FFE Magazine

Condotels: the next big thing in real Estate

The condotel phenomenon is a fairly recent development in the Philippines in the real estate investment scene. Local newspapers have talked about developers dipping their toes on the concept, and investment forums are buzzing with questions on how profitable they are.

 

But what are these exactly? And why should you consider them in your investment portfolio?

 

Condotels: the basics

 

 

The condotel (a combination of the words ‘condominium’ and ‘hotel’) is a high-rise building that is legally a condominium but is operated as a hotel. As a condominium, condotel units can be bought and owned by private investors or groups. As a hotel, condotels units can be booked by visitors who benefit from the condotel’s front desk services (food and beverage, housekeeping and others).

 

At its most basic sense, condotel units are full-service holiday homes that can be leased out as a hotel room. A condotel unit owner can choose to live in his or her unit exclusively by not enrolling the unit in the leasing programme. But he or she can also rent the unit out for profit.

 

Because condotels can be let out, they are great investments for people who are usually out of the country and who only occasionally come home for a holiday. Condotels are also great investments for people who want to have a holiday home, but who would like to make a profit out of the property whenever they don’t use it.

 

Condotel growth in the Philippines

 

In the Philippines, commercial condotels began to sprout by 2009. Only in more recent years have bigger real estate developers picked up on the trend. But worldwide, the first attempt at merging a condominium and hotel service was done in 1992 by real-estate mogul Donald Trump.

 

 

By 2006, the American market for condotels boomed. That year saw investors pour in $250 million (€181 million) toward condotel projects in the US. Locally, that year also saw increasing interest among British real estate investors in condotel projects in the Philippnes.

 

The Philippines is a ripe market for condotel projects because of the increasing number of tourists and of local investors’ thirst for real estate properties with rich return of investment. The condotel’s easy terms of payment fit into these requirements, plus, with the country still profiting from the Department of Tourism’s ‘It’s More Fun in the Philippines’ campaigns, the condotel is seeing continued growth.

 

Because of their hotel services and relative costs, condotels usually attract vacationers. Sites near international airports and top tourist destinations also stand to profit soundly. In the past, condotels have been built through partnership with international real estate companies. But in recent years more local developers are planning to enter the market.

 

Advantages and disadvantages

 

Unlike leasing out a condominium, condotel leasing is less worrisome because the management will play an active role in taking care of marketing your unit, accounting and maintenance. In place of association dues, unit owners only have to pay a maintenance fee.

 

A condotel also operates as a joint-venture among unit owners and the hotel operator. This means that a percentage of gross sales (usually 30%) after tax are equally divided among unit owners, whether their rooms were let out or not. This is guaranteed and paid in a regular basis to the owner. The larger the floor space owned, the bigger the share in the cut. Because of this system, a condotel is a great source of passive and consistent income.

 

Condotel owners are also given a complementary stay and enjoy the same amenities as guests. However, these have to be booked ahead of time and are subject to the operator’s discretion.

 

 

Additional fees may be asked from the owners, especially for furniture upgrades and for joining the leasing programme.

 

The success of the condotel depends heavily on the operator. This means that before making an investment, the investor must check if the management is effective and efficient for the job.

 

Is it profitable?

 

A condotel operator has reported that unit owners can earn 6-8% of the purchase amount per month. At this rate, return of investment can happen by the 9-10th year of the condotel’s operations.

 

However, since a condotel in a developing location can dramatically rise in value, a unit owner can expect to earn a small percentage on their investment as annual growth rate improves.

 

To start your search for a condotel investment in the country, you can sift through local online classified ads or Philippine real estate forums for advertisements from condotel unit owners who are reselling their units or from the property developers themselves. You can also try newspaper classified ads though listings for condotels may be rare.

 

Have you tried investing in a condotel? What are your experiences and personal take on the development? Share your thoughts by commenting below.

 

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