It seems that much of the nation is finally coming to its senses. Proof? A press release from Metlife saying that there has been a huge reduction in the number of people idiot enough to think that their homes are their pensions.
It was always mildly nonsensical to think that you might use your home to support you in your old age. (Where do you live if you are renting out your house to provide an income? And why would you want to downsize to “release equity” just as you hit retirement and have to spend your whole time at home?) But now that prices are falling at speed and – on HSBC numbers – one in ten households is either in or near to negative equity, it seems even more ridiculous than ever.
But if your house isn’t your pension, what is? Personally, I think it is a nice savings account backed up by a SIPP (Self Invested Personal Pension) into which you put a variety of low cost exchange traded funds which you then hold for 20 years.
Why hotel rooms in far-flung destinations aren’t wise investments
But according to the usual group of over-enthusiastic property sales people, it isn’t that at all. No, it’s a hotel room in the Caribbean. You buy a room and then rent it out via the hotel to produce an income. It’s like having a buy to let flat, just better, or so says Tim Moore of Far East Property Solutions (Fareps): “buy to let hotel investments offer a great way to generate income and are less hassle than trying to manage and let out a traditional holiday home.” Better still, he tells London free sheet Metro “some buy to let hotels may also qualify for SIPP inclusion so British investors could benefit from up to 40% tax relief as well as exemption from the 18% capital gains tax.”
If you believe him, the world’s your oyster. You can buy a suite at The Malkai in Barka, Oman for £650,000, a one bed Bond Suite at Goldeneye in Jamaica for £327,000 or perhaps an apartment in the new Champneys resort complex in Marbella for £505,000.
So should you? Probably not. For starters, the SIPP rules aren’t particularly clear cut but as the FT points out, an awful lot of the rooms being touted around as potential SIPP investments just won’t cut it when the taxman takes a closer look (as he is likely too given how strapped for cash the Treasury is). If you want to put a hotel room in your pension, you can’t use it yourself at all, so I’m not sure how the rooms offered by say, Far East Property Solutions, at Ko Samui’s not yet built Himmapan Beach Samui scheme (“28 days personal usage”) qualify.
There are also heavy restrictions on what kind of room qualifies – it can’t have a kitchen or look like an apartment rather than a room, for example. And this isn’t the kind of thing you’ll want to take risk on, says the FT: do so and “tax charges of up to 70% of the value of the property or lease could occur as well as charges on income received and capital gains made.”
You’ve also got to wonder about the prices. Fareps is targeting occupancy rates of 82% and presumably bases it’s pricing (rooms at Himmapan Beach start at £160,000) on this number – occupancy determines revenue after all. But 82% is an astounding number. Most hotel executives fill themselves baths of Veuve Clicquot, if they can hit average occupancy rates over a year of 60%. 70% and they’d be swapping the Veuve for Cristal.
Are there really insufficient hotels to meet demand?
It’s also hard not to take issue with comments on the subject from Stuart Law, managing director of property investment company Assetz and one of the few people left in the world who, as far as I know, refuses to accept that a) there was a property bubble and b) that it has burst. According to Law, says the FT, there are “insufficient hotels to meet demand so as an investment this area should grow”.
Insufficient hotels to meet demand? After 10 years of frantic hotel building? When 10% of the world’s cranes are still building rooms in Dubai? And when we are on the cusp of a global consumer recession?
It doesn’t seem very likely. Your house isn’t your pension. Hotel rooms in far-flung destinations – destinations you don’t know much about – aren’t your pension. Indeed in most cases the only thing that is going to be your pension is an actual pension. Find out more about SIPPs here: Have you got enough for a party, let alone a pension?