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There Is A Lot Of Money Sloshing Around Looking For A Place To Land

A report from Skift on Vietnam. “Massive hotel and resort construction in Vietnam can easily elicit disbelief, and the ensuing dubiety or distrust. The view from Halong Bay until recently was still pristine. Today it’s a huge building site. The new image of Vietnam rolls through its resort destinations. It all seems too much too soon.”

“Can all those new hotels, resorts and blocks of condotels be filled, even as recent openings throughout Vietnam’s popular tourist spots are being absorbed by the market? Is it sustainable or will ghost buildings be a major tourist attraction one day? Could it all really be tourism driven?”

“For some, the pace is so unreal that the possibility of money laundering by rich Chinese or Americans have even been murmured to Skift. An owner operating a small hotel in Phu Quoc went down that route in trying to come to terms with calculations he said that didn’t make sense.”

“The kind of room rate and revenue per available room (RevPAR) that would be needed to get a return, the critical labor shortage which is shooting up costs faster than you can say ‘high rise,’ the investment needed to ensure a quality product long after it’s been built, he could go on.”

“But consultants and legal advisors to hotels Skift spoke to all say there is a method to the madness, with the exception of the condotels phenomenon. The hybrid of hotels and condominiums is the only ‘crazy’ thing about the boom currently and could indeed get ugly for small retail investors, say consultants.”

“Last year’s 15.5 million international visitors also shows that Vietnam doubled its number of arrivals in just three years. A third of arrivals are from China. South Korea, Japan and Taiwan and the US are others on Vietnam’s top five list.”

“Vietnam also relaxed real estate ownership laws for foreign entities and individuals in 2015. This, according to consultants, was the catalyst for the hotel and residential boom, coinciding as it did with interest rates that were at historic lows.”

“‘There is a lot of money sloshing around looking for a place to land, as it makes little sense to keep it in a bank or to buy bonds, or to lend it out. This is one reason for increased foreign hotel investment in Vietnam, along with (a) a demonstrable demand for more hotels, and (b) a much more favorable regulatory climate for foreign investment,’ said Michael Evanoff, chairman of Marlborough Hospitality Services.”

“David Keen, CEO of Quo Global, said: ‘Phu Quoc and Danang are most exposed as destinations that are being massively over-built. There is a lot of high-end products going into both, without a lot of high-end footfall. Both are already a buyers market, where exceptionally high-end product is available at significantly reduced [rates].'”

“What appears to distort Vietnam’s hotel boom as being off the rails are the condotel developments in these resort destinations, and in Cam Ranh, Nha Trang and Ha Long, that offer local retail investors insane guarantees of nine to 10 percent returns from rentals, for nine to 10 years.”

“Built largely by local developers, these projects are funded through pre-sales, thus limiting the developer’s risk as it will have zero capital exposure at the end of the development period other than the guaranteed returns to buyers, said Kenneth Atkinson, executive chairman of Grant Thornton Vietnam.”

“However, with the potential of a looming oversupply in many resort areas, then there is the risk of having to fund losses on projects during the early years of operation and whether the developers have adequate financial resources for this potential scenario,’ warned Atkinson.”

“Added Eric Levy, managing director, Tourism Solutions International, ‘Well-located and conceived urban commercial properties and resorts in areas that are building in a sane, sustainable fashion will do well. The disasters are the condotels. The music will stop for some and we will see projects that are suspended or abandoned, a game of musical chairs that will end ugly for some retail investors.'”

“As for the money laundering murmurs by rich Chinese and Americans, the general view is if there was, it’s ‘not the overriding development boom/trend,’ as Robert Hecker, managing director, Pacific Asia Horwath HTL, said.”

“Evanoff said it would take a stupid bandit to do so. ‘Upmarket hotels take three years to develop, and then three years to start producing a return normally. Someone wanting to launder money would not have the patience for this, plus with a new hotel, there is absolutely no guarantee of success. Oh sometimes a construction contract is grossly inflated to facilitate money laundering, but this normally involves local or government investment, and a local contractor.'”

This Post Has 22 Comments
  1. I have more material than I can post, but I wanted to focus on this article because it contains so many mania aspects.

    ‘Vietnam also relaxed real estate ownership laws for foreign entities and individuals in 2015. This, according to consultants, was the catalyst for the hotel and residential boom, coinciding as it did with interest rates that were at historic lows’

    Dong!

    1. ‘Property and stock markets seem to be the most promising investment destination in Vietnam this year to pour money into, analysts have said. Emerging as a thriving and fast-growing market in Southeast Asia, property market is among the most-favored channels in Vietnam last year by foreigners, said local experts.’

      ‘In 2018, real estate lured nearly 6.6 billion U.S. dollars in foreign investment into the field, doubling from the same period last year and accounting for 18.6 percent of Vietnam’s total foreign investment.’

      ‘Local demand for residential property remains high amid Vietnamese people’s quick surge in individual wealth. Vietnam’s young population, coupled with rapidly growing middle and affluent class, who for sure love to own things like the majority of Asian, are said to contribute to an increase of new developments and a boost in property prices.’

      ‘The average house prices in Vietnam are significantly lower than those in China’s Hong Kong Special Administrative Region, Singapore, and major cities in China. For example, a luxury apartment in a prime location in Ho Chi Minh City costs around 5,000 U.S. dollars per square meter, while a similar apartment in Singapore or China’s Hong Kong can cost four times more.’

      http://www.xinhuanet.com/english/2019-01/17/c_137749569.htm

  2. I bet all parties – US Vietnam vets, former NVA and Vietcong, and former ARVN troops – must be wondering what it was they fought and died for during that pointless war.

    Mr. Banker thanks you for your sacrifice.

    1. “… during that pointless war.”

      Oh, the war wa$n’t pointle$$. There wa$ indeed a point. Apparantly you ju$t don’t under$stand what the point wa$.

  3. Houses selling for below assessment coming to a Canadian town near you. (That were a part of the mania)

    http://www.kelownadailycourier.ca/news/article_d02f6a9c-0ee6-11e9-baff-eb38f80acd41.html

    “Kelowna homes may not be worth as much as newly delivered assessment notices suggest.

    The assessments, now being mailed to homeowners across B.C. and already available online, are based on a market valuation done on July 1, 2018.

    However, that was near the peak of a long run-up in house prices. The price of a typical single-family Kelowna home has fallen 17 per cent since then, according to sales figures from the Okanagan Mainline Real Estate Board.

    So homeowners may get a false sense of their property’s value, and thus their overall net worth, if they go only by the valuation shown on their notice from BC Assessment.”

  4. These VN developments are truly MASSIVE. It’s insane! Most of the beaches on Phu Quoc island are now spoken for, so the locals aren’t allowed to use their own beaches…not much access.

    The hotels/resorts that were here before this new glut were never near full anyway…and this is everywhere up and down the coast.
    In many areas you can see remnants of half built hotels from 2008 that are being reclaimed by the jungle or just rotting. Many.

    I don’t have proof but i suspect it’s all funded by China…whom also have 99yr. leases on most of ALL the coast of Cambodia. The speed of development is even faster than VN, imho. They are taking over. It is truly frightening.
    Hopefully it will end like the Japanese bubble ended circa 1990.

    1. My favorite quote: “For some, the pace is so unreal that the possibility of money laundering by rich Chinese or Americans have even been murmured to Skift.” Money laundering! You don’t say! Is there an exemption to the penal code for transactions involving real estate, much like Canada had a de facto exemption for years?

      And don’t Vietnamese and Chinese have some historical animosity? Forbes calls the countries “best frenemies.”

      1. China fought with Vietnam more recently than we did. And the Vietnamese I’ve talked to hate China like Chinese hate Japan. I suspect their rules of engagement and Geneva Convention adherence were more relaxed than ours. Not that we were saints.

    1. Who knew that we couldn’t gamble our way to prosperity with borrowed or printing-press funny money.

    2. As long as the stock market keeps going up, there’s nothing to worry about. Be sure to buy today’s baby bear dip and hope for the best when and if the government data stream resumes.

      1. Despite the data void, punctuated by recurring hints that slip through from abroad about slowdowns in the Eurozone and China, all dips on the stock market are collared to half a percent or so. It’s a can’t lose market, so buy them dips every chance you get.

    1. It’s serendipity that these debt-strapped college students will be constrained from making the fatal financial error of buying real estate at the point of bubble collapse.

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