Warm weather always lures yachting enthusiasts into the water and inspires many to dream of helming seagoing vessels of their own, according to Sam Cook, Head of Specialty Lending for Europe, the Middle East and North Africa at J.P. Morgan Private Bank.
In the UAE, the leisure marine sector is gaining a lot of popularity thanks to the UAE’s world-class facilities and modern infrastructure. This has made the UAE a global hub for boats and yachts, and a leading destination for leisure marine activities globally. So there are no surprises that the luxury yachts and leisure boats sectors are witnessing significant growth in the UAE, which is home to over 310 marinas for boats, yachts, and ships, with around 20,000 registered yachts and leisure boats.
When buying a yacht, it’s best to follow your head and your heart. To that end, here’s a quick guide to real costs involved, current market conditions, all the options for venturing into the sea, and how to ensure owning a yacht meshes with other financial goals.
Options for venturing out into the sea
Yachts are by definition any sea vessel used for recreation. Thinking of buying a yacht? Step one is, of course, to define how it will be used. With how many people? Going how far and where? How often?
Answers to these questions will help you decide whether it makes more sense to build new, buy pre-owned or just charter, and how big and well-appointed the yacht should be.
Initial price tags for luxury yachts that are privately owned and crewed start at about US$2 million, but the purchase of a superyacht can run into the hundreds of millions.
Of course, final price tags depend not only on final length but also on amenities (swimming pools, hot tubs, decks, gyms, suites, bars, dining areas, offices, helicopter hangars, etc.).
Expect annual costs for maintaining and operating a private yacht to be at least 10% of its purchase price. This percentage includes paying for the crew, dockage, boat insurance and maintenance.
Current demand for new yachts is high; wait times, long
Wait times for a custom superyacht are now three to five years, and demand can be expected to push prices higher.
While the pandemic temporarily slowed construction, it also fuelled the demand for yachts that are 24 meters and longer. According to Boat International’s 2022 Global Order Book, a record 1,024 superyachts were under construction or on order in 2022, a rise of 24% over the previous year.
Much of this new demand comes from the United States, which has 500 more billionaires now than it did before the pandemic, ending the year with around 2,755. COVID-19 lockdowns and travel restrictions led buyers to seek superyachts as COVID-19-secure “floating islands”.
If looking to set sail immediately, alternative options must be considered, such as chartering. Demand for charters also reportedly rose during the pandemic, but it’s always a popular choice, even among some of the world’s wealthiest.
Practical considerations
When deciding whether to build, buy a pre-owned or charter, it’s wise to consider how each of these options might affect lifestyle and other financial goals. Each comes with different cash-flow implications and trade-offs.
If going ahead with purchasing, the best advice will be needed from experts such as:
- Brokers to help identify a yacht and negotiate the purchase
- Lawyers to help decide where to flag the vessel, and to set up all the contracts, etc.
- Surveyors to help identify hidden defects and technical issues with the yacht
- Managers to help oversee the operations and maintenance of the yacht once it is delivered
- Private banker and investment manager to help make sure this new commitment is incorporated into your wealth planning, and to find your best financing options
Even if you can afford to purchase the yacht outright, it’s worth it to consider whether doing so is the most efficient use of capital.
Sometimes it’s more efficient to borrow against assets or the financing could be secured by the yacht itself. Indeed, given the demand for newly built yachts, construction financing might prove to be a compelling option.
Financing would be tied to the scheduled payments due to the shipyard or manufacturer under the purchase agreement. Alternatively, a contract can be created with the initial payments funded by your equity. For new yachts, about 50% of the contract price is typically needed as a down payment.
Conclusion
Buying and maintaining a yacht is a large financial consideration, but there are some additional planning issues to keep in mind, including:
- Setting some ground rules for who can use the yacht, and when and how.
- Considering how to own it to potentially protect personal finances from liability.
- Accounting for it in your will, so it’s clear what should be done with the asset.
