Royal Kinabalu

[WARNING: Below are purely personal ideas and viewpoints… should you decide to go ahead with the investment that’s YOUR decision!]

Royal Kinabalu - a 5 star resort hotel development in Kundasang… and there is plan to build a theme park next to the resort hotel after the resort hotel. Kundasang will be like a little Genting then… (I don’t know whether this is good or bad).

The development include a hotel (with shops, function ball room, restaurant etc) to be owned by the developer, and three blocks of hotel rooms.

What is most interesting is that the public (those with lots of money that is) can also take part in this project. Because the hotel rooms of is open for sale to the public by the developer of Royal Kinabalu.

The deal is like this:
you bought a unit of hotel room from the developer and
lease it back to the developer for 15 years where your unit will be managed by a hotel management group and be rented out.

In order to participate in the investment, you need to fork out 20% of the purchase price. 10% to be paid upon signing of the sale and purchase agreement and another 10% to be paid upon the signing of the loan documentations with Maybank. Yes, only Maybank… and you MUST obtain a loan, and must obtain it from Maybank.

This is because during construction, the developer will absorb all bank loan interest so to facilitate easy banking transaction (the deducted and reimbursing of interest payment from and to your Maybank account).

After full construction and with OC obtained, and during the first 3 years of the hotel in operation, there is a guaranteed minimum returned of 6%  (of your purchase price).

Next 5 years after that, the return is 35% from the hotel’s room revenue pool.

Thereafter, the return is 40% from the room revenue pool.

The catch… It won’t matter after the first three years, whether the unit you bought is big executive room or a small studio suite.

The attractive part of the deal is in the first 3 years, when the return is guaranteed 6% of your purchase price, the sale agent who served me calculated for me and shown to me that that would mean in those three years, the revenue I get will be larger than the loan installment I have to serve to the Bank! Ie I will get instant return in those 3 years.

The catch… you would have dumped a large amount of money being the 20% down payment into the project and only see the return after 3 years construction period and will only get guaranteed return for the next 3 years.

Using the math used by the sale agent in my case,
if I take a unit for RM442,000 so I have to invest a cash sum of RM42,000 RM88,400.

When I start to serve my loan installment,
I would be getting a NET return of RM100 per month.
So for the next three years my return is grossly RM3,600.

Ie in 6 years, the return of my RM42,000RM88,400 invested is RM3,600.
One year = RM600 … roughly 14% per annum!

600/88400 = 0.68% ONLY

Definitely better than the FD rateWORSE THAN FD RATE! But this is based on minimal guaranteed return (if 35% the room revenue pool is higher you will be paid the 35%).

After 3 years, if you had enough, you would like to sell the unit you bought… and the ability to sell will depend on the business the hotel generate.

The catch… if the hotel generate good income and continue to serve my loan for me, would I want to see? No!

If the hotel is not making good business, even if I want to sell, no one would want to buy from me! Right?
 

If you ask me, to buy or not to buy?
I’d say go for it if you have the cash flow (the 20%).
Remember to treat it as an investment.
NOT a property purchase (you have to rid that from your mindset).

The risk?

I have had the following concern.

Is the Developer financially sound?
Yes… they have good track record (well maybe except one project ie the Kiansom Country Heights).

What if the hotel business is bad?
Have you ever seen a 5 star resort hotel went bad?
Imagine if Karambunai that kind of hotel also can ask hotel rate of RM300 upward… what more a hotel in Kundasang… with an upcoming theme park!!!

I was also informed by the sale agent that the hotel will be managed by an experience hotel management group that also manages the famous Tg Rhu Hotel (West Malaysia).

If indeed the business is bad… then… what can I say, that’s the risk of this investment deal! No investment is full proof!

What if the project is abandoned?
The development is required in law to be insured, but in case that really happened… no one knows how would the purchasers be affected. No one buy expecting that!

Still want to buy or not?

I would if I have RM100,000 spare money in my account!
And that is why this development has been selling out very fast!
There are many rich people in KK!
And an Indonesian company has bought out the entire Block A already!

My suggestion, is to buy the cheapest available unit… because the return is 35% from room revenue pool… I was told it does not matter whether the income was generated from your small unit or other large unit. The only difference in buying small or big is in the first 3 years of guaranteed 6% return which is based on your Purchase Price… but that also could mean nothing because if the hotel generate good income, you would be paid the higher rate of 35% from the room revenue pool also!

So… why not?

PS: I had to let go the investment opportunity.