A clear vision of the future

February 21, 2011 | 08:00
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Serenity Holdings chief visionary officer Louk Lennaerts offers his thoughts on the shortcomings of hopeful speculation on the property market while explaining his company’s original philosophy.
Developers need to take a measured approach if they are to succeed in Vietnam’s sometimes capricious property sector

Vietnam is going through a new wave of real estate development, where investors are getting more experienced.

However, still many mistakes get made. After a short period where developers and investors were in “a gold rush”, where they believed that any project would bring big profit, the real estate business is getting a bit more realistic.

In Asian culture, land and its value is something magic. People look for land deals and try to find a good offer.

In this situation, the land buyer is not looking for a possible project to develop, but simply collecting land, which he or she believes is still reasonably priced.

In this case, many land buyers do not have a vision of the final development plan. Therefore, land becomes more like a commodity that can be traded with a value that is expected to increase.

The reality shows that at a certain moment profit can only be realised, if another party buys at a higher price by having the belief he can, again, sell against a higher price or he just believes in developing a project without already knowing the real risk.

Same, same…

Unfortunately many investors and developers are looking at the success of the others and copying successful projects, resulting in the reproduction of certain models in large numbers. This results in an oversupply of similar concepts in a still limited market. Most investors still believe they are the first or the best, so they will do better than the others.

Looking back over the last 15 years that I have spent in Vietnam, I clearly realise that the first group of investors were often foreign investors, who were only partly successful with their projects. They mostly paid too much in a market that wasn’t mature and lacked stability. However, finally, their investments paid off. Their strength has been that they have focused on good quality projects in appropriate locations.

Demand for quality

The future will be much more risky as long as demand is not in line with the supply. Even there is a high need for housing in the future it is not that clear if the supply will be in line with the products that are required.

The production of housing for speculation purposes is not healthy but risky for buyers. The major point from our experience is that real estate development is a complex working area and will not function by just copying other concepts and having trust in the hunger of buyers that are mostly just anticipating short term profits.

Still there are ways that can help to ensure success and reduce risk. The most important way will be to start with a concept and find the right location for it. Unfortunately, mostly property development starts with land that has been collected but still needs a concept.

Clear identity 

Once there are no direct buyers for the land it becomes important to start planning a project to avoid losing the land. Unfortunately many of these land owners and so-called developers go to an international or local architect to ask for a plan, however they just produce a lay out of a project, not the contents or an identity that should be the basis of future profitability.

It should be understood that without a clear identity and economic plan for a project the risk are too high, while the time is over to just put money into projects that aren’t generating return now the money flow is getting thinner again. Even thought this should already be common sense, we see still that many investors are continuing in their own fashion, way too fast and without enough study.

Our experiences…

We have learned at Serenity Holding how complex real estate projects are as we are involved in developing two beach resorts and one city studio apartment, in which we have become shareholders ourselves.

We have been able to define a model that allows us to start with a small investment that can finally generate more than 200 units. In front stands the concept that makes the project different and valuable.

The secret is to look at four aspects at once: understand what is needed in the market; optimise investment per unit; control the budget and implement in phases to minimise cash flow requirements; and ensure a special character for the project.

Starting points

We can now start to see the trend in demand by the market and how we can define a product that is different and attract the buyer by surprise. Serenity is now known for setting up resorts under the name Fusion but also for studios in the city as well as for budget related projects under the brand M2 Boutique.

The starting point should be: have the right location; have the right function for that location, create the right concept for feasibility; and work on architecture and other technical services to ensure one clear direction.

The insurance also has to be able to take care of the operational management after construction completion makes the model unique and most valuable for the end-users. We understand that this is an optimal model, which only can be offered once the right team is available. 

Obstacles and benefits

For me it is rather frustrating to see companies starting projects not knowing the market and not knowing their risks. Many people fall in love with the idea of having a hotel or resort not knowing how complex and difficult such projects can be in a market that tends to oversupply.

Tourism is also a sector that can attract a second home investment for many, where the units can be used by investor as well as can be rented out. However we realise that most buyers look primarily in a speculative fashion to see an increase in value of the investment and less as on option of gaining income from renting the property out. That means they don’t look enough into anticipated income figures as most developers don’t give clear information on it.

No leap of faith

From our side we believe still in good projects and are working on more than 12 developments all over Vietnam that all should become profitable, however at the same time we only start projects that we believe in. We are now especially focused on smaller scale projects and in projects with smaller units that are easier to sell in the market.

However we understand that the buyers are getting much more critical and demanding and are looking for more attractive projects. Therefore, any project should have its own special character.

In the tourism sector, we are just finishing Vietnam’s newest and most luxurious resort in Danang – the Fusion Maia Danang opened in mid October last year, which is at the same time the first resort in Asia that offers all spa treatments free for guests. It is a service like the breakfast that a guest can enjoy when he or she likes without extra payment.

This quite revolutionary approach of a “free spa” for the Fusion Maia Danang Resort, where also all units have their own pool, will be a new trend and it is now already expected that in coming years many resorts will copy this new concept all over the world.

Every square metre…

For us the new brand Fusion stands for combining services in a new product that is fashionable, luxurious, individual and surprising. At the same time Serenity creates new budget concepts for the cities ensuring that also small pieces of land with relative high value can find a feasible function.

The key is making the best use of every square metre – this leads to the name M2 Boutique. We would like to create at least 10 such M2 Boutique projects that can be used as a city hotel, a countryside resort, or for studios in any destination.

We believe that in future, tourism and real estate can be combined in a new way where people can become shareholders or members in a pool as we are now exercising for Fusion Alya in Hoi An and Fusion Alya La Gi. Our strength is to create new models that will become the only way for any investor and developer to be jointly successful.

vir.com.vn

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