With the outlook for the high-end segment of the second home market far from rosy, developers are going mid-end.
Nguyen Do Viet, deputy director of Song Da Thang Long Joint Stock Company said that after a boom in the luxury end of the market for second homes, these were now less attractive to customers.
“Second homes which cost millions of US dollars are no longer suitable for the majority of customers in these tough economic times,” Viet said.
Instead most clients were looking at smaller and more affordable second homes especially condotels which cost from $100,000 to $150,000 each, said Viet.
With less outlay of capital customers can still holiday in condotels and then lease them to tourists the rest of the time to bring in some profit.
Viet said developers would now have to restructure their portfolios around developing affordable second homes.
He added that Song Da Thang Long recently invested VND1,400 billion ($70 million) to develop the Dragon Pia condotel project in Nha Trang city. Some 257 of the project’s condotels would be launched to the market in the middle of this year.
Viet said the four to five-star grade Dragon Pia condotels would be very reasonably priced compared with other second home projects which were being sold currently.
Many other developers have begun restructuring their portfolios in line with customer demands as well. Indochina Land have expanded the number of villas in its Montgomerie Links golf course in Quang Nam province to 66 units from the 54 initially planned.
Indochina Land CEO Peter Ryder said that the company decided to increase the number of villas but reduce their square metreage to bring the products in line with customers’ budgets.
The minimum value of each villa in the project now stood at more than $400,000 against the $800,000 announced over more than one year ago.
Luxury second homes have been all the rage in Vietnam over the past few years with hundreds of projects going into development.
Advertising made people familiar with high-end and luxury projects all over the country and developers made these second home properties attractive by offering vacation incentives.
They also waved the carrot of professional management which would guarantee profit. In addition, these developers stressed that second homes were an investment channel, because owners could profit from leasing services.
In many projects, developers proved to the customers that they could see a return of capital after less than 10 years of operation.
Viet said the current economic climate had made customers more careful about leaping into the high-end second home market.
Meanwhile, CBRE Vietnam managing director Marc Townsend said there was a boom in tourism properties over the last two years, leading to a glut of second homes for sales.
While a majority of projects offered high-end second home properties valued at millions of US dollars Townsend said that number of customers who could afford these homes was probably limited.
“That is why the projects’ investors could not attract more customers even though they offered incentives or ensured benefit from sublease activities,” Townsend said.
In the future, said Viet, the second home segment would be more selective and both customers and developers would carefully have to calculate when choosing appropriate products, rather than merely following trends.
Viet said the demand for such home among Vietnamese would increase with future improvements in the economic situation.
“The slow space of sales for high-end second home properties is only temporary. The current high levels of supply won’t be sufficient to meet demand when the economy recovers,” Viet added.
Nguyen Thanh Trung, director of Archi Land Vietnam – which is developing many second home projects in northern province of Hoa Binh – was also confident in the future, saying the second home market still had great potential.
However, successful developers could only avoid failure if they know how to combine investment and operation, said Trung.
He added that second market was generally immune to the vagaries of speculation, making them safe and stable investment for their owners.