While the Covid-19 pandemic is putting Vietnam’s condotel market into an ordeal, this would also provide an opportunity for the segment to heal itself.

“This is the time for property developers to review their corporate governance models and existing projects to ensure the market is heading in the right direction,” real estate expert Tran Khanh Quang told Hanoitimes.

Investors looking at a condotel project named "The Sóng" from An Gia Group. Photo: Kinhtedothi

In the past months, severe economic impacts as a result of the pandemic have put more stress on the local condotel market, which has been already facing multiple difficulties from the lack of a legal framework governing the construction and the government’s tightening tax collection from the segment.

While investors had been trying to cut losses from their condotel investments since last year, the situation seems to get worse since May, when the Covid-19 situation becomes more serious nationwide.

In Danang, condotel projects at downtown areas of Ly Thuong Kiet, Truong Sa, and Vo Nguyen Giap streets are being put for sale for VND200-300 million (US$8,600-13,000) below their market prices, or even at a discount of up to VND700 million (US$30,400).

A similar situation is also happening in Nha Trang, Vung Tau, or Phu Quoc. In the cities of Nha Trang and Phu Quoc, once seen as promising land for the condotel market, the majority of condotels have been offered at discount prices by VND100-300 million (US$4,300-13,000). In Le Thanh Ton street, investors were so eager to sell their assets that they accepted cut-loss prices of VND500-600 million (US$21,700-26,000) compared to the initial investment.

Nguyen Trong Nghia in District No.3, HCMC, said during the pandemic, his condotel apartment in Vung Tau could not find tenants despite being offered at low prices.

“The pandemic has lingered for more than a year, and at this point, I could not keep up with the interest rate anymore,” Nghia told Hanoitimes.

Le Thi Hang from Dong Da District, Hanoi said she bought five condotel apartments in Nha Trang in 2019 with price of VND1.6 billion (US$69,500) each.

“The final cost later had gone up to VND2 billion (US$86,763) before these apartments were put on lease,” Hang said to Hanoitimes.

“I could not find tenants for these properties since early 2020, or buyer even when I lower the price by VND500 million (US$21,700) each,” Hang continued.

Real estate expert Tran Khanh Quang said the cut-loss trend in secondary market for condotel segment is unavoidable with the current legal bottleneck.

“Current legislation does not offer sufficient protection for individual investors in case project owners fail to honor their profit-sharing commitment,” Quang said.

The issue would be more severe, expert Nguyen Van Duc told Hanoitimes. Many investors are using financial leverage from bank loans to invest in condotel projects, he said.

“Most think they can use profit that going to be shared from project owners to pay banks’ interest, and in 10 or 20-year time, the condotel would become their own property,” Duc explained.

However as in reality, many developers have failed to share profit to investors as condotel businesses did not go as planned. “This results in many investors could not pay banks’ interest, and also may lose their down payment for the condotel,” Duc said.

“Investors should think twice before investing in a condotel project, as they are surely the first to suffer if things do not go according to plan,” he said.

Huge potential remains

Not only individual investors, condotel developers are also feeling the heat from a market freeze.

“If  the current situation does not improve, I am not sure whether we can survive,” a real estate company, who wanted to be anonymous told Hanoitimes, saying he has so far managed to sell only one third of total apartments on offer since 2019.

“Pressure from interest payment and lack of customers are cornering us,” he said.

On this issue, Director of R&D Department at DKRA Vietnam Nguyen Hoang expressed concern that as the pandemic continues to stay until late 2021, more real estate firms would fall into bankruptcy.

While the economy returns to the recovery track and the full control of the pandemic are key factors to boost condotel market, Hoang called for the government to soon ensure a complete legal framework to govern the segment.

“Resort real estate in general and condotel in particular remain huge investment opportunity for investors as Vietnam has beautiful landscapes, a fast growing economy and a rising middle-income class,” he stated.