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Condotel investors worry about ‘dead on a pile of assets’

Many people who borrow billions of money to invest in condotels are sitting on fire, trying to pay bank interest but subleasing it, selling properties no one buys.

Ms. Thuy, who lives in Binh Chanh district, Ho Chi Minh City, said that she bought a condotel apartment in Cam Ranh, Nha Trang in 2018 for 1.6 billion dong, paying more than 500 million dong. At the beginning of 2021, she borrowed 1 billion dong from a bank to receive a house, but now stands still because the burden of paying bank interest is too great while the rental is sluggish, there are no buyers asking for it.

This investor said, buying a condotel apartment because of the project location near the airport, looking at the beautiful design drawings, the introductory sale only needs to pay 30% of the contract value in advance, until the house is put into operation for Hiring new customers must pay off the remaining 70% and be supported by the investor with bank loan procedures.

Ms. Thuy confided, at the beginning of 2018 looking at the future of tourism exploitation of Cam Ranh area is good, always crowded, the property has the potential to increase in price, so she decided to buy. However, the project has been delayed for a long time until 2021, when the house handover will add to the suffering of the pandemic. Her 1.6 billion condotel is only rented by the investor for 3 million dong per month, while the one billion dong loan has to pay both principal and interest up to 12 million dong a month. Due to the burden of large financial expenses while the income is meager, she has been selling the condotel for the past 8 months in order to get rid of the goods, but there are no buyers.

According to Ms. Thuy’s share, spending billions to buy a house, it is known as owning a property for 50 years, but now only has about 37 years of exploitation left due to the long stagnation of the project, more than ten years of supplementing and perfecting the law. management and construction. “Currently, I have billions in debt, but the condotel has been selling for a long time, so I am worried about dying on a pile of properties,” she said.

The market of hotel apartments, condotels near My Khe beach, Da Nang.  Photo: Nguyen Dong.

The market of hotel apartments, condotels near My Khe beach, Da Nang. Photo:Nguyen Dong.

Ms. Thuy’s worry of getting bogged down in illiquid assets is not unique. In Da Nang, many investors also “laughed with tears” in the past 4 years. They borrowed billions to buy condotel apartments in Ngu Hanh Son district but fell deeply in debt when the investor stopped paying 12% of profit a year as committed from 2019.

Ms. Nguyen is one of dozens of condotel owners in this project who continue to assign investors to manage and operate with a discounted income of 7% a year. She revealed that she is very disappointed with this option when in fact many people have not received the payment according to the business’s commitment of 7% a year for the period 2020-2021. Using the excuse of being affected by the Covid-19 pandemic, the investor lowered the commitment to 3% a year, but even this option was deadlocked in the negotiation round because many people objected.

“I bought a condotel apartment for more than 2 billion VND, of which I borrowed 1 billion from the bank. In the past few years, the income from leasing has been zero, no one has bought the house, the pink book has not been available, but the bank debt still has to be paid regularly. , the longer it lasts, the more you die on this property”, Ms. Nguyen Tran Tinh.

Mr. Nguyen Loc Hanh, General Director of Ngoc Asia Company acknowledged, The past 2 years of Covid have pushed many condotel investors into a corner. In which, condotel investors have borrowed money from banks to use rental money to pay interest and principal, which has been especially difficult over the past 12 months due to the outbreak of the pandemic. One fact these investors have to accept is that when condotel rents decrease, exploitation capacity is poor, the offering of this property is almost at a standstill.

The difficulty of condotel investors that has not been solved for a long time is that many projects have legal problems related to the investment and construction process. In fact, condotel – hotel apartment or beach apartment – so far is a type of real estate that has not been issued a pink book because it is still waiting for instructions. In addition, many condotel products are in the group of resort properties with limited ownership period of 50 years.

Not to mention, the epidemic caused the resort industry to lose international visitors in 2020, then crippled the whole of 2021 when losing domestic customers, poor exploitation caused rents to plummet, making it difficult for property values ​​to increase as expected. , poor liquidity (selling no one to buy) while debt is increasingly piling up. In the context of inflation in 2022, which tends to increase, the floating interest rate trap can “drow” investors who use financial leverage but have no revenue to process loans.

Actual developments show that resorting to tourism is not simple because this service industry depends greatly on consumer tastes, investor brands and management units. Even before the outbreak of the pandemic, only a few well-constructed projects with well-functioning international management units attracted visitors. The rest of the business market is rather precarious.

Not to mention, on average, every 5 years resort real estate has to renew its product once to maintain its attractiveness to visitors. Many condotel investors have not even considered that the 5-year exploitation has to redo the interior, a rather expensive expense, possibly up to hundreds of millions of dong.

Mr. Hanh recommends that individual investors should carefully consider their financial ability before putting money into resort real estate for sale only with a commitment of profit. If resort real estate is not exploited efficiently, it is difficult to increase the value of the property over time and it is difficult to sell and recover capital, leading to bogged down on assets.

The way to hedge risk is that the total investment value must be proportional to the mining value, financial leverage should not be used to avoid the scenario of deep debt.

“Condotel investors should be cautious with high-profit commitments because the recovery of the resort market in the new normal phase requires a roadmap, which cannot happen immediately,” Hanh advised.

Vu Le

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