NEWS | CAREER WITH US

News

home » news

Judging condotel business opportunities in Bali (21/06/2011)

"If other people can do it then so can i. This phrase seemed to have been strongly held by many developers when deciding to invest big amounts of their capital in condotel projects in bali. In fact, not all of them succeeded to gain profits. A number of condotel porjects were even halted because they did not sell. This only means that developers should carefully read business opportunities, not blindly following others to build condotels in the world-renowned tourist island"

 

BALI TARGETS 1.7 MilLION foreign tourists this year, up from last year's 1.65 million. That target will probably be achieved considering that more than 200,000 foreigners have visited Bali in the past months. Data at BaIi's Statistics Bureau shows that in the January-March 2011 period a total of 207,907 foreign tourists had visited Bali, or  a 7.96% rise from the same period of last year.

In Q1-2011 foreign tourists coming to Bali were mostly from Australia, China, Japan, Malaysia and South Ko­rea, respectively accounting for 24.84%, 10.74%,8.40%, 5.79% and 4.86% of their total number in that period. Surely, their visits caused a significant rise in room occu­pancy of Bali hotels. In Q1-2011, star hotels' occupancy averaged 62.23% while non-star ones averaged 38.37%. Meanwhile, foreign and local visitors stayed at Bali's star and non-star hotels for 2-3 days on average.

The ever rising number of foreign visitors-and domestic tourists-who came to Bali had prompted developers to continue building hotels, villas and condominium ho­tels (condotel) on the island. One of them was Metropoli­tan Land Tbk (Metland) which held an IPO last month. Then Metland immediately planned made plans to build several new property projects including the Horison Seminyak condotel, build in the middle of the Double Six beach tourist crowd that claimed so eagerly awaited cunsumer.

The 3-star hotel is the first strata-title condotel ever built by Metland. It said that 3-star hotels in Bali still have very good prospects because the number of tourists visiting the island has continued to rise from year to year.

The plan is that the four-story condotel will occupy about 2,400 sqm of land with a total of 156 rooms. The building itself will be 7,100 sqm. Metland will invest a total of Rp88 billion in the hotel project and its construction work is scheduled for completion by end 2012. Project funding will partly come from Metland's IPO proceed.

Metland's business expansion to the condotel sector in Bali will surely increase condotel market competition on the island which has become quite tough at the mo­ment as some developers have started to develop similar projects in the area. They include Gapuraprima Group which has teamed up with Sun Motor Group to build The Sun Heritage Condotel@Sunset on Kuta Sunset Road with an investment no less than Rp 150 billion. Others are Bina Propertindo Group which is developing Watu Jimbar condotel in Sanur, Bali, PT Total Camakila Development which is building Ramada Hotel Suite Sakala condotel in Tanjung Benoa, Bali with US$40-50 million investment. Still, many other developers have expanded their property busi­ness to Bali.

According to Tony Eddy, project marketing and investment consultant at Tony Eddy & Associates, at this time a total of 15 new strata-title condotels are being developed in Bali with investments of Rp15 trillion, combined, or an average of Rp 100 billion for each project.

According to him, condotel has now become a market trend in Bali. Some strata title condotels also have become an altemative for investors. The projects offer installment payment systems, which are a cash flow solution for investors. However, Tony said, not all condotel projects in Bali have been smoothly carried out. Some of them were halted by their developers being not adequately absorbed by the market. At the moment the development of 6-8 strata-title condotel projects in Bali have been halted be­cause their developers were not serious,” Tony said. But he did not mention the names of the projects.

If they were not serious with their projects then why did they spend big amounts of funds for their projects? Did they blindly follow other developers who had success­fully built and marketed their condotels? Yet, it is not fully true to say that they unconsciously just copied the activities of others considering that not a single developer would be willing to waste their money.

For any developers, building strata-title condotels is so enticing as compared to building hotels which requires bigger investments. Beside, condotels can be immediately marketed even when their construction work has just start­ed. With attractive locations, good concepts and sound track records, normally developers can easily sell 40%-50% of their condotel units in the early phases of their market­ing. Say there is Rp 80 billion condotel investment and a total of 150 condotel units are offered at an average of Rp 1 billion each. This means that in the early phases of its marketing the condotel developer rakes in Rp 60 billion - ­Rp75 billion, or almost a break-even point. Meanwhile, the sale of the remaining units can be said to be the net profit gained by the developer. Isn't it enticing?

Luring investors to buy condotels is not easy work. Normally, developers have to team up with internation­al hotel chains that are experienced and renowned in operating hotels. With certain percentages of rental guarantees for several years (normally 3-5 years) and con­dotel rental income is indeed much bigger than deposit interest income, people will feel encouraged to invest their capital in condotel projects.

Moreover, property prices in Bali have increased from year to year. As the construction work of a condotel can be completed within about two years, developers and in­vestors can easily calculate the profits they can gain from rising condotel values. This is the reason why many people are still interested in condotel investments. And, if making investment in hotels is that easy, then why are there failed hotel projects? Possibly, the real problem is that de­velopers had not made accurate maps of the so tough Bali condotel market. (DP/DHP).