South African Listed Property Funds – The Case For Hotel REITs

Same as last year the South African Property Owners’ Association’s (SAPOA) 51st Convention came and went with great pomp and ceremony as much as could be expected in Cape Town. Judging by some of the media stories that started floating around shortly after the event, it is clear that the South African listed property fund industry is experiencing some rough times, after a very good run for many years. The main reasons for this phenomenon are there for all to see. An economy in recession due to policy uncertainty, a volatile political environment with no immediate prospects for recovery as a result of a depressed global demand for commodities and the volatile Rand (ZAR)- US Dollar exchange rate.

With a persistent climate of reduced positive cash flows and rising expenses in the local environment, it is no wonder funds and asset managers are looking outside our shores to hunt for more optimum returns. Dollar- and Euro-based returns make sense to diversify against the ZAR-based returns, however in my assessment, property funds do not necessarily have to go off-shore to chase after the dollars. Good quality hospitality funds are totally capable of bringing in those dollars. It can reliably be argued that half of the demand for South African hotel accommodation is generated from overseas visitors including Americans, Europeans, Asians and other sources from around the world. Wealthy visitors from some west African countries like Nigeria and Ghana also bring in dollars when they land on our shores, and they also stay in hotels.

Professor Brian Kantor recently sounded a warning to Johannesburg Stock Exchange (JSE) listed property funds to consider very carefully their reasons for investing their funds in foreign markets because the nature of the returns in these markets may not necessarily be superior to those found on the JSE. It is my submission that more hotel funds may offer the required returns.

In the Fin24 article why firms are hoarding R14 trillion the writer points a finger at the listed property sector as having hoarded the most cash. “The surprising thing is that the major cash hoarders, apart from banks, are the rapidly growing listed property investment firms”, said Thando Vilakazi, a senior researcher at the centre. South African listed property funds are investing less in the local market and are using the JSE to source funds which are then used to invest in overseas markets. South Africa needs all the investment it can get and the sooner this happens the better so that business can further help tackle the problems of joblessness, poverty and unemployment.

The usual arguments against investment in hospitality property will need to be reviewed in order for these to be accepted as a viable alternative to put into listed property funds. More and more global chains are entering our markets and with them come operational and management expertise. It is also worth mentioning that the latter bring their client base with them and do not necessarily only rely on the domestic tourism market for hotel accommodation demand.

The graphs below depict the performance of a global Hotel Real Estate watchlist against the Dow Jones, the S&P 500 and the NASDAQ. The watchlist consists of REITs from the United States, Malaysia and a few from Europe and was observed during the period May to August 2017. Over the last three months the watchlist underperformed the Dow, the S&P and the NASDAQ.

3 Month 2017_08_06_13_34_35_Google_Finance_Track_your_portfolio_the_market_for_free

Over a six month window the watchlist was a star performer, clicking in a double-digit growth at just above 10%.

6 Month 2017_08_06_15_12_27_Google_Finance_Track_your_portfolio_the_market_for_free

When compared over a 12-month window, both year-to-date in 2017 and over the last year, the Hotel Real Estate watchlist has done well to narrow the percentage growth differential between itself and the Dow and the S&P 500. Only the NASDAQ outperformed the watchlist over this period.

YTD 2017_08_06_15_17_15_Google_Finance_Track_your_portfolio_the_market_for_free

1y 2017_08_06_15_20_56_Google_Finance_Track_your_portfolio_the_market_for_free.png

It is hoped that the above basic analysis can be sued by the South African investor community, property industry funders and the hotel industry to reconsider their decisions to expand off-shore and to give more hotel REITs on the JSE a chance.

 

 

South Africa: Persisting tough trading conditions affecting tourism 

Jul 20, 2016
PRETORIA, South Africa – The Tourism Business Council of South Africa reports that the persisting tough trading conditions in the South African economy are affecting businesses in the sector and have led to below normal levels of business performance as recorded in the 2016 Quarter 2 Tourism Business Index. However, the Travel and Tourism industry being the resilient sector that it is, both locally and internationally, role players have expressed hope of improved performance going forward.

These are the sentiments highlighted in the latest results of the Tourism Business Index (TBI), published today by the Tourism Business Council of South Africa (TBCSA). The report shows that businesses in the travel and tourism sector were trading under tough conditions in Q2, recording an index score of 78.9, significantly below the score of 100 points, which indicates normal business performance levels. The score is also 7.3 index points below than the 86.2 forecasted for the second quarter of 2016.

Commenting on the outcomes of the report, TBCSA CEO, Ms. Mmatšatši Ramawela, says that the Q2 results is a clear indication that the trading environment is tougher out there hence the results that are even lower than what we were expecting in the sector following on from the impressive results of Q1. It just shows that our recovery as a sector is going to be an even bumpier ride, considering all the added pressure inherent in the broader economy, which will no doubt affect our sector. We still have the after effect of Brexit to contend with, considering that both the EU and the UK are amongst our primary source market for both our business and leisure travellers,” says Ramawela.

Comparing the TBI with other economic indices in South Africa, it is apparent that there is a general trend of low confidence across South Africa’s economic landscape. The Q2 2016 results of the RMB/BER Business Confidence Index fell to a score of 32, which is below the normal confidence levels (a score of 50 indicating normal). On a slightly positive note, the SACCI Business Confidence Index (BCI) showed a slight increase in the quarterly average (from 93.1 to 94.1) in Q2 2016, although the overall trend is still downward from 2015. This being the case, it is going to be critical for role players in the tourism sector to “tighten” their belts and work harder to make South Africa a compelling proposition all around.

Source: eTN Global Travel Industry News 

South African Listed Property Funds – The Case For Hotel REITs

Same as last year the South African Property Owners’ Association’s (SAPOA) 51st Convention came and went with great pomp and ceremony as much as could be expected in Cape Town. Judging by some of the media stories that started floating around shortly after the event, it is clear that the South African listed property fund industry is experiencing some rough times, after a very good run for many years. The main reasons for this phenomenon are there for all to see. An economy in recession due to policy uncertainty, a volatile political environment with no immediate prospects for recovery as a result of a depressed global demand for commodities and the volatile Rand (ZAR)- US Dollar exchange rate.

With a persistent climate of reduced positive cash flows and rising expenses in the local environment, it is no wonder funds and asset managers are looking outside our shores to hunt for more optimum returns. Dollar- and Euro-based returns make sense to diversify against the ZAR-based returns, however in my assessment, property funds do not necessarily have to go off-shore to chase after the dollars. Good quality hospitality funds are totally capable of bringing in those dollars. It can reliably be argued that half of the demand for South African hotel accommodation is generated from overseas visitors including Americans, Europeans, Asians and other sources from around the world. Wealthy visitors from some west African countries like Nigeria and Ghana also bring in dollars when they land on our shores, and they also stay in hotels.

Professor Brian Kantor recently sounded a warning to Johannesburg Stock Exchange (JSE) listed property funds to consider very carefully their reasons for investing their funds in foreign markets because the nature of the returns in these markets may not necessarily be superior to those found on the JSE. It is my submission that more hotel funds may offer the required returns.

In the Fin24 article why firms are hoarding R14 trillion the writer points a finger at the listed property sector as having hoarded the most cash. “The surprising thing is that the major cash hoarders, apart from banks, are the rapidly growing listed property investment firms”, said Thando Vilakazi, a senior researcher at the centre. South African listed property funds are investing less in the local market and are using the JSE to source funds which are then used to invest in overseas markets. South Africa needs all the investment it can get and the sooner this happens the better so that business can further help tackle the problems of joblessness, poverty and unemployment.

The usual arguments against investment in hospitality property will need to be reviewed in order for these to be accepted as a viable alternative to put into listed property funds. More and more global chains are entering our markets and with them come operational and management expertise. It is also worth mentioning that the latter bring their client base with them and do not necessarily only rely on the domestic tourism market for hotel accommodation demand.

The graphs below depict the performance of a global Hotel Real Estate watchlist against the Dow Jones, the S&P 500 and the NASDAQ. The watchlist consists of REITs from the United States, Malaysia and a few from Europe and was observed during the period May to August 2017. Over the last three months the watchlist underperformed the Dow, the S&P and the NASDAQ.

3 Month 2017_08_06_13_34_35_Google_Finance_Track_your_portfolio_the_market_for_free

 

Over a six month window the watchlist was a star performer, clicking in a double-digit growth at just above 10%.

6 Month 2017_08_06_15_12_27_Google_Finance_Track_your_portfolio_the_market_for_free

When compared over a 12-month window, both year-to-date in 2017 and over the last year, the Hotel Real Estate watchlist has done well to narrow the percentage growth differential between itself and the Dow and the S&P 500. Only the NASDAQ outperformed the watchlist over this period.

 

YTD 2017_08_06_15_17_15_Google_Finance_Track_your_portfolio_the_market_for_free

1y 2017_08_06_15_20_56_Google_Finance_Track_your_portfolio_the_market_for_free.png

 

It is hoped that the above basic analysis can be sued by the South African investor community, property industry funders and the hotel industry to reconsider their decisions to expand off-shore and to give more hotel REITs on the JSE a chance.

 

 

In Focus: Ethiopia

This market snapshot is part of a series of articles that HVS produces on key hotel sectors across Africa. Our analysis is based on data sourced from reports and articles from the internet from various writers.

Highlights

  • Ethiopia benefits from a strong economy driven by the agriculture and manufacturing sectors. According to The Daily Maverick, “Over the last decade, Ethiopia has emerged as one of the fastest-growing – perhaps the fastest-growing – economies in Africa. Even though ‘double-digit’ growth has become something of an official mantra, independent appraisals still put it at over ten percent from 2003-13, double the sub-Saharan average. Growth is driven, rather, by a determined government policy of creating the conditions for development, notably through a massive level of infrastructural investment.”
  • Ethiopia’s travel and tourism sector is still in a growth phase, and is largely supported by infrastructure improvements. The number of domestic trips reached 8.1 million, while international trips reached 681,000 in 2013 according to figures from the Ministry of Culture and Tourism (MoCT), the main source countries for which were China, the US, Nigeria, Sudan and Belgium. Over the foreseeable future, the sector is expected to record growth in the volume of inbound and outbound tourists as Ethiopian Airlines establishes new routes, increases flight capacity and launches airfare discounts;
  • Meetings, Conferences, Congresses and market segment statistics showed a sharp increase from 15,721 to 47,516 arrivals from 2008 to 2009. The numbers dropped to 36,145 in 2010 but again rose to 50,531 in 2011. Ethiopia remains a major conference destination, according to the International Congress and Convention Association the country has achieved a global rating of 93rd and African ranking of 11th.
  • The MICE sector in Addis Ababa has potential to grow substantially over the years due to the large diplomatic community and expanding economy. Africa’s global market share in the Meeting industry is only 3.3%, and within this much smaller market, Ethiopia is largely absent according to Managing Director of OZZIE Business & Hospitality Group, Mr Kumneger Teketel;
  • Ethiopia’s primary hotel industry is to be found in Addis Ababa. There the hotels experience occupancies that are in the 80% region, and this is due to the high demand and lagging supply. Addis Ababa hotels have recently been reported to be achieving the highest room rates on the continent;

Hotel Demand Patterns

Politics and Economics

The Ethiopian economy has enjoyed sustainable double digit and broad-based growth. In 2012/13, real GDP grew by 9.7 percent, moderately higher than the previous year. In the first four years of Growth and Transformation Plan I (GTP-I) implementation, the GDP had grown on average by about 10.1 percent per annum. This achievement is slightly lower than 11.2 percent annual average growth rate target set for the entire GTP-I period. It should be noted that according to the reporter Ethiopia.com the Government of Ethiopia is set to unveil the second five-year plan–the Growth and Transformation Plan (GTP II)–which is believed to be more realistic and less ambitious when compared to its predecessor, GTP I. The first GTP, which failed to meet its target in various sectors, ended on July 7 July 2015.

Ethiopia’s economy is based on agriculture, which accounts for about 43% of the gross domestic product (GDP), 90% of foreign currency earnings, and 85% of employment. Generally, the overall economic growth of the country has been highly associated with the performance of the agriculture sector.
The industrial sector, which mainly comprises of small and medium enterprises, accounts for about 12.4% of GDP. Similarly, the service sector comprised of social services, trade, hotels and restaurants, finance, real estate, etc. accounts for about 45% of GDP. A strong fiscal stance, particularly measures taken towards improving tax administration and enforcement, improved the overall fiscal position. The fiscal deficit remains within an acceptable threshold albeit widened from 1.2% of GDP.

Due to the investment-friendly environment created in the country, the inflow of foreign direct investment (FDI) has been increasing over the last twenty-two years. Accordingly, out of the total investment projects licensed between 1992- 2012, FDI’s share is about 16%. The overall trend of investment since 2012, both the total number of projects and capital invested have shown slight increase.

Airport Demand & Border Crossings

International tourism arrival figures as measured at Bole Airport have shown a steady increase in the past decade. According to the Airports Council International the total passenger movements have increased from 1,3 million in 2003 to 8,85 million in 2013, a compound annual growth rate of 21%. During the same period international passengers have increased at a CAGR of 14,3% and domestic passengers by a CAGR of 26,5%.

Further opportunities to increase tourism figures can be generated through the Africa Open Skies policy as contained in the Yamoussoukro Decision of 1999. The Yamoussoukro Decision committed 44 signatory countries to deregulating air services and to opening regional air markets to transnational competition. The implementation of this agreement, however, has been slow, and the benefits have not been realized.

An independent study by InterVISTAS has calculated that through the implementation of the Africa Open Skies, Ethiopia can potentially attract 55,000 more tourist visits and generate 14,800 additional airline industry employment as well as 59.8 million US dollars of GDP.

Arrivals of tourists at Ethiopia’s borders, by purpose of visit
2007 2008 2009 2010 2011
Leisure, recreation and holidays 128,533 99,394 138,070 171,414 183,008
Visiting friends and relatives    26,337 25,482    35,593    28,672   37,116
Business    43,455 49,209    71,374    77,816   91,064
MICE    17,882 15,721    47,516    36,145   50,531
Transit    58,916 77,572    81,481    84,229   86,020
Not stated    36,820 62,779    53,252    70,029   75,699
Total  311,943 330,157 427,286 468,305 523,438
Source: MoCT

Bole International Airport is the largest airport in Ethiopia and is the home of Ethiopian Airlines, which is reported to have already become the largest airline in Africa based on fleet size, and could overtake South African Airways in 2015 as the largest based on passengers carried. The airline has also been reported to have purchased an additional fleet of aircraft to boost its capacity.

A capital project to expand the airport was embarked upon in 2012, and this is expected to be completed in 2018.

Tourism Demand

The tourism industry is growing because of Government commitment to provide an enabling environment. Enormous opportunities exist for tourism investment in international standard eco-tourism, specialised international restaurants and guided and independent tours.

Potential foreign investors can take full advantage of these opportunities through direct investments or joint ventures with Ethiopians. Opportunities also exist in this sector in the construction of star-designated hotels and resort hotels all over the country.

The direct contribution of Travel & Tourism to GDP was 4.1% of total GDP in 2014, and is forecast to rise by 1.2% in 2015, and to rise by 4.7% pa, from 2015-2025 to 3.3% of total GDP in 2025. In 2014 Travel & Tourism directly supported 979,000 jobs (3.6% of total employment). Visitor exports generated 35.4% of total exports in 2014 and this is forecast to fall by 1.8% in 2015, and grow by 4.0% pa, from 2015-2025. Travel & Tourism investment in 2014 was 3.7% of total investment. It should rise by 4.6% in 2015, and rise by 4.6% pa over the next ten years to 2.9% of total investment in 2025.

Hotel Performance and Seasonality

The Ethiopian climate is considered to be suitable for all-year round tourism. The country’s rich cultural heritage, its peace-loving population and its position as the head office of the African Union helps Ethiopia to attract all tourism market segments all-year round. Over time, in the medium to long term future, the Ethiopian hotel industry will mature to a level where hotel industry statistics will be available to assist in the measurement of performance and seasonality.

Demand & Supply

The stock of hotels in Ethiopia has increased sharply over the last few years. While tourist accommodation is available as the major attraction, improvement as well as new construction is taking place. The GTP’s target on the number of tourist arrivals by the end of 2014/15 was set at 1 million in-bound tourist arrivals. The total number of hotel rooms and beds of all hotel establishments in Ethiopia was 19,025 and 24,083, respectively in 2011. A total of 37 investors have taken investment permit in Addis Ababa alone to construct hotels with star ratings in 2012/13. Furthermore, the projected unsatisfied demand for hotel single night rooms in Ethiopia in the years 2015 and 2020 is forecast at 1.3 million and 3.1 million, respectively. Awash International Bank note, in line with this, sectoral distribution of outstanding loans of the banking system in Ethiopia indicated that credit to hotels sector accounted for an insignificant amount of 2% in 2010 and 1.85% in 2011. Therefore, improvements of the banking system in extending credit services would be helpful for the hotel industry.

Room Rates

According to AFKInsider, Addis Ababa has the most expensive hotels on the continent. This is not surprising as Ethiopia is undersupplied with hotels for the amount of demand the country is experiencing. On the other hand, it has been forecast through various research studies that the unsatisfied demand for hotel nights in Ethiopia will be 1.3 million in 2015, giving out a warning that the figure could rise to over 3 million by 2020 if new hotels are not built, according to SEA Africa. From the foregoing, it is clear that it will be quite a long time before room rates start to normalize in line with comparative countries.

New Supply

At the end of the 2014 AHIF, it was announced that many hotel development agreements were signed between the various industry participants and conference delegates. “The burgeoning nation now has the prospect of seeing its international hotel brands growing to 10, with the signing of six agreements between international hotel management groups and Ethiopian real estate owners”.

There were six agreements in all for international hotel brands in Ethiopia. Marriott has had a deal with Sunshine Construction for the past four years, and their hotel, located on Cameroun Street, is expected to begin operations in 2015. The Louvre Hotel Groups has already opened Golden Tulip Addis; Tsemex and Intercontinental Hotels Group to open the Crowne Plazza Addis; Wyndham Hotel Group and ADM Business Plc for the Ramada Addis Hotel; Accor Hotel Group with Enyi General Business for the Pullman Addis Hotel and Best Western International with Great Abyssinia Plc and Noah Real Estate for the Best Western Plus and Best Western hotels. All these hotels are expected to be opened between 2015 and 2017, with the next year seeing Crowne Plaza, Marriott and Ramada Addis coming into business. Last on the list will be Pullman Addis in 2017.

Hotel Investment and Values

In 2012 the HVI reported a room value average of $290,759 for Addis Ababa, which rose the following year to $301,739. In 2014 the average room value for Addis Ababa dropped to $294,478, which translates to -2.4%, against a rise of 3.8% the previous year. We anticipate the growth in the market, through increased demand and the supply of high quality hotels will ensure the value of hotels in Addis Ababa and Ethiopia generally remains high and significantly ahead of the African average.

About HVS

HVS, the world’s leading consulting and services organization focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries, celebrates its 35th anniversary this year. Established in 1980, the company performs 4,500+ assignments each year for hotel and real estate owners, operators, and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a network of more than 35 offices and more than 500 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. HVS.com

Superior Results through Unrivalled Hospitality Intelligence. Everywhere.

For further information about the services of the Cape Town office, please contact Tim Smith, Managing Partner, +27 797 342296, tsmith@hvs.com or Tshepo Makhudu, Senior Consultant, +2782 301 4572, tmakhudu@hvs.com

About the Authors

Tim Smith, MRICS, is Managing Partner of our Cape Town office, focusing on the Sub-Saharan market. He graduated from De Montfort University with a degree in Estate Management and has worked for firms of chartered surveyors since 1995, focusing on the valuation and sale of hotels and other leisure property throughout the EMEA region.

Tshepo Makhudu is a senior consultant in our Cape Town office. He has many years of property industry experience in development, management, finance and strategic consulting. He has held employment at leading property, banking and telecommunications multi-national institutions. Most notably he worked in the hospitality industry during the most vibrant era of the industry in South Africa, with a responsibility for the efficient delivery of hotel and casino development projects. Tshepo studied commerce and property development and management at leading universities in South Africa and received leadership training in the USA.

The Tourism Industry and Hotel Development in South Africa

INTRODUCTION

For many years the tourism industry in South Africa was classified as only one of the numerous secondary contributors to the country’s gross domestic product. The primary industries were mining, most especially gold, manufacturing and agriculture among others. However, when gold started losing its shine, in a manner of speaking, other industries started to come to the fore. As one of South Africa’s other exports, like gold, tourism started to raise its hand to also be counted. However, it still did not occupy centre stage. Even after the White Paper on Tourism of 1996 was published, tourism was still accommodated as a Sub-Ministry within the Environment and Tourism Department. Even then, it was still not identified as a main priority.

It was only after visitor numbers to South Africa started to rise phenomenally that the authorities started to take notice. The events which had triggered this phenomenon were the erstwhile but very successful general elections of 1994 and the Rugby World Cup of 1995. South Africa became the place to be! Although it is generally regarded as a long-haul destination, tourists still came flocking in even after the two trigger events had long passed. So, what made these people to come flocking in?

South Africa is attractive to tourists due to its physical beauty as well as its mild weather. Natural disasters are very rare. We have an abundance of mineral resources. We have an open economy, which attracts investment, and with it many immigrants. We also have an open-border system, whereby very many people from the north of the continent arrive in droves as political refugees.

TOURISM DEVELOPMENT

Tourism development involves a broad ownership base which means that many people benefit from the tourism industry. One of the economic sectors that derive tremendous benefit from tourism development is the hospitality sector and by extension hotel properties. Hotel properties must be developed all the time in order to support tourism development. With increased tourism development, broadbased economic development increases, which in turn benefits the broader South African community.

Although the South African government was at the forefront of supporting the country to attain the rights to host the 2010 FIFA World Cup, the State still needs to put more funding into promoting tourism. Our competitors are still directing more funding into promoting their countries. With the spotlight shifting away from South Africa to Brazil as a result of being the next nation to host the World Cup in 2014, we cannot afford to lag behind. We have a great product and the right mix of people and export credentials to compete successfully.

Then there is the image issue we need to think about. Issues that get interpreted as signs of political instability are all over the media. Service delivery strikes, no matter where they originate, have an impact on the image of South Africa. Of course there will always be the extreme tourist; one who will always go political hotspots to derive a thrill. However, the majority of our visitors prefer to come here for the milder attractions we have to offer. Do we report only the good news and hope that continuing to do so will eventually lead the world to believe that we do not have problems? Or do we continue to report the bad news as prominently as we are doing now, and risk perpetuating the old stereotype that the African continent is incapable of looking after itself?

The responsibility of growing the tourism industry lies with the State. The good thing is that the South African government has been at the forefront of developing tourism. From these overtures from government, the private sector can only take the cue and forge ahead with the development of tourist attractions.

HOTEL DEVELOPMENT

The hotel industry in South Africa was catapulted into the high road by Sol Kerzner and the South African Breweries with the establishment of Southern Sun Corporation in the late 1969. Since then, many hotels have been built and renovated many times over. Prior to the recession of 2008-9 FIFA was adamant that South Africa has a shortage of hotel bedrooms for the 2010 World Cup. Well, things have changed very rapidly over the last eighteen months or so. Many hotels were built in the intervening period. Arguably theses were built in order to respond to this shortage as per FIFA. The expected numbers did not arrive to take up the room-nights. We now find ourselves in a situation of an oversupply of hotel room-nights.

The financing of hotels is a very problematic subject. Banks still view hotels with extreme suspicion. The revenues are too volatile, they say. As a result it is not possible to forecast how the loan is going to perform over the period it is extended. On the one hand, if they had a lease from a ‘reputable’ hotel operator, they say, then they would happily extend loans for hotel developments.

On the other hand, hotel operators are generally not willing to enter into leases with the hotel owners, thereby providing guarantees to bondholders that the loan is covered by proper collateral. As a result of this impasse, hotel developments are less prevalent than retail and commercial developments.

There is an old adage in the investment world which says the higher the risk, the higher the return. I know of a company which invests in hotel properties as well as retail and offices properties. Rand for Rand, over many years, the hotel property investments provided the highest return for them. So, even under these depressed trading conditions, they are still investing aggressively in hotel properties.

Two major international hotel groups have recently announced plans to either enter the South African market or to increase their current investment. These companies are Marriott International and the Hilton Group. It is hoped that these new initiatives were triggered by more than just the successful hosting of the FIFA World Cup, but also by something more sustainable than that.

In other parts of the world, real estate investment trusts have been formed specifically for the purposes of investing in hotel properties. This is because of the reluctance of bankers to fund hotel property developments. In South Africa only one Fund has been formed. This is the Hospitality Property Fund. At inception, banks were reluctant to extend lending to this Fund too, due to the underlying asset being hotel property. Such motives of the banks need to be questioned. It is almost an open secret among property practitioners that banks sometimes provide lending to funds that have as an underlying asset properties that they would normally not touch on an individual basis. The latter are characterised by poor valuations, dilapidated properties and bad locations, to name a few.

CONCLUSION

Although this article mentions that South Africa has an oversupply of roomnights, this this phenomenon has not been reported to have been formally established. Operational variables such as low occupancies and revenues and average room rates alone are not enough to use as evidence to arrive at the conclusion that an oversupply definitely does exist. This reported oversupply could be referring to all types of hospitality, thus accounting for bed and breakfast establishments, the latter not being classified as formal hotels. Oversupplied or not, the formal hotel industry needs more hotels to attract tourists.