Buying a Hotel Boom One Room at a Time

(2/2/2013)

Bali’s booming condominium hotel (condotel) or residential hotel market is largely being swept up by Indonesian buyers from other major cities in Indonesia, such as Jakarta and Surabaya.

This trend was confirmed in a recent report prepared by Horwath HTL and C9 Hotelwork. Bill Barnet, managing director of C9 and a featured panelist at the recent Indonesia Hotel Investment Conference held in Bali on February 1, 2013, said, “We expect the trend to continue.”

The condotel movement provides developers to finance hotel projects by selling units to the public, that when not being used for vacations by their owners, can be rented out on a nightly basis to vacation visitors.

Barnett sad that growth in the condotel market has been further fueled by laws that prohibit foreign land ownership in Indonesia, but does allow Building Ownership Certificate (SKBG) that permit foreign leaseholds for condominiums for 60 years, extendable for an additional 60 years.

Prices for the Condotels start from US$3,000 per square meter, with the lower-price one-bedroom units among the most popular. Many developers are offering guaranteed annual yields of 8% over a limited number of years as a further induced to purchasers.

A major player in Bali’s over-supply of rooms, there are an estimated 300,000 condotel units now operating in Bali, with a further 100,000 units expected to come on line soon.

Barnett sounded cautionary remarks suggesting many condotels less-than-prime locations made then “not a stellar investment” – making them less appealing than better-located hotel against they now compete for guests.

The C9 and Horwath HTL report tells of stronger competition ahead with 12,000 new hotel rooms coming to Bali in anticipation of a surge in demand surrounding the Asia-Pacific Economic Cooperation (APEC) meeting coming to Bali in late 2013.

Of future concern in efforts to maintain Bali’s reputation as a world-class tourism destination is the cumbersome requirement stipulating condotels can only renovate their properties with the consensus of the myriad owners. On the other hand, hotels are able to upgrade their facility with the agreement of only a majority of shareholders.

Condotels may become rudderless ships,” Barnett warned. 



Examples of the long-term deleterious effect of over-development of the Condotel sector can be found in many locales worlwide where buyers get rid of a property once an initial investment is returned, creating a surfeit of used condotels competing against the established hotel market.