Pick up any magazine or newspaper in Bali and you will see advertisements for condotel sales. Visit a shopping center and you will see models of future developments, complete with attractive sales assistants ready to hand you a brochure. The ads and promotions look great and usually feature beachfront properties, pools and offer a range of promises including guaranteed rental returns and “free stays”. I am sure anyone coming here for a holiday would at least be tempted to have a look.
On paper, it seems like a great idea – buy an apartment, stay in it “free” for your vacation and rent it out for the rest of the year. A management company takes care of maintenance and staff while you are away, leaving you to just cash a check every month.
What exactly is a condotel?
Wikipedia defines a condotel as: “a building, which is legally a condominium but which is operated as a hotel, offering short term rentals, and which maintains a Front Desk. Condo hotels are typically high-rise buildings developed and operated as luxury hotels, usually in major cities and resorts. These hotels have condominium units that allow someone to own a full-service vacation home. When they are not using this home, they can leverage the marketing and management done by the hotel chain to rent and manage the condo unit as it would any other hotel room.”
In Australia, I believe they are marketed more as “serviced apartments”, but in Bali, they seem to operate as regular hotels (regardless of the license they might have). In some ways, they seem very much like timeshare, but at least with timeshare you usually only purchase a set number of weeks per year, rather than the full price of an apartment.
I should add a disclaimer, that I have never owned a condotel nor do I have anything to do with them. I have however had a long interest in property and property investment in Indonesia and elsewhere in the world. I have however spoken to owners and heard of the various problems, owners can face.
So what is the problem with these types of properties?
I think the problems start with the ownership structure of these types of properties. You obviously have a landowner, a developer, a management company, and finally you as the “owner”. The developer usually leases land from the landowner for a fixed period of years, under Indonesian law. The developer then builds the place and tries to sell individual apartments or units. While attempting to sell the properties, you will see many claims, such as “rental guarantees” and “5% ROI”.
Once the place is constructed, the developer or another company will manage the property and that is when the “fun” usually starts.
The main issues I see include:
– Huge discrepancies between what was promised by the developer, the contract with developer and the final service provided by the management company.
– The owner receives only a share of the revenue after all of the costs of marketing and running the property have been taken out. There is even a chance owners face a loss, which owners need to make up for.
– Operating costs can easily be inflated by management to the detriment of the owners.
– No transparency in the financial reporting by management to the owners.
– Almost impossible to sell the property to anyone else.
– Disputes over common areas.
– ROI (return on investment) figures plucked from the sky.
– Owners are generally excluded from receiving income from other services the hotel provides such as food and beverage.
– Strict restrictions on private use of the property by the owner. Owners may also be restricted from taking their apartment out of the rental pool and managing or living in the apartment themselves. If they are able to live in the apartment, they could be hit with hefty maintenance fees. Utility costs, such as electricity and water can easily be inflated by management.
– Developers could lease the land for say 25 years while selling 80-year leases to the owner.
– Possible non-compliance with Indonesian laws. For example, apartments may have permits for living, but not operating as a hotel.
– It is easy for the property to become run down as maintenance may not be carried out adequately, leading to even lower revenue.
– Lax or non-existent laws covering this type of ownership. I believe the relevant ownership for this type of property is “SKBG Sarusun” and is used for strata title apartments in Indonesia’s big cities like Jakarta and Surabaya.
Although I have no evidence of it ever happening, I have often wondered if there is nothing really stopping developers from selling the same unit or apartment multiple times. Still not convinced? I would suggest watching this set of videos taken by owners of a well-known condotel in Bali:
Please share any experiences you have with condotels in Bali, in the comments.