Shaun Harris
The idea is certainly appealing – a luxury yacht, available for your use every year at an international location of your choice, hedged against the rand and returning hard currency earnings and tax benefits. Sounds like much more fun than putting money into a global unit trust fund.
That’s the concept behind Sunsail, the United Kingdom-based yacht charter company that offers South African investors and sailing enthusiasts an interesting option for offshore investment.
But it’s really about much more than investing in a sterling-based asset. In absolute terms you could get better returns from many of the hard-nosed foreign equity funds – Chris Bonnet, chief executive of local franchisee Sunsail South Africa, confirms this up front. Rather Sunsail, which markets holiday charters as a large part of its business, offers a lifestyle investment with some tempting financial benefits.
The world’s largest yacht-owning company, Sunsail has been in business for nearly 25 years. It has a fleet of approximately 800 vessels, about half owned by Sunsail and the rest by investors, and operates from 37 bases around the world.
Until recently the company was partly backed by Merrill Lynch-owned Mercury Asset Management and Rothschilds, but the company has since been bought by First Choice, the large UK travel company. Bonnet, who also runs sailing schools from his headquarters in Durban, outlines the three options for purchasing a vessel through the Sunsail Yacht Partnership programme.
“A South African investor can pay the full purchase price for the boat, which guarantees income of 11% of the purchase price annually, payable quarterly in arrears.”
This guaranteed income, says Bonnet, is generated by charter fees, all of which is managed by Sunsail. The company also pays for maintenance, insurance, local taxes and duties over the period of its management contract, usually five-and-a-half years, though shorter options can be arranged.
The appeal here for local investors is the hard currency return, typically in sterling. Apart from the rand hedge aspect of the investment, quarterly returns will also increase in value as the rand depreciates.
Sunsail will try and get the maximum return from chartering the yacht, moving it to appropriate locations according to high sailing seasons. But the investor gets 10 weeks a year free use of the vessel. If the yacht is not available or at a suitable venue at the time, they get the use of a similar-sized boat at a location that suits them.
A further benefit, says Bonnet, is that under Section 14 of the Income Tax Act, a vessel with a gross tonnage of 25 tonnes or more can qualify to be registered as a South African foreign-going ship, allowing the owner to claim a 20% straight-line depreciation allowance. Smaller yachts can also be depreciated at a lesser percentage.
“The second option for an investor who cannot pay the full amount up front is to put half the purchase price down. Sunsail manages the vessel as in the first option, and over the five-and-a-half year contract period the return is used to pay off the balance of the purchase price. Thereafter the investor takes ownership of the yacht,” Bonnet says.
The third plan allows the investor to put down 25% of the purchase price at the outset and make quarterly payments over the contract period, which together with income generated through chartering pays off the full cost of the vessel.
In both of the above options the investor still gets 10 weeks’ free usage of the yacht.
The potentially tricky part of owning a yacht is its resale value. It’s a depreciating asset, and the price paid for a used yacht can vary according to the model and age of the vessel.
Bonnet says Sunsail is well aware of this and advises clients on the possible resale value of their boat when they make the purchase. If the owner intends to sell the yacht after a certain period, Sunsail will point out what types and models will probably best hold their value.
“However, Sunsail also offers a guaranteed buy-back of 50% of the purchase price at the end of the contract,” Bonnet says. The 50% is a conservative estimate – the value of a five-year-old yacht is possibly 20% to 30% higher.
While the 11% annual return is the measurable value of an offshore investment in a yacht, the real return is much greater if one adds in the rand hedge element, depreciation and virtually free annual holidays. About all the owner has to pay for is travel costs to the yacht’s location.
Prices of yachts vary greatly. Sunsail only orders vessels from the world’s top boat builders: Beneteau, Jeanneau, Hunter/Legend and Fountaine Pajot. Prices in their catalogue range from 287 800 for the Bahia 46 catamaran to 74 600 for an Oceanis 331 mono-hull.
But there is nothing to stop a few partners getting together and buying a yacht as a joint investment and shared holiday.
Ideally the investment would suit a keen sailor. However, an add-on benefit includes beach club hotels in the Mediterranean and the Caribbean, an alternative for family members not that enthusiastic about sailing. The free holiday units can also be used for these hotels.
Now there’s a thought. The ardent yachtie could book the spouse and kids into one of the beach clubs in an exotic location, knowing the landlubbers are enjoying a good holiday while he or she sails into the blue yonder in a movable, hard currency asset.
Investment is a serious business, but who says it can’t be great fun as well?