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The most typical real estate investment preference of Chinese people is penetrating to the overseas asset allocation. Those who purchased overseas homes are also considering buying hotel.

“Small boutique hotel in Britain, France and other European countries, can achieve up to three times of the domestic hotel revenue; we have approached some British castle hotels which cost only millions of pounds and the asset prices are rising, but the number of the targets is not so huge and investors may have one or two years’ time to involve.” CEO of CL Capital, Mr. Chen Yang said in our interview.

So, can it make money to invest in a British castle hotel?

Financial capital focuses on the new blue ocean

For the industrial capital, consider buying the hotel is mainly based on tourism explosive growth expectations. In the past two years, Wanda, An Bang Insurance, Sunshine Insurance and other domestic institutions already invested, targeting the overseas hotel assets. “Asset price is reversing relatively. Particularly last year, when the Fed announced to exit quantitative easing policy, restart US dollar rate hike cycle, global liquidity trends to flowed back to US, the weak dollar, strong RMB pattern has reached an turning point.” Chen Yang stressed that.

In Chen Yang’s opinion, the motivation of cross-border M&A comes from the historic opportunity, and the support of policies and consumption upgrade. On the other hand, to cope with quantitative easing monetary policy implementation of the 2008 crisis, the release of liquidity of Europe and America haven’t went into the real economy , a large proportion of it goes into the financial system of the emerging markets, pushing the stock market and the real estate asset prices to rise. “seven years later, asset prices in emerging markets, including China, has stood high. In contrast, the European and American assets are showing investment value. The asset prices in developed and emerging market countries have quietly reversed. “Chen Yang said.

The external environment only provides a possibility for cross-border M&A. The ultimate motivation is the status of domestic investment.

“Institutional investors and high net worth customers is facing investment dilemma of high domestic asset prices with low return. Even the cash yield is reducing.” A fixed-income investment insurance firms senior manager stated to CBN, he said that the current institutional investors are facing the embarrassing situation generally of not having so many profitable projects to invest. On the other hand, sensitive financial capitals are continuously look for any profiting opportunity.

Analysis revealed that mergers and acquisitions outside the hotel would be an ideal investment direction, but the participation of existing investment of social capital is scarce. And from the point of the investment targets, currently large institutions and industrial capital prefer commercial office building or a single high-end hotel, with controllable risk but rate of return is not high. “In the form of fund to acquire hotels abroad will be a new way to invest overseas hotel to those HNW group who do not have the management capacity. It would be a good beginning. ” the official said.

Chen Yang agreed this view. In the example of CL fund I, compared with the single hotel investment, hotel investment portfolio can diversify risk and increase return on investment and achieve competitive differentiation, ” similar structure of REITs to acquire overseas hotel, will make the investment’s risk lower than the general PE fund and higher than bonds. ”

What about the most important investment return?

Chen Yang introduced, said the current average rate of return in domestic hotel is around 3%, and the higher can be 5-6%. In core area of Europe, namely London, Paris, Frankfurt, hotels in the heart district, the return on investment is in the range of 5% to 6%, but suburban hotel investment returns can be 6% to 7%, even 8% to 10% level to more suburban areas.

“The difference between the stars is not reflected in terms of service standards, room decor and cleanliness, etc., but mainly the size of room area, and other similar hardware standards. Therefore, the rent gap is not that huge but the asset prices differ a lot. The investment return rise significantly. ” he stressed that.

More competition of cross-border hotel investment

The trend does not mean you can sit back and relax. Huge blue ocean and unprecedented competition at the same time. The choice of the subject and timing determine that the return on investment will vary.

According to statistics from the National Tourism Administration, Chinese outbound tourism in 2014 reached more than 100 million people, at 18% annual growth rate. Chen Yang estimated that people who take outbound travel to Europe countries is only 3.5 million, accounting for about 3% of Chinese outbound passengers, far below the global tourist trips to Europe accounted for 52%, ” Chinese tourists to Europe in the next two years will present the explosive growth and many European countries over the past five years build only a small number of new hotel, short-term hotel supply will be a serious shortage, this is a good opportunity for the fund.”

At the same time, he said the advantage of the Chinese enterprises is large amount of capital but due to the policy restriction, it can easily lead to a longer decision period of investment. “we should speed up the investment since there will not be much time for it. The asset price will soon climb.”

And intense competition, not only exists for domestic capital. Chen Yang also stressed that investment capital to the overseas hotel in Europe is still very small and the power is still relatively weak.

“Recently we had an M&A team back from Britain, brought back several new phenomenon in the market. On the one hand, the investors diversified including capital from US, Singapore, Russia and Middle East. On the other hand, European assets are in the process of recovery and the asset prices will climb gradually.”

“This means that the value of overseas hotel assets has been found all over the world.” Chen Yang stressed that “the current competitive pressures faced by Chinese capital are from the world, we must speed up with proper return targets.”

See full Chinese article here.