Condo hotels have become an increasingly popular real estate investment option for property buyers over the past few years. As Phuket has welcomed record numbers of visitors in 2016 and 2017, condo hotel sales have taken off. With more and more tourists flocking to the island, hotel occupancy numbers have surged dramatically. According to research by the Thai Hotels Association (THA), occupancy rates on the island rose to 75% in 2017, a near 12% increase over 2016. THA also noted that Phuket posted the strongest performance of any destination in Thailand’s hotel industry last year. Of course, Phuket’s condo hotels have benefited from this as well. Property buyers have been eager to put their money into condo hotel projects, since this represents one of the simplest property plays off the back of tourism trends. But is investing in Phuket condo hotels really worth it after all?
The definition and model of condo hotels
A condo hotel, also known as a condotel, is clearly derived from the terms condo and hotel. A condo hotel involves units being sold to individuals but managed by a hotel. This is done for the mutual benefit of both the purchasers and the hotel brand. For investors, unlike a traditional condominium, they don’t have to worry about marketing and managing the property. For hotel brands, they no longer have to bear the cost of purchasing land and constructing the building. At the same time, real estate developers are able to attach a name that people trust to their projects. This is a win-win model that benefits all parties.
The advantages of investing in Phuket condo hotels
There are many advantages to condo investment in Phuket. For novice investors, having a hotel manage your property is much easier than doing it yourself via Airbnb or a local property management company. Also, most Phuket condo hotel investments operate on a pool basis, meaning there is not a total loss if your unit sits empty for a night. Finally, if a globally recognized hotel brand is backing the project, condo owners can feel more reassured. The hotels will inspect these properties rigorously to ensure standards are met.
The disadvantages of investing in Phuket condo hotels
Perhaps the biggest downside of investing in Phuket condo hotels is that personal usage time at the hotel itself is limited. Although most condos on the island typically allow owners to stay at the hotel 13-14 days per year, availability is restricted during peak seasons. So be sure to understand the terms and conditions of usage before purchasing a project to avoid confusion. It’s also important to note that the hotel managing the condos now won’t necessarily continue to do so indefinitely. Management contracts signed by hotels are typically for 5-20 years, and there’s no guarantee of renewal once agreements expire. Remember you are investing in the developer, not the hotel brand.
The potential returns of investing in Phuket condo hotels
The major selling point for investing in Phuket condo hotels lies in the potential returns. Some projects advertise potential yields as high as 10%, and those could go even higher if tourist numbers to Phuket continue climbing. Of course, not every project will generate 10% returns. Most Phuket condo hotel projects average annual rental yields of 5-8% in the initial years after launch. In summary, while condo hotel investment in Phuket offers advantages and disadvantages, investors need to consider carefully and decide based on their own requirements. This article is for reference only, not investment advice.
In conclusion, investing in Phuket condo hotels provides good potential returns, but also has limitations on personal usage. Investors should analyze the pros and cons carefully before deciding.