Investing in condotels: paradise losing appeal to urban hotspots

Overcrowded paradise

Kieu Cao Bang, a seasoned real estate investor who was among the first to invest in condotels when they were introduced, showed up early at the launching ceremony of a new project in Hanoi to learn as much as he could about the investment opportunity.

Bang is no stranger to the investment model, having invested in several condotel projects at “paradise” destinations across the country, and this time, he decided to put down money for an apartment near the downtown.

The Vietnamese tourism sector has seen impressive growth in recent decades. From five million international visitors and 10 million domestic tourists in 2010, the sector has grown to 28 million international visitors and 62 million domestic tourists in 2016.

This has led to the golden age of condotels with projects popping up across the country, not only in popular tourist destinations such as Nha Trang, Danang, and Phu Quoc, but also in the coastal towns of Quang Ninh, Haiphong, Thanh Hoa, Phan Thiet, and Vung Tau.

"Paradise" Phu Quoc, a popular tourism destination and home to several condotel projects

Without trying to play down the potential of these projects, Bang, however, believes that the sheer number of condotel projects in coastal areas will bring about new problems for potential investors.

Drawing from his experience and real estate experts’ analysis, Bang said the market may soon reach the point where supply greatly exceeds demand.

He said condotels in coastal areas are no longer “sold out” as they were during the public holidays and management is forced to lower prices to attract customers.

In addition, the tourism sector has always been prone to fluctuations and can easily be affected by numerous factors, including adverse weather conditions, making it less than the ideal choice for investors looking for a stable source of income. For instance, the coastal city of Nha Trang experienced a sharp decline in the number of visitors in 2014-2015 as international arrivals from both China and Russia plummeted.

A shifting trend

Bang said the once wildly popular investment model is losing its appeal to investors as profit slowly dwindles. New projects, either under construction or awaiting introduction to the market, will continue to drive profit further down.

Like many of his peers, Bang noted a shift in real estate investment from coastal areas to the country’s large cities, such as Hanoi.

As more international companies and organisations look to set up their operations in the city and neighbouring provinces, the number of high-ranking business personnel is set to increase in the near future.

A recent survey indicated that business CEOs and their families residing in Hanoi are willing to spend $2,000-$7,000 per month on average on accommodation, but they are looking for five-star luxury services, security, and location near the city centre, which can typically be found in high-end condotel projects.

In contrast to the condotels in resort towns, which may yield return rates of 10-12 per cent per year, city condotels yield higher returns and have proven to be more stable.

Investors are shifting capital to condotel projects in major urban centres like Hanoi

Most foreigners working in Vietnam only stay for a fixed period of time. It makes the most sense, therefore, for them to rent an apartment or acquire one with a 50-year lease, according to a real estate agency that caters to this niche segment.

However, they often have high standards and demands for their accommodation.

“I have done a lot of research on most condotel projects in Hanoi. There is only a handful that meets all the demands of foreigners, including central location, little traffic, five-star luxury services, and being managed by internationally-known companies,” Bang said.

After much thinking, Bang decided to invest in the 5 Seasons condotel project by TNR Gold Season.

“Not only does it have prime location near downtown Hanoi, but the project is also equipped with exclusive free-for-life facilities, such as a residential gym, yoga centre, swimming pool and Jacuzzi, as well as sauna rooms, pool tables, and several other five-star facilities.”

“The starting price for an apartment in this project is VND1.6 billion ($70,000), which is quite low at the moment and therefore there is great potential for profit in the future. That is why I decided to invest my money. I am confident about my decision and I do not want to miss out on this investment opportunity,” he added.