In the past few years, the property market has witnessed the emergence of a new segment in the line of residential real estate and resorts priced at over $86,000 called condotel.
According to real estate investors, investing into the condotel is an outstanding trend at the moment because of its large profitability. However, market research experts say that this big profit-making business is not as easy as many people think.
Over 5,000 investors follow the trend
In recent years, thanks to a 12% or even 14% profit margin, the condotel model has become a new investment trend and dominated other real estate investment models.
Initially, condotel investors discovered condotel because of its scarcity. When it comes to real estate market, and brings great profits without the need of management, anyone is also excited.
However, because of the unpredictable heat of the condotel, investors have poured their money into condotel investment, then quickly leading to hot development of price, policy and overwhelming profit margin. This hot trend has spread across popular tourism regions such as Da Nang, Nha Trang and Phu Quoc. This fact has prompted to a question whether condotel was saturated.
Speaking to the segment, Savills admitted that condotel hotels and apartments are the best property investment in 2016 due to the fact that more than 5,000 investors have followed the trend since early 2016. This shows that the attractiveness of this product line is real.
It can be said that some red hot condotel projects in real estate market today such as Vinpearl Empire Condotel, Vinpearl Beach Front Condotel in Nha Trang, Vinpearl Riverview Complex in Da Nang committed to profit from 8-10% per year; Condotel Premier Residences Phu Quoc Emerald Bay committed to a 9% minimum profit; Ariyanan Nha Trang committed to a minimum profit of 40% (for sea view) and of 50% (for city view); Cocobay Empire Group, Panaroma Nha Trang, AB central square Nha Trang with profit ranging from 9-12%,etc. All these products have had the great attractiveness to real estate investors.
What to consider when investing?
However, it has to be admitted that the phrase “no free lunch” seems to be true in the current situation of condotel investment. Customers are supposed to note that real estate is a kind of goods with great value, and a thing accompanying with”terrible” profits is a big risk. When the “pie” of quick profits of condotel investment is too large, some investors who are less experienced and weakness in capital still have chased the market by following the trend unwisely and developed large-scale projects. At this point, the risk easily hits to buyers because of the operation after completion of the construction and the higher profit margin than the operating cash flow.
Nguyen Van Duc, Deputy Director of Dat Lanh Real Estate Company said “Currently, the commitment 8%, 10%, 12% per year is widely used in the real estate business. This income is so attractive as a word of encouragement to those who are interested in investing in their project. However, if the return on investment is not as expected, who is responsible for the buyer? Many investors charge 2% maintenance fees of their residents, until they face the bankruptcy or they shift the blame onto the disaster when the trouble strikes, and the money of residents also lost, then how residents know who is sued?
According to Nguyen Van Duc, the income figures given by the owner to the buyer may not be true, or the owner may pay within 1 to 2 years. Then, when the trouble comes, or a business simply goes out of business and disappears from the market, the investor will.
Mr. Duc analysis: For example, the advertising company will rent apartments of investors, and committee to pay the interest of 10% per year. Unexpectedly, if 100% of the apartments are all delivered to the business, the business can afford to pay for 100% of the households and if it will last 1 to 2 years?
Moreover, real estate business is governed by season, area, environment, etc so it is difficult to make sure the business is not interrupted or trouble.
At present, the committed rate of profit in Vietnam is quite high; some projects are up to 12% in 8 years. Deputy Director of Dat Lanh Real Estate Company said that the profit of 12% per year is too theoretical and too high compared with the expectations of buyers. And what is too high and virtual easily meets big risks. In fact, this is just one of the “guides” of the real estate business today, especially the real estate resort business.
“Not only unknown owners, also well-known businesses or businesses in the world with the capital of tens of billion dollars, once the crisis is inevitable failure. If the business earns a great profit, they will pay as committed; if not, finding a way not to be responsible for paying the buyer as promised is inevitable. Therefore, believing that businesses will be guaranteed to pay a profit of 12% a year as promised is extremely adventurous, ” he said.
According to the study of Alternaty Real Estate Consultancy, in hot markets such as Thailand or Bali, investors only offer a 7% profit margin and apply only higher rates in some cases.
In Vietnam, the first condotels discovered about 4-5 years ago such as Hayatt Regency, A La Carte, Ocean Vista, Havana Nha Trang, etc had a profitable business as the investor committed a profit of 5-7% per year for the first few years, and this profit is said to be relatively stable for customers.
Rudolf Hever, director of hotel consultancy, Savills Asia Pacific, predicted that condotel will reach more than 17,000 units and be expected to enter the market within the next three years. Many completed projects are considered as Ariyanan Nha Trang which provides nearly 400 apartments and start to build on 14/5; Cocobay Da Nang with nearly 6,000 apartments; Panaroma Nha Trang including nearly 1,000 apartments, etc. However, the number of completed projects is still very small compared to the number offered in the market.
“In most cases, we find that few management factor as hotels is considered for this product line, Thus, it is difficult for an investor to secure a portion of the profits as committed.
In order to generate revenue for the commitment, the condotel must be fully operational as a hotel and accomplish impressive business results. However, most projects are not well planned for operating factors; because the very fierce competition in the segment causes developers to promote advertising as well as applying the policy of commitment to profitability to attract buyers,” said Rudolf Hever.
Therefore, the advice that experts give to those who are interested in investing condotel is that they must first have knowledge of each segment of the property. Besides, they should really survey the reality, see the drawing, observe the way of doing business of investors, or receive the advice of friends, etc. Then they can decide whether to invest or not. They are supposed to avoid being trust only in the rhyme advertising. In addition, they should consider to the selection of quality products from reputable investors.
Regarding to the investor, when choosing the model, they should make good planning as well as carry out feasibility study from the beginning so that they have a product that is suitable for the market conditions as well as the financial ability and the good operation in the future.
You are reading the article “Condotel Investment: A Profitable Business Is Easy To Get?” in the section “Real Estate News” on the website: https://realestatevietnam.com.vn/.
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