A frequent question I receive from visitors to Aruba is regarding the construction there seems to be everywhere around the island. Many people believe that more and more hotels are being constructed, but I must inform you that is not the case. In fact, the last new resort to be open in Aruba was somewhere in the 90s.
Soon after valuable real estate around popular beaches such as Palm Beach, Eagle Beach and Druif Beach were filled with resorts in the 90s. The government saw the need to pull the brake on construction of new hotels. No new hotels have been built in Aruba to date. Update: It’s only recently that Ritz-Carlton obtained the permits to start construction officially and will become the first hotel to be developed in over a decade.
Wait a second. “What about all the new construction projects you write about all the time?” Those are everything but new hotels. Let me explain. Since the 90s building-stop for hotels, there have been several rounds of renovations, mergers and expansions:
- Wynham became Westin; result was millions of dollars in renovations.
- Aruba Grand became Riu Palace; result was a massive expansion of 120 million dollar.
- Golden Tulip became Radisson; result was a polemic renovation of the property.
- Allegro became Occidental; result was a renovation of the property.
- Hyatt went into a new era by investing recently 20 million dollar into upgrade of the property.
- Playa Linda is renewing.
- Holiday Inn went renovating, which it badly needs.
- Marriott Resort is currently renovating the property completely. Throughout the years Marriott expanded its businesses with top of the line and highly lucrative vacation properties. These are Marriott’s Surf Club and Marriott’s Ocean Club time share project. This might be polemic as some say it isn’t really and expansion as the vacation club operations are considered different companies, therefore Marriott bypassed the building stop. Regardless anyone’s opinion, Marriott can and will defend itself by saying the vacation club business is a core business, therefore is considered as an expansion. Update: All renovations completed.
- Sonesta Hotel became Renaissance, which also brought millions of dollars in renovations.
- Amsterdam Manor is expanding.
- La Cabana Resort split with La Cabana Villas – now The Aruban Resort – and each resort is investing in renovations. Update: La Cabana continues renovating, The Aruban Resort went bankrupt and was aquired.
- Bucuti expended successfully with luxury Tara Suites.
- Aruba Beach Club and Casa del Mar separated and both invested renovations.
- Divi Resorts have been very busy since the 90s with many expansion and renovation rounds.
- The Mill Resort has plans to expand as well.
Aruba Condo Ownership Thoughts
All the construction there is currently going on aren’t only hotels expanding or renovating, but more a new wave of development. On the one side there is retail, leisure and food construction, such as Paseo Herencia, Palm Beach Plaza and South Beach Plaza. On the other side a new sort of real estate ownership/tourism is rising: Aruba condo ownership.
A round by the condos shows a very lucrative and booming business. On the one hand condos are rising like mushrooms, while on the other they are being sold like hot cakes. Update: late 2009, 2010 sales reportedly cooled down a tad.
There are several condos being build currently, while others are in the pipeline. For the time being there will be supply to cover the demand. However, it seems like the demand is going to remain elevated, consequently condo purchase prices won’t come down any time soon.
Business as usual
It seems like many of these condos are being used as regular resort properties. In other words, the motive of condo ownership is not leisure – at least not the biggest reason – but primarily a business property. People seem to purchase these condos with the prime goal to rent them out in order to bank a profit and this way the property pays itself back on the short/medium term.
There are websites like Vacation Rentals By Owners which facilitate the process. From what I’ve seen on that website brand new Oceania condos are being offered and some units are almost sold out for the year. I think it’s a very lucrative real estate investment.
Let’s do some simplistic and hypothetical calculations in order to illustrate the potential profitability:
- Purchase price: US$ 350,000 (including costs and taxes).
- Local condo fees/taxes per year US$ 5,000 (not official, just a calculation).
- Rent per night: US$ 350 (prices range from $250 to $700 per night).
- Average occupancy rate in Aruba is 80%.
Take into consideration other factors, such as own usage by the owner, in a year’s time the condo owner can bank somewhere between US$ 80,000 to US$ 100,000 gross profit. Within 4 years, the investment could theoretically have been recovered. If the condo owner holds on the property for some 10 years, they can expect to make a decent figure in total.