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Condotels growing in popularity

Released at: 17:48, 12/10/2017

Condotels growing in popularity

Photo: Ngoc Lan

Mr. Stephen Wyatt, General Director of JLL Vietnam, tells VET about the development of the condotel market in Vietnam.

by Ngoc Lan

Can you tell us about the status of condotels in Vietnam’s real estate market?

Condotels have become an increasingly popular asset type, with a significant increase in both supply and demand across Vietnam. In line with overall improvements in the property market, many condotel projects have reportedly achieved positive sales rates of up to 70-80 per cent within just six months of launching. The condotel sub-market is dominated by a number of big local developers, such as Vingroup, Sun Group, and FLC, and most projects are concentrated in key coastal locations, including Da Nang, Nha Trang, and Phu Quoc Island. Since late 2016 and early 2017, some new developers have entered the market, including Empire Group, Novaland, and The Grand Ho Tram, increasing their footprint with a number of condotel projects launched in Da Nang, Cam Ranh, and Vung Tau.

Some developers have recently started to use the condotel model in their commercial projects in Ho Chi Minh City and Hanoi. This is a creative approach to adopting the condotel model in order to generate early cash flows at an earlier stage of investment.

What are the advantages and disadvantage for developers when investing in condotel projects? What locations have the most potential?

Vietnam’s hospitality market has continuously improved in recent years thanks to a steady increase in both international and domestic tourists, a growing number of direct flights, and the introduction of a number of new international operator brands, which generate huge demand for hospitality and second-home developments. Unlike hotels and resorts, condotel development can generate positive early cash flows. The risk of a non-performing hotel will be carried by the buyer once the performance guarantee runs out. Developers can enjoy the source of income during the operation of the projects.

However, similar to hotels and resorts, the development of condotels will require developers have proven experience in managing such types of developments to maintain good operating performance. If the developer has no management capacity they will have to find experienced operators to run the hotel in order to make it successful. Besides, the projects’ hand-over conditions should be fully furnished, i.e. with full interior design, loose furniture, and owner-supplied equipment such as bedsheets and tableware. This means construction costs are far higher than for an apartment, which is often sold as a bare shell or basically furnished.

Typically, in the first two or three years of operation, a hospitality project will make no profit or possibly suffer losses. If a performance guarantee has been promised, the difference between the operational loss and the promised yield will need to be covered by the developer. The best locations to invest in a condotel are vacation destinations. The promise of good sources of guests in a desired location will be one of the keys to success. Popular coastal locations such as Phu Quoc Island, Da Nang, and Nha Trang with the potential to attract foreign buyers are normally a top priority in condotel investments.

Legal factors relating to condotels remain unclear. What are your thoughts on this? How will it affect developers and buyers in particular and the development of the condotel segment in general? What is your advice for developers when investing in condotel projects?

There is still no legal framework for most hybrid asset types such as condotels or officetels. As the business environment, transparency, and others are key factors in making investment decisions, the lack of a legal framework makes condotels less attractive to investors, especially foreign investors, who have very limited experience and knowledge of the local market.

While waiting for the issuance of a proper legal framework, both developers and buyers should pay more attention to all the terms and conditions in any contracts and seek legal advice before investing in the product type.

What policies has the government adopted to attract investment in condotels? What different policies are there for Vietnamese and foreign buyers?

There have been no specific supporting policies to attract investment in condotels. The attractiveness of the sub-segment has been driven by developers, creating a sector that enhances positive cash flows early in the development, similar to residential projects. As most condotel projects have a 50-year leasehold, there is no noticeable difference between Vietnamese and foreign buyers when buying condotel in Vietnam in terms of ownership and other benefits.

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