Tens of thousands of resort properties face big challenges

The market is under pressure because real estate supply is higher than tourism growth, while investors have to attract customers with profit commitments that may put themselves at risk.

The real estate market report for the first quarter of 2017 recently published by Savills Vietnam devoted much time to analyzing the segment.Resort real estate has been developing very strongly recently. Although it is still considered a segment that attracts both investors and buyers with the development of Vietnam tourism, many figures show thatThe ability to fill and generate expected profits for the tens of thousands of properties put on the market remains a big question mark..

According to Mr. Troy Griffiths - Deputy General Director of Savills Vietnam, accumulated toAt the end of 2016, the number of completed and launched resort apartments and villas was more than 5,000, and after 3 years, the number will increase more than 4 times. In the period 2017-2019, in general, the cumulative number of resort real estate products opened for sale each year will fluctuate between 27,000-29,000 units.

Nha Trang, Da Nang, Phu Quoc - 3 tourist destinations of Vietnam besides Hanoi and Ho Chi Minh City all haveStrong growth in international tourism, especially as new direct international flights are developed.

* Opportunities and challenges for Vietnam resort real estate

TIn Nha Trang, the supply of high-end hotels in the mid-range and high-end segments in the next 3 years is expected to grow by an average of 29% per year. This figure is double the growth rate of the number of tourists in the period 2013-2016. Similarly, in Da Nang, the supply in the next 3 years is expected to grow by an average of 30%. While in the past 3 years, the number of tourists to this locality, although considered to have grown well, only reached 21%.

This data shows that, although it is rated well, if the above growth rate of visitors is maintained, the rate of exploitation of 4-5 star hotel rooms as well as resort villas in these localities in the coming years will not be high, and the level of competition will become increasingly fierce.

The same situation occurs in Phu Quoc but at a lower difference. However, as an emerging market, this locality is under another pressure, when there is a large supply in the future focusing on the high-end segment. That also challenges the ability of investors to operate.

Meanwhile, after the boom period of the past 2 years, liquidity in the resort segment has decreased significantly in the first quarter of 2017. According to the Vietnam Real Estate Association (VNREA), the total supply of resort real estate market in the two major cities of Da Nang and Nha Trang in the first 3 months of the year reached nearly 5,300 units, but successful transactions only reached more than a quarter, mainly focusing on the hotel apartment segment (condotel).

Although it is explained that this is the low season of the year and transactions are expected to increase again in the second quarter with projects offering thousands of units for sale, VNREA also stated that investors are currently quite cautious and often choose projects with professional management and operation units. By the end of 2016, the number of international management units participating in the Vietnamese market has nearly doubled compared to 2010, not to mention a number of domestic brands have also been born and grown strongly in scale.

Savills Vietnam believes that the resort real estate segment in Vietnam will face many challenges in the next 3 years. Illustrative photo.

Not only the challenge of supply-demand balance, the profit commitment rate is also one of the issues that investors need to consider.With the boom of apartments and resort villas, investors are now racing to commit to profits with the common rate in Vietnam being around 10% per year. This figure is higher than the 7% in Phuket (Thailand) as well as Bali (Indonesia). In addition, the profit commitment period of Vietnamese investors is currently around 5-10 years, also 2-5 times higher than the 2-5 years of countries in the region.

According to the research unit, investors can reach the break-even point after about 3 years if they apply profit commitments. However, if this is extended to 10 years, they will find it difficult to maintain and may have to bear losses.

Besides, rapid tourism development also requires commensurate investment in airport infrastructure from the management agency.Tourism industry data shows that in 2016, the total number of international tourists traveling by air reached about 8.2 million, accounting for more than 80% of the total number of visitors. Meanwhile, transport industry data shows that the airport in Ho Chi Minh City is currently 130% overloaded and Nha Trang is 320%. Da Nang airport is 113% overloaded despite being upgraded in 2011 from 4.5 to 6 million passengers per year.

Therefore, in order to exploit tourism potential and increase the rate of resort real estate exploitation, one of the important factors is the need for efforts from management agencies to resolve limited capacity at airports in the coming years.

"Infrastructure upgrades are a key factor in assessing tourism development potential, especially with the development of new supply increasing by 30% annually in the past three years in Da Nang, Nha Trang and Ho Chi Minh City," Savills Vietnam said.

Previously, figures from the General Department of Tourism showed that the number of international visitors to Vietnam has tripled in the past decade.Although this is quite an impressive figure, research units believe that this level is only half of the number of visitors to other famous destinations in the ASEAN region such as Thailand and Malaysia. However, that difference shows that Vietnam still has great potential to exploit, especially with the advantage of being a place with lower costs compared to other destinations in the region. In addition, domestic tourism has also continuously grown by double digits in recent years.

According to VNE