Condotels on the rise

While the Thai law does not allow short-term leasing of residential properties including condominiums, condotels have emerged as an increasingly popular property development format in major tourist destinations such as Pattaya and Phuket as well as Bangkok. This trend has been driven by strong demand from individual investors looking for more flexible rental assets, and property developers looking for new opportunities in an alternative real estate sector, according to international property consultant JLL.

A condotel is a condominium development with a hotel license allowing for the use of condominiums as hotel accommodation that can be offered for short term lease (daily or weekly) whereas the Thai law does not allow owners of condominiums to rent out their units for less than 30 days without a hotel license.

Mr. Chakkrit Chakrabandhu Na Ayudhya, Executive Vice President – Investment Sales at JLL’s Hotels and Hospitality Group, says “Though condotels are not new to Thailand and can be found across the country especially, in holiday destinations such as Pattaya and Phuket as well as Bangkok, they still represent a small part of the country’s real estate industry. However, our research shows that condotels are becoming an increasingly popular development option and are likely to grow in number over the next few years.”

According to JLL’s data, condotels are becoming prominent in Phuket where the stock of supply across the island will surpass the 3,000-unit mark by the end of 2021, accounting for over 30% of total new hotel rooms. Blue Horizon Developments has recently launched a 189-room condotel project, Best Western Plus The Beachfront Rawai, and is currently developing five projects with over 1,500 units set to open over the next three years.

Pattaya is another up-and-coming condotel market, with more than 1,100 new units being planned to enter the market by 2021. Habitat Group is the market’s most active player, operating two developments – X2 Vibe Pattaya Seaphere Residence and X2 Pattaya Oceanphere. The firm is also planning four new projects scheduled to be operational by 2022.

In Bangkok, there remains a limited stock of condotels operated to meet industry standards at present. However, property development firm Siamese Asset has recently put the spotlight on the city’s condotel sector. In addition to its condotel development, Blossom Condo @ Fashion, the firm has launched two more condominium projects in Bangkok, The Siamese Exclusive and The Collection where 50% of the total units will be condotels. Upon completion, the two new projects will be operated by Greenland International Hotels from China.

To obtain a hotel license, a condotel development must meet the minimum requirements in terms of specifications, facilities, operation and management under the Hotel Act 2004. In the majority of the purpose-built condotels, developers generally plan to obtain a hotel license when the construction of the project is completed.

Co-owners in a condotel development do not let their units directly to customers (guests), but the operator who manages the rental pool. This could be the developer or an independent hotel/condotel operator. A few examples of international brands operating condotels in Thailand include Boutique Hotel Management Asia, Best Western and Wyndham.

The majority of condotels are offered to investors on a guaranteed-return programme or a profit-sharing scheme. Guaranteed-return programmes are typically offered over a period of 2-3 years, while some of the condotels in resort markets are on a profit-sharing scheme agreed upon between the unit owners and the operators.

Opportunities

“Short-term leasing has become more popular in Thailand’s major condominium markets. But, without a hotel license, it is an unlawful business,” says Ms. Pitinut Pupatwibul, Senior Vice President - Strategic Advisory, JLL’s Hotels and Hospitality Group.

“Condotels are a development option that helps prevent co-owners offering units for short-term leasing from potential litigation. At the same time, the clear structure and purpose of uses of condotels can help prevent resistance from buyers for private use who may be unwilling to welcome short term guests into the building,” she adds. 

Mr. Chakkrit says “For condominium developers, condotel development offers new opportunities in an alternative sector and gives their projects an additional advantage, which is much needed in Thailand’s key condominium markets, particularly Bangkok where sales have slowed and the market for long-term lease is highly competitive.”