright Ruby Resources, which is actually based in Singapore (not China as CBRE noted) paid $442 million for the hotel. In Melbourne, China’s Third Fan bought the Pensione Hotel for $26 million. Personally, that doesn’t sound like much for a 114-room hotel in a prime spot on Spencer Street. But not understanding that is probably (part of) why I’m not a hotel tycoon.

CBRE Hotels executive director Robert McIntosh says Asian demand for Australian hotels will only grow from here. ‘Strong operational trading will continue to be underpinned by the continued economic growth of almost 3% per annum on average, the economic transition from mining investment to export production, the weaker Australian dollar, the increase surge of Chinese tourists and the dominant domestic tourists,’ said Mr McIntosh.

Tourism rises, supporting higher yields and prices

He’s right about the Chinese tourists. July figures from the ABS show that the number of visitors from China is increasing exponentially.

Short term visitor arrivals China trend line
Data source: ABS
[Click to enlarge]

This trend is only likely to get stronger as the Aussie dollar falls. You can also see a more direct impact from the dollar falling against the greenback. Namely, we’re getting more tourists from the US. If you look close at the chart above, you’ll see the US is our third biggest source of tourists after the UK and China, not counting New Zealand. Just a few years ago, visa requirements for US citizens changed. Now, they’re allowed to apply for working holidays here.

The dollar has also helped boost domestic tourism. Instead of stretching to afford a low-budget holiday overseas, Aussies are treating themselves with more luxurious domestic getaways. Tourism Research Australia released new stats yesterday. They showed a 5% increase in overnight trips (more than just a day trip — not necessarily a single night). Total visitor nights rose 6% to 313,383. That’s hundreds of thousands of Aussies needing a hotel room for the night. Total expenditure also rose by 4%, to $55.4 billion.

New South Wales and Victoria still lead the pack for nights and expenditure. But other states saw strong gains over the past year. For example, visitor nights in the Northern Territory are up 42%. Expenditure in Western Australia is up 7%. Expenditure in Tasmania is up 17%.

If you’re interested in the stats, you can read more here. But two things are clear. Australian destinations will need more hotels for the number of visitors staying overnight (or nights). But we also need more luxury hotels, specifically. In March, tourism minister Andrew Robb said conservative projections put the total hotel shortfall at 80, to the year 2020. And to promote Australia as a ‘premium’ destination, branding wise, many of them need to be five or six star hotels. ‘Sixteen five-star hotels a year has never happened before and it’s a huge issue, and a real dilemma but a wonderful challenge,’ said Minister Robb.

How you can get in on the action

You may not have a spare $20-30 million lying around to buy a hotel. But there’s good news. You don’t need to buy a whole property to gain exposure to the market. You can scale your investment, adding hotel properties to your portfolio a different way.

The answer is listed property companies with hotel holdings. Or with hotel projects in their pipelines.

Money Morning publisher Kris Sayce reveals all in his report, ‘Three Best Investments in Australia for 2015 and Beyond’. In this report, Kris explains why buying REITs, developers and other property-related plays could be right for your portfolio. He even suggests a few stocks that he believes are worthy of your attention.

In Australia, you’ve got a variety of different options. Some are diversified developers, or asset managers who lease back to hotel business operators. Some are entertainment and hospitality companies. A couple are owner operators, owning the properties themselves as well as running the hotels. For example, there’s Crown Resorts [ASX:CWN]. Crown wholly owns and operates the Crown Melbourne Entertainment Complex, as well as Crown Perth. Or Echo Entertainment [ASX:EGP], which owns and runs The Start in Sydney, amongst other properties. Echo is currently spending $345 million to refurbish and expand Jupiters Hotel & Casino on the Gold Coast. Its share price has risen by over 50% in the past year.

It will be interesting to see whether the tourism industry can continue to grow soundly. Most Aussies have a stake, either directly via their jobs and businesses, or indirectly via their investments. And besides, tourism is touted as a top priority industry for Australia’s transformation to a service based economy. While you wait to see how macro events influence tourism investment, prepare yourself to get ahead of the action. Find out how to download your free copy of ‘Three Best Investments’ here.

Eva Mellors
Contributor, Money Morning

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