Condotel ventures in Thailand
Condotel – the hotel built-in into the condominium
A condotel is the smart concept of mixed-use property development and also known as condo hotel, hotel-condo, condotel or (in American English) as contel. The hotel might be marketed as a serviced apartment and the rooms might be rent out on a daily, weekly or monthly basis. The accommodation rooms have condo sizes instead of hotel room size, which typically means they are larger and more individually decorated.
Although this concept has been realized first in Miami Beach, Florida in the 1980s, condotel ventures have been made popular by no one else than Donald Trump with flamboyant, high-end projects in Honolulu, Chicago, and Las Vegas. However, the concept has its eligibility also for medium-sized and even old condominium developments.
On an international level, condotels are often developed by hotel and resort companies — such as Starwood Hotels & Resorts, Hilton Hotels, The Ritz-Carlton Hotel, and Four Seasons Hotels and Resorts. Many condo hotels, especially the branded ones, have seen double-digit growth, and have out-performed traditional condos or single-family homes in the same resort market. However, just like traditional real estate, business success is for the investor never guaranteed.
Why choose, when you can have it all – Thai condotel projects in the pipeline
The recent Siamese Rama 9 condominium development in Bangkok, to be accomplished early 2022, is designed as a mixed-use concept encompassing offices, residences, and a shopping mall. All unit buyers are required to sign a consent letter to allow a hotel license submission for the project. The developer promises to “do everything as required by the Hotel Act to obtain the license.” However, this does not automatically mean that the unit buyer has a guarantee that such license application will be successful and their units will be included in the hotel area. For good reasons, the project website does not include any assurance of a licensed hotel business.
The hotel aspects of the investment will not be covered by Thailand’s Condominium Act and the unit management agreement with the hotel business company should be well-considered and carefully agreed to avoid a disappointment. In the press, the developer is quoted “The only two reasons that it will not get a license are changes in the laws or no allowances to do.”
Siamese Exclusive Ratchada, Blossom @ Fashion on Bangkok’s Ram Intra Road, and Wyndham Naiharn Beach Phuket are other names of condotel projects where a prospective buyer should carefully review the factual license situation.
Seven legal and factual requirements in Thailand
#1. Locations: Preferred locations for condotel ventures are Bangkok, Phuket, and Pattaya. Even if it is marketed as a condotel, this does not always mean that the formal requirements are met.
#2. Structure: Under a condotel structure, some individual units of a CJP (Condominium Juristic Person) are used as hotel accommodation. Typically the units are owned by different buyers as a second or third home. Depending on the individual owner, his unit is leased out to a hotel management company during the time when the owner is not in residence.
#3. Rental agreement: As an alternative to an individual unit letting agreement to the hotel management company, the unit owners can enter into a rental pool agreement. Under such an arrangement participating owners of condominium units agree to have their units available for rental as determined by the agreement and share the profits and losses of all the rental units in the pool in accordance with the agreement.
#4. Two regulatory frameworks: Condotel structures are common all over the world and can be realized in Thailand as well – if duly structured and managed. To accomplish such a structure, the regulatory requirements in terms of specifications, facilities, operation and management for the hotel business and a condominium have to be fulfilled simultaneously. Under the laws of Thailand, both regulations are not exclusively. The Condominium Act does not exclude the units to be used as a hotel. The acquisition of a hotel business license does not invalidate the condominium license and vice versa.
#5. Foreign investments: A condotel is an attractive option especially for foreign investors in Thailand. It combines the possibility to obtain foreign property ownership with the participation in Thailand’s hotel business industry. The investor does not need to utilize the weak long-term lease / short-term lease out structure but invests in a title deed (Chanote) with full and unlimited legal ownership.
#6. Conversions: A condotel venture can be developed from the start. It is also possible to change directions later by licensing an existing condominium wholly or partially as a hotel business. Whether this requires not only additional paperwork (for example a hotel EIA) but also modifications and additions to the building structure (parking space, fire exits, etc.) has to be decided on a case by case basis.
#7. Conflict of interest: The everyday life conflicts in public accommodation, in which some or even the majority of the units are privately held, should not be underestimated, but are typically manageable, as condotel ventures all over the world clearly show. A potential conflict of interest might arise between the administration of the condominium juristic person and the hotel management, especially if both are handled by the same managers in the dual role of representing the CJP as well as the hotel.
The above remarks are highly simplified and should not be taken as guidance for a specific case, which is typically unrecognized intense and complex. Each case is different.
Professional service offer from Bangkok
PUGNATORIUS Ltd. is the Bangkok-based specialist provider of legal services and tax advice on foreign investments in Thailand’s manufacturing and service industries as well as property acquisitions and developments. Sophisticated solutions in a complex legal environment.
Legal and tax advice on Thailand’s hotel and hospitality industry are one of the law firm’s areas of competence, long-standing experience, and unique market reputation. The law firm advises on
- the combined structuring of hotel and condominium projects,
- the effects of the new Sap-Ing-Sith legislation on the condotel structuring,
- the subsequent licensing of existing condominium projects as a hotel business,
- the design of efficient condotel lease contracts and condotel management agreements,
- the acquisition of a condotel unit by a foreigner, and
- the investment in a condotel leasehold structure.
The terms for assigning PUGNATORIUS Ltd. are described at “Legal services for the hotel and hospitality sector”.