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Condotels No Longer the Rage in Hawaii. Is Bali Next?

Problems in Hawaii's Condotel Market May Foreshadow Future Problems for Bali.

(7/20/2009) HonoluluAdvertiser.com reports that the recent sudden downturn in Hawaii's tourism industry has sent shock waves through the condotel sector, outlining a possible future vulnerability for Bali tourism where condotel investments are becoming increasingly popular.

Condotels are tourist accommodations, either developed from scratch or through the conversion of existing hotel properties, in which rooms or suites are sold as condominium units to individual owners. As part of the sales transaction, the condotel units are assigned by their owners to a hospitality management company who market and manage the units as part of a larger holiday hotel.

In Hawaii there are many of an estimated 3,500 Condotel owners that, due to reduced visitors to the island and depressed rentals, now find themselves in negative cash flow situations. Revenues generated through rentals are often insufficient to service mortgages and pay monthly maintenance or membership fees demanded by the management company.

Making matters worse, management companies are claiming "force majeure" demanding higher commission levels from owners on already reduced rental rates. Obviously, those who once had visions of beautiful holidays homes paying handsome dividends are less than pleased.

What does the developments in Hawaii's condotel sector portends for Bali is still unclear. If, however, the Hawaiian experience is any barometer, Bali condotel "owners" might someday expect their profits to be shaved by management companies confronted by a declining market.

Should at some point in the future disputes arise in Bali between foreign owners and local condotel management companies, those disputes may be further exacerbated by foreign owners trying to assert legal rights and privileges under a complex and arguably "pseudo-legal" nominee structures in which title to the property are held by an Indonesian nominee.

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