There’s the old story about an old woman who, instead of going to a retirement home, chooses to spend her days on a cruise ship. Why? Well on a cruise ship, if something’s broken, she calls room service. She can have meals whenever she wants, not an old folks’ home’s schedule, and the people are actually polite. Plus, there’s the advantage of travelling. But it is mostly just a story, you can actually buy a cabin on a cruise ship – and it may be in reach for some single digit millionaires:
How does living on a cruise ship work?
In essence, you lease a cabin for a period of time. The available leases depend on what the cruise company offers. For example, Storylines, which manages the cruise ship MV Narrative, offers leases of 12 years, 24 years, or for the entire lifetime of the ship. Depending on the size and location of the cabin, and the length of the lease, prices run from US$875,000 (S$1.18 million) to US$8 million (S$10.79 million).
(The average lifespan of a cruise ship is 20 to 30 years, if you’re wondering)
Fractional ownership is also possible – you can also buy a 25 per cent share of a cabin, for example, which allows you to stay on board for three months out of the year.
The cruise is expected to begin operations sometime in May 2024. And MV Narrative is one of the more affordable options; other condos-on-the-sea concepts, such as The World, have costs of about US$20.5 million (S$27.66 million) for penthouse style cabins (and there are only ever fewer than 200 passengers, so it’s the equivalent of a luxury boutique condo).
But there’s more costs than just the cabin
Much like a regular condo, there’s invariably fees incurred for maintenance – but in this case you don’t just pay for maintaining the cabin, but the other services on the ship. Again, costs vary based on the ship in question – but we’ve found prices ranging anywhere from US$2,100 (S$2,839) to well over US$4,000 ($5,392) per month.
This is way higher than what you’d pay for a regular condo on the land. In Singapore, maintenance fees for condos are typically in the range of just $300 to $400 per month. The good side though, is that when you do board your ship, your fees are all-inclusive: so it includes the food, drinks, and entertainment.
(But bear in mind that some ships have a “premium” model, where pricier food and drinks may bring additional charges)
This is decent enough if you’re on board the ship, since if you were to stay on a cruise for a month it would probably come up to more than S$2,800+. The tricky part is when you’re not on the cruise – at that point, you’re hoping for rental income from your cabin, from other passengers.
While there’s no guarantee that your cabin will be rented out (cruise ships aren’t always filled), the estimated rental income – depending on the size of your purchased cabin – is hopefully more than sufficient to cover costs. This is where you need to pay attention to the fine print though (e.g., is the cruise line obligated to rent out your purchased cabin first, or will they fill other empty cabins before using yours? What’s the sequence of priority?)
Financing issues may also be in the way
Based on inquiries we’ve made, Singapore banks don’t currently have loan packages catered to these products. Barring unsecured personal loans (which have a quantum that’s too low, and interest that’s too high), there’s no way to get financing; and that can mean a significant cash outlay.
Some cruise lines may have financing options of their own (e.g., instalment payments), but this would require you to go over the terms and conditions carefully; preferably with the help of a lawyer. Also, most cruise lines’ financing plans are catered to paying for regular cruise vacations, and not something to the tune of a few hundred thousand dollars.
Another consideration here is what happens if you attempt to sell your cabin. We haven’t been able to find any details on how this would even be done, assuming it can be done – but if it involves having to sell to someone else, that could incur significant legal fees for the paperwork.
All in, this is not as neat and predictable as a conventional real estate investment; and if it’s part of the retirement plan (i.e., you’re serious about spending the last 24 years of your life out at sea), it may be best to cover details such as what happens if the cruise line closes, the ship is scrapped in an accident, etc.
Can it be considered an investment asset?
Call us cynical, but we doubt so. This is still an exotic asset choice, and regulations are one big question mark. There is, for instance, no scrutiny by bodies like MAS, so this is pretty much within the wild west of finance – we’d put it in the same category as crypto or fine art or other alternatives.
From available examples, returns also don’t appear impressive. Consider a $1.18 million cabin, with a monthly fee of $2,839.
Say this cabin is rented out all the time (you never use it), and you generate a realistic $4,500 a month from the rental*. This is a net rental income of ($4,500 – $2,839) = $1,661.
This is an annual net rental of $19,932, which in relation to the cost ($1.18 million) is about a net rental yield of 1.68 per cent. When you factor in vacancies, or the times you are using the cabin (which, let’s face it, is kind of the whole point for most buyers), the yield gets even worse.
You also need to couple this with the fact that there’s no resale gain. You have it till the lease is up, and that’s it. Even if someone were to buy it over from you, it’s improbable they’d pay more than you did. Why would they, when your lease is only running down?
*This will vary significantly between ships, and you should ask how much exactly you’d make from rental
So what is this good for?
As an investment, we don’t think this makes sense; and again, the lack of regulatory oversight makes our hair stand. But it can be useful as a sort of indulgence.
If your goal is to occasionally live at sea for a year or two, perhaps while doing remote work, then this may be way cheaper than paying for a cruise each time. Or if this is some kind of “bucket list” endeavour to circumnavigate the world, and see a lot of exotice places (the cruise ships often make three to five day stops at various parts of the world), then this may be cheaper than paying for flights and hotels at a few dozen locations.
It’s quite a strong contender for time-share products, which we also dislike, so that’s hardly an endorsement. But you may find this better than having to go to the same vacation spots all the time (or you may find it’s just as bad because you get sick of the ship, that’s down to you.)
This isn’t to say it’s not a concept without promise. But it will take a bit more regulation and time to become a proven concept; and there has to be more of a viable exit strategy (i.e., a way to offload your cabin) for any of this to be advisable.
It is becoming cheaper and more affordable to single digit millionaires however, and those who are true cruise fanatics may consider it a worthwhile expense. Not an investment.
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