Last updated: Friday, April 26, 2019


Tourism Property Investors Easily Caught in Margin Traps

Posted: Thursday, August 16, 2018

Strong commitments to tremendous profits in tourism property have resulted in a strong investment trend in the last two years. Most projects used very high returns to impress investors, with some pledging a profit margin of 12 - 15 per cent a year. Experts warned that if customers are not vigilant enough, they will be easily trapped and suffer risks. How to choose a project that is both profitable and safe is a challenge for investors in Vietnam.

Mr Nguyen Manh Ha, Vice Chairman of the Vietnam Real Estate Association, said, some investors failed to keep their promise for profits for investors. High room occupancy rate is not equally high in all facilities and investors must be warned of this, he said.

“Profit commitment is a double-edged sword,” said Ms Duong Thuy Dung, Senior Manager of CBRE Vietnam. The commitment for 8 - 10 per cent profit margin is only achievable with ideal market conditions. Where there is competition, the margin may be just 6 per cent, she added.

She predicted that the competition in the second home market will be much fiercer. That means the profit margin will also be affected.

Speaking of margin commitment risks, a representative of Novotel Phu Quoc Resort said that many businesses are working in the “Take money and run” way. What they concern is how to mobilise as much and quick money, build and hand over construction to management units as possible. Management units will have to try but hardly meet their promise to customers.

Michael Piro, Chief Executive of Indochina Capital, warned that “The profit promise of 8 - 12 per cent is unbelievable.” Instead of offering a pledged return rate, real estate developers need to pay more attention to their reputation, need the participation of international management units, and ensure transparency in buying and selling to gain customer trust.

Tighter administration
Mr Nguyen Manh Khoi, Deputy Director of the Housing Management and Real Estate Market Department, said, the Ministry of Construction has appraised 25,000 condotels and officetels since 2015, let alone, tens of thousands of facilities assessed by local authorities. They have focused on Hanoi, Ho Chi Minh City and coastal provinces such as Quang Ninh, Da Nang and Nha Trang.

Mr Nguyen Quoc Khanh, Chairman and CEO of DTJ Investment and Distribution Joint Stock Company, analysed that the demand for condotels is on the fall and the oversupply risk is potential. This is a time when developers need to demonstrate their credibility and fulfil its profit commitments to their customers.

Experts agreed on the view that investors should be warned of margin traps. Mr Nguyen Manh Ha said, in addition to the condotel model, vacation property needs complete laws and guidelines on investment, operation and servicing.

“In order to ensure rights and interests of investors, State guidance is needed. Sales contracts and authorisation must also be guided with samples to raise funds more easily,” he noted.

Huong Giang

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