A Condotel is a hybrid species of Phuket real estate combining the services of a hotel and a condominium.
It is a common concept in other parts of the world, which permit individual units to be privately purchased, and then rented as hotel accommodation.
In short, this type of ownership is for anyone purely interested in investment, not for someone seeking a second home.
The owner of a Condotel unit may rent it out on a monthly, weekly, or even daily basis. (For anyone who has followed the restrictions being placed on Airbnb by cities and countries around the world, this is a huge advantage for any property investor.)
A hotel management company is typically employed to run the resort. Most of these companies have attractive rental programs.
The owner is usually allocated a fixed number of days per year to use their unit. For the remainder of the time the management company treats the room as a normal hotel room.
Under most arrangements, they also take care of maintenance and repairs to the unit.
Most Condotel developments offer either a guaranteed return or the option to enter into a “rental pool”. This requires the owner to make their unit available for rental (together with the other participating owners).
The owners then “pool” the rental income, and share together in the profits.
The Attractions for Investors
The attraction of a Condotel investment for a foreigner is obvious.
Firstly, they are permitted to own a freehold condominium unit in perpetuity.
Secondly, they are legally allowed to have the rental of their unit managed for them by a professional hotel management company.
They can therefore take advantage of Thailand’s flourishing real estate sector, while simultaneously capitalising on Phuket’s booming tourism industry.
At the same time, they can also enjoy “free” accommodation in Phuket for a few weeks every year.
Condotels Are a Commercial Business
To function effectively as a condo, as well as a hotel, a Condotel development should apply for commercial use on day one.
It is theoretically possible for the juristic person at a condominium to allow (or at least condone) short-term rentals, effectively “commercialising” the condo for use as a Condotel.
If the juristic person chooses to condone this, the agreement of the owners is not required.
But to apply for the hotel license, thus officially making the development into a Condotel, not only must the juristic person agree, but this legal commercialisation of the common area also requires the assent of 100% of the owners.
Why are There Not More Condotels in Phuket?
It is unfortunate that many condominium projects were rushed into development without first contemplating their use as a hotel.
Shorter-term rentals (e.g. daily and weekly) are technically illegal in Thailand without a hotel license. However, a number of developments offer guaranteed returns based largely on the short-term rental market.
It is also possible that many of the people profiting from short-term rentals are not paying tax. Anyone who gets to know Thailand soon understands that nothing is a problem until lawmakers decide to take action. In other words, everything is OK . . . until it isn’t.
If Phuket should experience a slowdown in tourism, hoteliers may campaign in strength for an end to illegal short-term rentals. But those developments already run with a hotel license will be completely immune from any such backlash.
And if hoteliers were to be successful in any such campaign against short-term rentals, Condotels would profit right along with them.