Ensuring profitability of Vietnamese condotels

April 24, 2019 | 11:00
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The condotel segment has recently emerged as one of the most attractive investments for investors. VIR’s Quynh Chau talked with Bob Merrigan Regional Director – Hotel Project Services, Asia Pacific, JLL, on his assessment on this new segment of the Vietnamese real estate market.
ensuring profitability of vietnamese condotels
Bob Merrigan

How do you assess the liquidity of condotels compared to other segments in real estate?

As yet, there have been not any official figures of the liquidity of condotels in the market. Projects that have been put into operation are, so far, very few. We can see that condotels remain attractive for buyers due to the commitment of high profit from developers. However, buyers should note that in many cases, the commitment of profit from 10 to 15 per cent is not guaranteed yet. It’s a waiting game to find out if developers can gain this profit or not.

Besides major developers pouring huge capital into ­condotels, many companies with non-real estate business have also been jumping onto the boat. Can they be successful leaving their core business?

I think condotels attract non-real estate companies for three main reasons. First, it’s a new type of investment which has been developing over the last three years, therefore competitiveness remains low compared to many other segments such as apartments for sale, townhouses, villas, and land lots. Apart from this, condotels are favoured by their double functions of condominium and hotel room, offering more choice for users.

Second, like many other segments, condotel owners can see their return investment after a shorter time compared to other segments.

Third, under the Law on Tourism approved in 2017, tourism will be one of the leading economic sectors in the coming time. This causes a great positive impact on the second-home and hospitality segments, and creates a new motivation for those two segments to develop based on government incentives and supportive policies.

For the time being, Phu Quoc Island authorities have offered their own incentives for the tourism sector related to taxation and time for using land. Phu Quoc also opened the first casino to permit Vietnamese people’s entry, and the island has become one of the most attractive destinations for tourists.

Many experts say that with the growth increasing at speed, condotels are near to ­oversupply. What is your view?

According to research from JLL, second-homes and condotels have arisen in almost all the hottest tourism destinations in Vietnam. However, key markets like Danang and Nha Trang can see much room for development.

I think with the high potential of tourism development, we should not worry on oversupply now. However, in order to ensure stable development, one of the most important factors is how to improve the quality of the services, and how to apply a good business strategy. Both developers and buyers must consider very carefully on the profit they intend to gain when putting their condotels up for lease. Both sides must adapt to a more developing market and more demand from buyers.

I think condotel oversupply will depend on the development of the tourism sector in the future. At present, the tourism sector has lots of potential thanks to incentives from the government.

Developers have been racing to launch attractive preferential policies, such as ensuring the profit or the rental yield from 8 to 15 per cent annually. What is your take?

The policy of ensuring profitability is an important factor that makes condotels more attractive and different from other types in the real estate market. Considering if the profit from 8 to 15 per cent is feasible or not, I think again it depends on the development speed of the tourism sector and the capacity of the investor to operate the project effectively. This not only requires investors to have a lot of experience in the field of holiday tourism, but they also must have a long-term view in order to have flexible business plans which are suitable in each phase of the market.

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