By Bill Barnett

A  recent topic of discussion in Thailand’s real estate circles has been about how possible defaults in the condo hotel or investment sector can have a negative impact on the industry.

Based on our own two decades of experience with C9 Hotelworks in branded residences in Thailand and throughout Asia Pacific, I thought it might be helpful to give some guidance to prospective property buyers on how to avoid defaults, or illegitimate investment-type schemes. Here goes –

Who is the Developer?

A logical starting point is who is the developer of the project? Get beyond the website and look at fundamental questions.  Have they completed other projects and are these successful? What is their track record?  Is the company a public listed entity, a developer with multiple projects under one umbrella, or a one-off private limited company?

In Thailand a key trigger that further due diligence is needed is if the development is fronted by foreigners, then is there a significant Thai shareholder in the project, or is it a nominee structure? This is not to say that there are not good foreign real estate developers in Thailand but in the case of project default, recourse will often be restricted to who is the significant Thai partner. If a nominee structure is used, what guarantee can buyers have that they have the financial resources to complete the project? One of the biggest red flags is ensuring the developer has the financial capacity to complete or else that bank financing is in place.  If not and they are looking to fund the project on sales cash flow, the risk factor for buyers is extremely high.

Guaranteed Returns, Too Good to Be True

For purchasers looking at condo hotels or investment-focused real estate, the development strategy of guaranteed returns is a sales turbocharger. Even experienced buyers who have worked out that projects are pricing in the returns as part of the sale price still often believe that they are mitigating risk by getting at least 30-40% of the total price under the guarantee? How wrong they end-up being.

First, buyers need to understand if the guarantee is backed by an escrow or trust account or simply a contractual obligation?  They also need to know that most guarantees have a lifespan of two to five years, though in some extreme cases we have seen projects offering ten-year terms. COVID-19 has also been an acid test for many buyers as ‘Force Majeure has come into effect nullifying the guarantee or in some cases, simply non-payment by the developers.

Few initial guarantees later translate to longer-term returns of a similar yield. So often once the guarantee expires, actual returns often crash to a fraction of the initial number, and reality bites. A red flag for guaranteed returns is when there is no clear backing of the return by a financial instrument and an extended-term is promised. If it’s too good to be true if probably is.  Buyers need to understand that when developers are using guarantees they are covering the amount by marking the property up or else are not prepared to back these returns up long term, in instances of negative cash flows.

Hotel License

Real estate in Thailand which is promising hotel-generated rental returns or rent to transient (daily) guests requires a hotel license. From our experience in the sector, we have seen so many different scenarios ranging from projects which vaguely promote hotel-type rentals and have no intention to obtain a hotel license, to those who often have no legal way to obtain one such as certain villa estates who do not meet legal requisites for a license.

Sadly, the Hotel Code in Thailand is often vague and the licensing of projects ends up with different interpretations depending on provinces and often municipalities. Condominiums as an example are allowed to obtain a hotel license assuming that 100% of the buyer’s consent to this and to issue a license requires a change of use of the project from residential to commercial, which can only be done on project completion.

In a nutshell, off-plan buyers are taking a risk if purchasing into a condominium hotel or branded residences if there is not a hotel license. In all fairness, developers cannot get licenses if still under construction.  The best protection for buyers is to ensure the contract has a warranty that a hotel license will be obtained in a certain timeframe and if not pre-termination of the sale be allowed and a full refund made.

Hotel Operator

For buyers into rental managed properties under hotel schemes, they need to closely look at who is the operator.  Is it the developer, has an international operator been appointed, or what is the plan? If there is a management company, buyers need access to the management agreement and this should be referenced in the sales and purchase agreement.

A key red flag is where the developer, who has no experience is set to operate the rental operation. There remains a risk for buyers in that most hotel management contracts have lifespans that will be shorter than the property itself so what happens after that? Also, if you are buying into a certain brand, and that company no longer is affiliated with the development, how returns and values may be downgraded.  You have to also be prepared that at some point in the long term, the development can no longer be operated as a hotel due to age and changes in the market so what happens then, contractually to property owners?

Check the Land Title/s

An essential part of any purchase is to have a clear understanding of what land titles exist for the project. In Thailand Chanote titles are preferred but in certain cases Nor Sor Som Kor is accepted. First, understand if the developer owns the land the project is located on. Second, has the land been mortgaged and a bank lien registered with the land department.

One absolute red flag for the project that has been a recurring issue is titles have liens on them by non-institutional lenders referred to “Kai Fak”. These liens are legal in Thailand but interest rates are at premiums compared to banks and buyers should consider if a developer had to go to private parties to obtain funding, can they complete a project of scale?

Lastly, where there are complex hotels and hotel residences, underlying land titles should be separately subdivided Hotels often will have mortgages or loans in place on a long-term basis and if the residences are on the same title, in case of a default, the bank will have first recourse over the property.  A right of way should be put in place so if a hotel goes into bankruptcy, residential buyers have legal access to their property.

Making Sense of Payments

Thailand’s real estate payment regime is fragmented and there are different market practices between freehold condominium type properties and leasehold. One of the most used payment schedules for resort properties is those linked to construction milestones – down payment, foundation, structure, or lock up as an example.

Buyers need to be closely monitoring construction updates and have physical checks to see if the billings match the work progress. The worst cases for buyers are when they have paid 100% of the unit in advance for a discount and carry the entire risk of non-completion or where no construction occurs or will ever start. A red flag here is developers who are promoting substantial cash discounts for full payment as they are likely financing from presales and may default. As for how buyers can best manage the payment cycle risk, keep down payments low, check on construction progress and ask for proof of build permits and construction contracts.

How to Read Developer Rental Projections

For non-hospitality professionals, understanding hotel projections can be confusing. In the first place, if you are buying into a condominium hotel or branded residence ask for rental return projections and supporting documents. This is an investment, and you need to expect more details documentation than just a ten-year forecast that shows returns going up, up, and away.

Where red flags start to come up are on projections that show high occupancy and rental rates from year one onward. New hotels take time to stabilize and compete, they typically have a two to four-year trend to stabilize.

If a developer is comparing returns in the early years to the overall market this is flawed and returns will suffer. Another is when they compare rates to those offered on Agoda or online. For hotels, achieved rental rates are many times 30-40% below those online so again another reality check.

The best way to evaluate returns is to consult a hospitality professional or at least talk to someone you know in the hotel industry to vet the projection. But at the end of the day look at the fine print and understand the projections will unlikely be backed by a contractual warranty so there is no recourse when returns fall short. The second is to make sure the legal sales documentation has a clear management contract between owners and the developer which is comprehensive.

Freehold vs. Leasehold

For anyone looking at buying Thai property, it’s important to understand the difference between freehold and leasehold. If not clear, get advise on due diligence.  For condo hotels or condominiums, this falls under a different legal code – the Condominium Act. For the buyer, this is a more structured approach to the owner’s rights once the project is completed and registered. But on the other side of the scale, hotel operations need to occupancy titled areas under the developer/owner and there is still a requirement for a juristic person (building/owners management). One of the inherent risks for buyers in a hotel scheme and also for management groups is that long-term tenure is not guaranteed and once the owner’s body is formed, a majority of buyers can vote out the operator. Banks interestingly prefer lending to freehold property given the ability to hold land titles.

The other type of ownership is leasehold which may be an apartment or villa. These types of properties are under the Land Development Act, which is more developer-friendly. While long-term hotel management may be secured by owners easier, there is often less immediate legal recourse for developers who default. Owner’s recourse and rights as formal bodies depend on the initial bylaws and article of association, unlike condominiums where there are statutory bodies and processes.

One significant red flag is understanding if the project is leasehold, who is the landowner and how can buyers institutionalize this. In so many cases when individuals are used as landowners,  in instances of death, family disputes, and financial problems, underlying land in leasehold projects has been mortgaged or “Kai Fak”.  This individual approach puts unit owners at risk. The best way to prevent this is a trust or institutionalize the land-owning entity.


Most buyers at some point want to at least understand can they resell a property? For condo hotels or those operating as hospitality-managed residences, they may find the secondary market limited. If returns are poor, prospective buyers may look closely at historical yields. Another aspect is, that some end-users or owner-occupiers don’t want a hotel operation in their condo building or estate as it’s often noisy and transient.

Common area changes are typically higher so this often puts off the resale market. The bottom line will be while brands might elevate this type of real estate, it also has limitations on re-sales and if things go very wrong on rental returns, it could make an asset virtually unsaleable.

Legal Documentation

Our first advice for buyers is to hire a lawyer. But take more steps and go beyond that.  Do your research on who you hire, make sure they have experience in hotel residences and condo hotels. Draft a brief and check the boxes.  Don’t expect to as little as possible on hiring a professional.

But beyond that, remember aside from the contacts and legal due diligence you need to do your checks on the items above. Make an informed decision, obsess over details, and question everything, as it’s your money on the line.

So there you have it, these are the Top 10 Best Ways To Avoid Condo Hotel Property Investment Pitfalls, but by no means is it exhaustive. The condo hotel and branded residences sector is a global industry and like any, you have the good, the bad, and the ugly. There are many examples of long-term success for buyers but sadly there are cases where rip-offs have occurred and default with buyers losing their investments.

This article appeared on C9 Hotelworks.