VALUATION OF FIRST CLASS HOTELS IN SINGAPORE

Abstract

Hotels are income properties with multiple sources of income - room rentals, shop and office rentals, food and beverage sales and sale of other services. Different risks and security of income are attributable to these income sources. In Singapore, the tourist and hotel industry is extremely vulnerable to exogeneous economic and political influences. These factors contribute to the difficult task of a hotel valuer in arriving at an opinion of market value or investment value. Overseas valuation convention points towards the Income Approach to value a hotel. Being an income property, it seems a logical approach, even though the hotel contrasts sharply with the conventional one-source income property. However, in Singapore, the Replacement Cost Method is predominantly used to value hotels, irrespective of the purpose viz. for asset valuation or for investment valuation. The writer will discuss aspects of hotel valuation with special reference to first class hotels in Singapore. The anomaly between local and overseas practice in hotel valuations is examined. In the writer's opinion, the Replacement Cost Method is the most practical method, though not necessarily correct and suitable for all purposes and intent. After studying the application of the Income Approach to hotel valuations, it is the writer's opinion that the present weak Market Data Base does not support a conscientious use of the Income Approach to value first class hotel in Singapore.