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Condotel development reliant upon demand

Released at: 15:34, 25/04/2018

Condotel development reliant upon demand

Photo: Mr. Stephen Wyatt, Country Head of JLL Vietnam

Mr. Stephen Wyatt, Country Head of JLL Vietnam, shares his thoughts with VET about the burgeoning condotel market in the country.

Not only well-known developers but also companies working in other fields have recently become interested in investing in Vietnam’s condotel market. Why is the condotel market so attractive to investors and developers?

There are three main reasons for the attractiveness of this product type. Firstly, condotels are a new investment channel emerging within the last three years, so competitiveness in the market is currently lower than in other markets such as apartments for sale, villa/townhouses, and land lots. It is also favored due to its hybrid specifications as well as guaranteed yield programs.

Secondly, similar to other types of property for sale, it is favored thanks to its short payback period.

Thirdly, under the Law on Tourism 2017 approved by the National Assembly, tourism is to become a key economic sector in the future, which will greatly impact on and create momentum for the hospitality real estate industry, thanks to supporting policies and investment incentives from the government. For instance, Phu Quoc Island has its own preferential policies for tourism regarding taxes, land use duration, etc., and licensing to open casinos in the near future.

What is your outlook for the condotel market in 2018?

The development of condotels depends heavily on demand for accommodation from tourists. An increase in demand would have a positive impact on this product type.

According to the Vietnam National Administration of Tourism, international visitors to Vietnam in 2017 reached nearly 13 million, up 29.1 per cent against 2016. The tourism market is still focused on several major tourist destinations, such as Ho Chi Minh City, Hanoi, Da Nang, Nha Trang, and Phu Quoc Island.

Holding regional and international conferences also help to promote Vietnam’s tourism industry. For instance, APEC 2017 in Da Nang facilitated the city improving its tourism infrastructure and attracted the attention of visitors and investors from around the world. This event is considered an important turning point and a powerful lever for the city’s future tourism development.
2018 is expected to continue to be an exciting year for the hospitality real estate sector as investors simultaneously introduce projects to capture the potential wave of Vietnam’s tourism industry in the time to come.

What do you think about the level of liquidity in condotels compared to other real estate segments?

There has been no clear evidence on the liquidity of this type of property as there are not many operating condotel projects in the market so far. It can be seen that condotel projects still receive much interest from investors thanks to attractive guaranteed yield programs. However, it should be noted that the possibility for a project to achieve the returns committed will strongly depend on subsequent movements in the market.

Vietnam’s real estate market has seen many developers pouring money into building condotel projects. Experts have said there is therefore potential for oversupply in the market. What is your view?

Condotels have grown in most key tourism destinations in Vietnam. Large markets such as Da Nang and Nha Trang, however, still have a lot of potential for tourism development in general and hospitality real estate in particular.

With this potential for tourism development, it is necessary for both developers and investors to carefully consider factors such as service quality, business strategy, and the guaranteed yield program, in order to adapt to the continuously developing market, increasing customer expectations, and tightening legal framework.

Whether there is an oversupply in the condotel market will depend on the development of tourism in the future. At the moment, tourism is a promising sector thanks to government commitments of support.

In line with strong development over the past few years, condotel developers are also offering attractive preferential policies, such as a guaranteed yield of 8-12 per cent. But it will be difficult, many analysts believe, to secure such a profit. What are your thoughts?

Guaranteed yield programs are an important factor making condotels attractive and different from other types of property. Competition in terms of guaranteed returns among projects is therefore inevitable.

The feasibility of 8-12 per cent guaranteed yield depends heavily on the development of Vietnam’s tourism industry as well as efficiency in the operations of individual projects. Achieving the targeted yield requires developers not only have strong experience in hospitality services but also a long-term business strategy that is flexible and conforms to each market stage. Developers should also carefully consider all financial projection scenarios so they can be well-prepared for all possible market situations. It will definitely require a great deal of effort for developers to maintain the committed return.

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