Defining Your Development: Holiday Residences or Condotel?

In the current real estate landscape, Condotels and Holiday Residences are frequently grouped together as similar "second home" investment products. Both models allow developers to reduce equity investment and loan requirements by raising additional financing during the construction period through pre-sales.

However, a significant number of developers fail to distinguish the critical operational and design differences between the two. These distinctions drastically impact planning, pricing, branding, construction costs, Average Daily Rate (ADR), and Internal Rate of Return (IRR).

At Indo-Terra, we advise developers to clearly identify their product before planning and design commence. This guide outlines the key factors developers in Bali should consider when choosing between these models.

Understanding Condotels and Holiday Residences

1. Design & Configuration Differences

The Condotel Model

• Design Philosophy: Built and designed strictly as a hotel, fully equipped with Front of House (FOH), Back of House (BOH), and comprehensive facilities.

  
  

• Guest Perception: Transient guests and travel agents view the product as a hotel, not a condominium.

  
  

• Efficiency: Because it requires a hotel configuration, the ratio of Net Leasable Area (NLA) to Total Gross Floor Area (GFA) can be less than 50%.

  
  

• Unit Mix: Units are typically smaller (Studio or 1-Bedroom) with a lower selling price per unit to appeal to investors seeking yield.

  
  

The Holiday Residence Model

• Design Philosophy: Targets travelers seeking the comfort of a vacation home or family holiday rental.

  
  

• Guest Perception: Guests often book through platforms like Airbnb and use the unit as a home during their stay.

  
  

• Features: Rooms are spacious and include full kitchens. FOH, BOH, and facilities are generally limited compared to hotels.

  
  

• Efficiency: The residential configuration allows for higher efficiency, with an NLA/GFA ratio often exceeding 75%.

  
  

• Unit Mix: Includes 2, 3, or 4-bedroom options alongside studios, catering to buyers looking for personal usage mixed with rental potential.

  
  

2. Operational Management

Who Operates Condotels?

Large condotel projects are typically run by third-party operators, including international or regional brands.

• Branded Advantage: Leveraging a brand allows developers to justify higher selling prices based on brand equity and operational trust.

  
  

• Challenges: Few international operators accept condotels due to the complex ownership structures. Conversely, using non-branded third-party management can lead to a loss of control over standards and potentially higher investment costs.

  
  

• Self-Management: Many developers opt to manage properties directly under a separate entity to control design standards and investment capital.

  
  

Who Operates Holiday Residences?

• Structure: Holiday residences usually offer limited central support. Due to the lack of full hotel facilities (FOH/BOH), full-scale hotel operations are improbable.

  
  

• Management: Units are often self-managed by the body corporate representing the owners.

  
  

• Rental Options: In some cases, operations are set up for short or long-term rentals, providing basic cleaning, security, and maintenance.

  
  

3. Business Models & Sales Strategy

The Cost of "Guaranteed Return" (Condotels)

To incentivize sales amidst high supply, condotels often offer rental guarantees.

• Regional Context: While Thailand markets often see 8% returns and Cambodia 10%, some aggressive markets have offered up to 12% for 8 years as Bali and Vietnam.

  
  

• The Reality: This "guaranteed return" is frequently borne by the buyer, as it is factored into a higher selling price compared to products without guarantees.

  
  

The Value of "Capital Gain" (Holiday Residences)

• Cost Efficiency: Because holiday residences have higher design efficiency and require less investment in heavy hotel facilities, construction costs per net sellable area are generally lower.

  
  

• Sales Pitch: This allows developers to market the property based on affordability and future capital gain, rather than relying on guaranteed rental returns.

  
  

4. Market Trends and Insights

The market for condotels and holiday residences in Bali is evolving. Investors are increasingly looking for properties that not only promise returns but also offer lifestyle benefits.

Emerging Preferences

• Sustainability: There is a growing demand for eco-friendly designs. Properties that incorporate sustainable practices tend to attract more attention from investors.

  
  

• Technology Integration: Smart home features are becoming a selling point. Buyers appreciate properties that offer modern conveniences.

  
  

• Community Focus: Developments that foster a sense of community are appealing. Buyers are looking for more than just a place to stay; they want an experience.

  
  

5. Conclusion: Choosing the Right Path for Bali

• Condotels: Best for developers and owners aspiring for higher operational yield. Success relies on a strong operational component.

  
  

• Holiday Residences: Best for those targeting lifestyle investments. The advantage lies in lower investment costs and design simplicity, resulting in competitive selling prices and room for capital appreciation.

  
  

About Indo-Terra

Indo-Terra is a boutique real estate consulting firm supporting developers through the project lifecycle. We specialize in villa property, hotel, and resort advisory.

For more insights on real estate investments, visit Indo-Terra.