Supply overhang threatens condotel market

Monday, Sep 17, 2018 08:33

According to the Viet Nam Real Estate Brokers Association last year around 23,000 units of condotels, or condo-hotels, were offered for sale, and 65-70 per cent of them were snapped up. — Photo

According to the Viet Nam Real Estate Brokers Association last year around 23,000 units of condotels, or condo-hotels, were offered for sale, and 65-70 per cent of them were snapped up.

However, demand for condotels seems to be falling.

Ho Chi Minh City-based DKRA Viet Nam said in the first quarter of this year around 2,100 units came into the market with their locations ranging from Da Nang City to Phu Quoc Island, but only 850 were sold.

Phu Quoc Island and Ba Ria-Vung Tau Province are the two places with the highest demand, though even there sales does not exceed 40 per cent.

It is 26 per cent in Khanh Hoa, home of Nha Trang; 22 per cent in Binh Dinh; and 9 per cent in Da Nang.

Market observers said the tourism sector had seen rapid growth in recent years with the number of foreign tourists arriving in Viet Nam increasing by 30 per cent a year in the last three years, thus sparking a surge in supply of resort properties including resorts, hotels and condotels.

Though relatively new in Viet Nam, condotels were favoured by both domestic and foreign tourists, and so developments in this segment were burgeoning, attracting investors.

They were coming up at most famous tourist attractions.

The central beach city of Nha Trang now accounts for 52 per cent of all condotels in Viet Nam, while other places with multiple projects are Binh Thuan and Da Nang in the central region and Phu Quoc Island and Ba Ria Vung Tau in the south, the Ho Chi Minh City Real Estate Association reported.

Another reason for the booming condotel market is Viet Nam’s growing middle class. Analysts said condotels only cost VND1-3 billion, which is a sum most middle-class can afford.

Yields from condotels are quite high at 8- 12 per cent, which is also a big attraction for investors.

So why is demand falling?

Since late last year many analysts have been warning that supply has been running up too quickly in the last few years, and investors should think carefully before putting money in this segment.

According to the analysts there are signs of oversupply in the condotel, officetel and serviced apartment segments due to the mushrooming of condotel projects in many places around the country.

A market report last year showed that condotels accounted for 56 per cent of total supply of resort properties, with hotels and resorts only accounting for 44 per cent. This was considered abnormal.

The analysts said though condotels were very popular with tourists, the number of people seeking to buy them was decreasing because of the lack of a legal framework to protect their ownership rights.

Viet Nam does not have clear regulations governing ownership rights and management in the case of condotels, meaning buyers cannot get title deeds.

In the event, banks are not willing to lend against condotel units.

In addition, the profit of up to 12 per cent which is expected to bring in to those who invest into condotels are too high to achieve since it is much higher than the deposit interest rates, thus making condotel buyers reluctant to invest into.

According to Savills, the resort property market will see an additional 18,000 condotel units built at key tourism destinations in the next two years.

Da Nang alone is expected to get thousands of them.

Experts said the number of condotels in Da Nang in 2020 would not be fully used unless the number of tourists to the city doubles from 2017.

Despite these challenges, many analysts still reckon condotels have great potential in Viet Nam, saying the oversupply is only temporary.

Viet Nam’s middle class will grow to 44 million by 2020, accounting for 46.3 percent of the population, according to Nielsen, the global information and measurement company.

By 2020 tourism revenues are predicted to rise to US$35 billion and the number of foreign tourists to 20 million.

To mitigate the problems plaguing the condotel market, legal regulations and policies need to be tweaked.

In particular, the Government needs to issue legal regulations and documents providing guidelines on purchase and sale contracts, proxy issues, construction standards, and management methods.

The construction ministry is also working with the finance and environment ministries to come up with a specific legal framework for the segment.

Foreign securities companies sense opportunity, hike capital

Brokerage Yuanta Securities Vietnam plans to issue 70 million additional shares to raise its charter capital to VND1 trillion (US$44.4 million) from the current VND300 billion ($13.04 million).

The capital increase is aimed at raising funds for its business activities, improve its financial capability and develop new products and services besides meeting the requirements of the State Securities Commission.

The capital hike plan is part of the company’s strategy to meet the increasing demand of investors capital as the stock market is forecast to recover and rise to new highs this year.

Yuanta Securities Vietnam’s executive board has decided to sell all 34.46 million shares to Yuanta Securities Asia Financial Services Limited.

They were the shares that Yuanta Securities (Hongkong) Company Limited and individual shareholder Nguyen Thi Minh Duc did not want to buy when offered to existing shareholders at a price of VND10,000.

If the issuance is approved by the State Securities Commission, Yuanta Securities Vietnam’s prescribed capital will rise to VND1 trillion, enabling the company to meet the capital requirement for entering the derivatives segment.

But despite possibly increasing its capital three fold, Yuanta will not make it to the list of securities companies with the largest hikes in capital in recent times.

Last year Mirae Asset Securities Vietnam (MASVN) increased its capital from VND700 billion to VND2 trillion to become the fourth largest securities company behind only Saigon Securities Incorporated SSI (VND5 trillion), VN Direct (VND2.204 trillion) and Agriseco (VND2.12 trillion).

Recently Mirae Asset Securities Ltd (Hong Kong), the owner of MASVN, approved a plan to again increase the charter capital by VND2.3 trillion to VND4.3 trillion.

That would take MASVN straight to second place behind SSI in terms of capital.

KIS Vietnam has also increased its charter capital by VND784 billion to VND1.897 trillion.

Analysts said foreign securities companies nurtured ambitious plans when they hiked their capital.

The securities market is expected to see more positive changes soon, with customers’ demands constantly increasing and becoming diverse.

With their huge capital, foreign securities companies hoped to be bigger players by providing new products such as derivatives and covered warrants, experts said.

For instance, within a short period MASVN increased its lending for margin trading – buying securities using credit from the brokerage – to VND1.835 trillion by June 30.

This figure was only VND787.79 billion in the third quarter of last year, and an insignificant VND273 billion earlier last year.

Vietnamese firms still had the largest market share though foreign companies, now with increasingly large war chests, were formidable rivals, the analysts said.

The Vietnamese securities market, while still relatively young and modest in size, is the fastest growing in terms of both size and liquidity in Southeast and East Asia.

It has nearly 30 companies with market capitalisation of over US$1billion, with Vingroup (VIC) with a market cap of $15 billion, Vinamilk (VNM) with $12 billion and GAS with $11 billion topping the list.

Over the last 10 years the market has grown at an average of 43 per cent a year. Its total market cap was 22 per cent of GDP in 2006 and 44 per cent in 2010, and is nearly 84 per cent now. — VNS

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