Investors warned about oversupply of condotels

The condotel supply (blue) and consumption

A market report for the first half of the year noted that there are signs of oversupply in the condotel, officetel and serviced apartment market segment.

Condotels now account for 56 percent of total supply, higher than the supply of hotels and resorts, which just account for 44 percent. This is considered abnormal because in principle the supply of condotels is usually lower than resorts and hotels.

Until 2014, the supply of condotel had been modest. They were developed by a small number of investors at resort complexes in Phan Thiet, Nha Trang and Da Nang.

According to DKRA, a real estate developer, in 2016 alone, 26 new condotel projects were put into operation which provided 15,000 apartments.

The supply sources were mostly in six coastal provinces and cities: Nha Trang, Da Nang, Phu Quoc, Quy Nhon, Binh Thuan and Ba Ria – Vung Tau.

In the first quarter of 2017, three more condotel projects opened, while existing projects started the next development stage. The projects provided about 1,000 products, mostly in Da Nang, Ba Ria – Vung Tau and Binh Thuan.

In early May, Savills Vietnam, a real estate service provider, predicted the resort real estate market would continue developing strongly as there is a supply wave of ‘second homes’.

In addition to Khanh Hoa, Da Nang and Phu Quoc, the supply could be from Ho Tram, Ha Long and Quang Nam. The projects in the localities are expected to provide more than 17,000 products (both villas and condotels) in the next three years.

Also according to Savills Vietnam, a condotel is the favorite product among second homes. Condotels are predicted to account for 65 percent of the second home supply by 2019 in coastal provinces.

With the supply increasing sharply within a short time, some analysts have warned about the oversupply.

According to DKRA, in Q1 2017, only 30 percent of 1,000 marketed condotels were sold.

Buyers have begun worrying about the investors’ committed profit policies and the limited ownership time of 50 years. Most condotel investors commit to a profit of 8-12 percent per annum for 5-10 years and holiday sharing of 15-20 days per annum.

HoREA thinks the committed profit of up to 12 percent for 8-12 years is too high, more than the deposit interest rate. This, there are latent risks for secondary investors.

According to Adam Bury from Jones Lang LaSalle (JLL), the committed profit is 5-7 percent for two years in other countries.