How investments in luxury hotels offer a hedge against inflation

Being able to adjust room rates daily is a benefit hotels have over other real estate assets when it comes to wealth protection

The Park Hyatt St Kitts is completed in 2017 under the citizenship by investment programme in the Caribbean

As inflation becomes a global post-coronavirus reality, high net worth individuals (HNWIs) looking for ways to protect their wealth may find their answer in luxury hotel investments.

Not only do such properties offer a number of inflation-safeguarding measures, but, through citizenship by investment (CBI) programmes, they provide the added benefit of a second citizenship, says Mohammed Asaria, founder and board member of Range Developments, an investment and hospitality company.

The post-Covid-19 landscape has created “the perfect storm” threatening the value of money among HNWIs from emerging markets, explains Asaria.

“During Covid, it was the first time that governments printed trillions of dollars in stimulus and actually put this money in people’s pockets. We already see inflation when we go to the mall or on holiday; the question is for how long and how severe it will be,” he says.

“Also, emerging market currencies are getting weaker against the dollar and more and more capital controls are coming. It is already harder to remit money from India or Nigeria, for example,” Asaria continues.

Mohammed Asaria, founder and board member of Range Developments

In the face of this threefold tempest, Range Developments is offering the opportunity to invest in its luxury hotel properties across the Eastern Caribbean, namely in St. Kitts and Nevis, Dominica and Grenada.

In the decade since it’s been in operation, Range Developments has completed two five-star luxury resorts in the region – the Park Hyatt St. Kitts and Cabrits Resort & Spa Kempinski in Dominica and work on the Six Senses La Sagesse in Grenada is well on the way.

“It is well-known that real estate, along with gold, is a traditional hedge against inflation. And, in the real estate sector, hotels are the best asset class for that because you can change your nightly rates on a daily basis,” explains Asaria.

“Imagine if you had recently entered a five-year fixed lease at AED100,000 per annum on a commercial space, for example. With inflation galloping in, in real terms after five years, that would be significantly less. Conversely with a hotel, price rates can be adjusted to match inflation on a daily basis to counter inflationary pressures,” he continues.

Range Developments is also offering an investment in Six Senses La Sagesse in Grenada

The lure of luxury investment 

But not all hotel-investments are created equal and the best bet to hedge against inflation is through the luxury properties category.

“There is significant competitive pressure in the budget hotel category, whereas in the luxury sector, where price increases can be absorbed, especially if the product is unique, and thus they provide the greatest inflationary protection,” explains Asaria.

“Because of inflation, the stake you have in a luxury hotel property only stands to become more valuable in the next five years,” he adds.

In emerging markets, luxury hotel investments are a good hedge against local currency depreciation as well, Asaria explains.

Range Development’s CBI offering requires a $220,000 investment (through a real estate investment trust) and associated government fees in one its Eastern Caribbean-based luxury hotel developments. The investment must be kept for five years after which it can be sold to another CBI investor.

To qualify for citizenship by investment programme, applicants need to make an investment in a designated real estate project approved by the government. In addition, investors need to pay other fees and taxes as applicable and fulfill the formal requirement as identified by the government.

This is an ideal opportunity, for investors from emerging markets, to sell their shares given they have effectively hedged themselves against local currency depreciation,” explains Asaria.

The fact that, with Range Development’s CBI offering, such investments come with the added benefit and security of a second citizenship is the cherry on top, or the whole cake even.

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