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There is no doubt, that the trend among developers in Da Nang and Central Vietnam’s real estate market over the last 2 years has been the condotel segment.
Condotels or otherwise hotel apartments, are a popular investment vehicle, offering individual investors a share of profits from operations of hotel apartments, suites or even villas, which can often be higher than returns from more traditional residential real estate.
The above mentioned trend is clearly based in and supported by a sharp rise in the tourist arrivals in Da Nang. City has welcomed approximately 6.6 million visitors in 2017, almost a 20% year to year increase, exceeding already ambitious targets and becoming one of the fastest growing new tourism destinations in the region. Even sharper increase is visible in foreign tourist arrivals, which rose over 36% compared to previous year and reached more than 2 million in 2017.
With ample upcoming supply totaling thousands of units scheduled for completion in the next few years, it is important to carefully examine multiple factors, some of which will be discussed below, in order to make best decision according to individual investment goals and risk appetite. Practically all currently available for purchase condotel investments in Da Nang come with obligatory or semi-obligatory Rental Programs, offering buyers an initial period of fixed return expressed as percentage of purchase price (6-12%), followed by split of net profits from real performance between the individual owner and the operator or management company.
While commitments to certain returns, especially if backed by a bank or other financial institution (as in TMS Luxury by MB Bank for example) should be taken into consideration, it is our advice to assign more weight in the decision process to intrinsic value of the property itself. This can be done by examining and comparing a mix of factors such as location, price per square meter and quality of construction as well as finishing and equipment, current and expected room rates of similar accommodation options (ADR), prognosed occupancy rates, reputation of both developer and management company/project operator, future liquidity and more. In attempt to quantify investment risk related to each option, it is important to also consider size or scale of the project along with construction progress and schedule.
From Da Nang based projects offering condotel units or apartments for sale with a rental program, as of March 2018, there are in our opinion two which clearly stand out:
TMS Luxury Danang has recently been one of the most popular condotel investment choices, and that is for few important reasons:
Very good beachfront location
Attractive Rental Program conditions with annual return fixed at 10% of purchase price for 10 years, followed by 85% of net profits from operations and 15 nights free per year for owner’s
Unique in respect of the Rental Program return being backed not only by the developer but also by MB Bank (one of the bigger in Vietnam – Military Bank) and 15 nights free per year for the owner.
Relatively smaller scale with under 150 units for sale and advanced construction, scheduled for delivery in Q4/2018.
Consisting of 4 hotel and apartment/condotel towers of 50 to 57 stories, when completed, Wyndham Soleil Danang project has a very good chance to become the most prestigious beachfront apartment complex in Da Nang and perhaps even a symbol of the city’s growth in the luxury real estate segment. Advantages of this project include:
Excellent location directly on prime stretch of Danang’s
Rental Program with 9% annual return for 5 years followed by 75% of net profits from operations and 15 nights free per year for owner’s use in the remaining period.
Additional value in 2-3 bedroom premium units which can opt out from rental program for lifestyle purpose.
International 5 star standards of construction and finishing.
International 5 star operator – Wyndham Hotel Group.
Advanced construction of tower D1 with delivery in Q4/2018.
Depending on each investors individual preferences, goals, and risk appetite, there might be other more suitable projects to consider.