Condotels were once considered a very attractive investment product, especially in 2016-2017. It caught the attention of investors thanks to advertisement campaigns with celebrities and commitments of sky-high profits.

Mai Huy Tan, chair of a sausage production company, invested VND600 billion (mostly loans) in the Cocobay Da Nang project. Thanh Do then committed to pay to the investor a profit equal to 10 percent of the pre-VAT villa value. The committed profit rates were 12.5 percent for row houses and Boutique Hotel, and 12 percent for condotels.

The company paid the committed profit to investors in 2017 and 2018 (VND67.7 billion) and paid two times, in late June and late December. However, in 2019, Cocobay became one of the first projects of its kind that could not fulfill its commitments.

Tan said he was shocked when Cocobay Da Nang informed that it could NOT pay profit to investors. Of the three options offered by Thanh Do to protect investors’ rights, Tan decided to take back the asset for his own business.    ^^You left out NOT.

An apartment owner at Cocobay Da Nang told VietNamNet that he borrowed money from a bank to invest in the project, hoping that he would get stable profits to feed and clothe his two children. But his plan was upset and he didn’t know how he could get money to pay debts. 

After the Cocobay incident, condotels have become a bitter fruit for many investors. Many products on Ly Thuong Kiet, Truong Sa, Vo Nguyen Giap and Ngo Quyen streets have been put up for sale at a loss of VND200-500 million.

According to Hoang Hai, a real estate broker, some investors even accepted to sell condotels at a loss of up to VND700 million.

In Nha Trang, investors have offered to sell condotels on Tran Phu, Nguyen Thi Minh Khai, Nguyen Tat Thanh and Pham Van Dong streets at a loss of VND100-30 million. However, it is very difficult to find buyers at this moment.

When will the market thaw?

Lan Huong, an investor in Hanoi, said she bought a condotel at VND1.6 billion. However, when the transaction was completed, the Covid-19 pandemic broke out, which froze the tourism sector. In mid-2021, she decided to sell the condotel at a loss of VND400 million, but she still has not been able to sell it.

According to the Vietnam Realtors’ Association, the major reasons behind the decline of condotels are the unclear legal framework, plus the heavy impact of Covid-19. Meanwhile, investors are now hesitant to invest in condotels following the broken commitment at some condotel projects. Quang Ninh, Da Nang, Phu Quoc and Binh Thuan, which were the leading localities in condotel development, now witness very few transactions.

Analysts not only can see a sharp decline in supply and transactions, but also signs of uncertainty as the number of guests staying at condotels has dropped sharply. Therefore, some developers have had to delay the committed payments to investors.

Commenting about the condotel rush in Vietnam, Tran Khanh Quang, a real estate expert, said condotel buyers forgot the principle that they need to buy a product at its real value. 

Meanwhile, condotel prices have increased to overly high levels, nearly the same as high-end and mid-end apartments in large cities.

In fact, the land used for the projects is just leased land with low land usage fees. Therefore, developers can take back their investment capital when mobilizing capital and selling products to clients. If the business doesn’t go smoothly, investors, not developers, will suffer.

Kai Marcus Schroter, CEO of Hospitality of Tourism Management (HTM), said at a workshop that the committed profits of 10-15 percent are very high, which are rarely seen in the world. 

In Vietnam, developers committed such high profits because they did not understand the way a condotel operates. In order to obtain a profit rate of 10-15 percent, there are huge operation costs. In Vietnam, realtors offer such profit rates just to advertise.

He said condotels can obtain a high profit rate if they are located in famous destinations and tourists come back regularly. But in order to do this, it takes decades to invest and advertise.

As the market is mostly frozen, both developers and investors have been put on tenterhooks. As there are few transactions, they cannot get money to pay bank debts.

Duy Anh