Insights

Condotels

The recent news that the developers of CocoBay, in Danang, will be unable to pay the high guaranteed returns to buyers/investors should not come as a surprise to the industry. Such a default has been "an accident waiting to happen".

Firstly returns of 10 to 12% for 8 to 10 years, in many cases equal to the purchase price, do not make financial sense and neither does the response that the returns are built into the price.

Many of the developers promising these amazing returns have no way of guaranteeing the returns and in many cases do not have balance sheets strong enough to support the payments unless they can carry on developing and selling  new projects similar to a "ponzi"  scheme.  This is also because most condotels are part of tourism developments, which are offered as hotel rooms and subject to seasonal demand and strong competition and therefore unable to make profits sufficient to meet the guaranteed returns. 

Many commentators have been calling for regulations clarifying whether condotels will be treated as real estate projects and eligible for pink books (as many buyers were led to believe) or tourism projects with long term leases for the developers and tourism property (short term use for buyers) as currently classified.

The default by Empire group could be just the tip of the iceberg and urgent action by the Government is needed to enact regulations and to try to protect investors who may have been misled.

 

Kenneth M Atkinson

Founder & Senior Board Adviser

Grant Thornton Vietnam

Founder and Senior Board Adviser
Kenneth Atkinson Contact
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