Leisure properties witness the rapid growth in Vietnam
ietnam’s hospitality industry has evolved significantly in recent years and begun to diversify, resulting in greater choice of new destinations and more varied hotel products and concepts. One new market segment that is becoming an integral part of Vietnam’s tourism landscape is “Leisure Properties” or also called “Holiday Homes”.
In recent months there has been a lot of talk about projects offering Leisure Properties or Holidays Homes, yet not much is published about the concepts behind these new classes of tourism property. So what are possible ownership-options for leisure properties used in the domestic market, how do they compare to international markets, and what are likely trends for high-end holiday homes in Vietnam?
CURRENT SITUATION
Staying in a HOTEL is until now the preferred choice for most holiday-makers. First, hotels provide countless services depending on class and style, second you only pay for the number of rooms and nights that you actually use, third you are free to select any location you like and most importantly, if a particular hotel is not fulfilling your expectations, you can simply move to another one.
An alternative to hotels are VACATION RENTALS whereby you rent a fully furnished, privately owned apartment or house on a temporary basis and arrange the rental directly with the owner. Traditionally, there are no services provided and you stay on a self-catering basis. So far Vacation Rentals have been largely ignored but are certain to become popular considering the lower costs and larger freedom of usage they offer.
In more recent years the concept of LEISURE PROPERTIES has become popular for a variety of reasons. For someone travelling frequently to the same location or working and living in two different locations, it may be more economical to own a “HOLIDAY HOME”. For someone with the means to afford frequent holidays but who still likes a familiar surrounding, purchasing holiday property can become a very practical and meaningful thing. And someone who aims to build long-term investment, diversifying the portfolio into high-yielding assets like holiday homes may be the right choice. Whatever the reasons, it is important to select the option that suits personal circumstances best while provides sufficient flexibility to adapt should conditions change over time.
OWNERSHIP OPTIONS
here are various available options to own holiday homes; but regardless of the concept, purchasers should always aim to get the best value for their money, which does not only mean buying the largest villa for the lowest price. Buyers also need to check that high quality, international standard management is provided to ensure that the value of their asset is maintained in the long-term.
Currently the most popular ownership option in Vietnam is wholly owned holiday villas & condominiums, usually as part of a resort. A more recently introduced option is “TIMESHARE OWNERSHIP” and there are first examples of partial ownership or so-called “FRACTIONAL PROPERTY”. So what are these concepts and what are the differences?
OPTION 1 - HOLIDAY VILLAS & CONDOMINIUMS (DEEDED)Holiday villas or condos are private residences with a full title and deed that can be sold, rented, or willed at the owners’ sole discretion. There are two main usages for such property, either private use only or rental-pool option.
PRIVATE-USE PROPERTY is only used by the owner and his family & friends and normally a long-term investment as a second home where the owners spend typically a total of 3-5months per annum. Often such deeded property, especially villas and large country houses, are kept for life and are willed to the next generation to keep them in family ownership.
RENTAL-POOL OPTION is also fully deeded property, but owners typically only use it for a certain number of days per year as a holiday home. Thus for the time they don’t use their unit, it will be placed into a rental pool (if offered by the operator) and owners receive an income for it. The operator will allot the usage of the unit according to a reservation schedule and usually owners cannot use it outside these fixed dates. This option mostly applies to condominiums but many resort projects today also include villas and houses in their product portfolio.
OPTION 2 - TIMESHARE OWNERSHIP
Simply speaking, with timeshare ownership you buy “units of time” to be used for accommodation in either one fixed holiday property or to be exchanged for accommodation in other resorts that are part of the particular timeshare program. The use of the property is regulated through the operators’ rather fixed reservation schedule and normally allows for usage of 2 to 5 weeks per year. There are often options to purchase additional nights but they will be sold with a surcharge. Timeshare ownership interests are typically sold in either one-week intervals or as packages of points that can be used to reserve the resort accommodations. Since members in a particular timeshare program share the occupancy rights of the development, they will have to pay an annual maintenance fee in addition to the initial purchase. Today's timeshare industry offers numerous types of timeshare options to meet changing consumer demands for variety and flexibility to vacation. Some of the most common types are Fixed Week, Floating Week, Points-based Systems, and Right-to-Use Agreements.
This concept has undoubtedly merits and brings advantages to the table, yet what is not always clear is who actually benefits; the purchaser, the developer, the operator, or the middleman selling it? Without question the purchaser should benefit most, yet reality can often be very different. Likewise, how practical are timeshare products under current legislative and economic conditions in Vietnam and how realistic are the prospects of benefiting from the various exchange options? For example, how often will a timeshare owner use his allotted points in another resort from the same network abroad, like the Caribbean? In reality, perhaps once or twice per year owing to increased travel costs for overseas vacation especially for families. In addition, there is the issue of entry visas for foreign countries, there are the current restrictions on purchase of foreign currency, there are possible requirements for travel and medical insurance, and then there are simple challenges like language barriers and the absence customary cuisine. Sure, none of these issues are deal-breakers but they may be substantial enough to hamper the acceptance and growth of timeshare under current conditions. It is a good concept that will find its supporters in Vietnam, but whether or not the time for it is ripe remains to be seen.
OPTION 3 - FRACTIONAL OWNERSHIP
Fractional ownership means essentially buying a portion (or fraction) of an actual holiday property. The use of the property is again regulated through the operators’ reservation schedule and fractional owners will normally use their unit for up to 12 weeks per year often on a rotating basis. Today, many resort operators offering fractional ownership also provide vacation exchange opportunities, which can be regarded as an add-on benefit but is rarely the primary reason for the purchase of fractional property.
In generally, fractionally ownership has three categories, private fractional property, destination clubs, and private residence clubs, as described briefly below.
With FRACTIONAL PROPERTY, you purchase a share of a single second home in one property (condo or villa) in one fixed location. You can use this property for a certain number of days per year according to the operator’s reservations schedule. The title and deed of the property is legally divided into multiple shares that are privately held and can be sold, rented, and willed.
DESTINATION CLUBS on the other hand are an alternative to buying a second home whereby you buy a membership in a club that provides access to the club’s portfolio of luxury homes. Today these clubs typically own properties throughout the world giving members the opportunity to travel to many exotic destinations. There are equity and non-equity options offered by developers depending on the club and country legislation. Equity options allow for ownership of shares in the actual property assets of the club whereas non-equity options are similar to the timeshare concept.
PRIVATE RESIDENCE CLUBS are considered the high-end of the fractional property market whereby owners purchase the residence for a fraction of the year rather than on a per visit basis, or simply for a certain number of days per annum. Owners will receive a full title and deed and they can sell, rent, or will their property ownership rights. There are today many independent private residence clubs in the international market and there are also private residence clubs that are run by well-known international hotel operators. Hotel operators, sometimes use the term Vacation ownership/ club when referring to a private residence club.
Some of the most well-known providers are Four Seasons Hotels & Resort with ultra-luxury private residence clubs in various exclusive and secluded locations; Ritz-Carlton Hotels & Resort catering for the high-end market with clubs in a variety of luxurious getaway locations; St. Regis Residence Club also operating at the high-end of the market by offering hotel-style fractional properties; Marriott Hotels & Resorts with vacation clubs that offer family oriented villas in beachfront locations, mountain resorts and within theme parks; and Fairmont Heritage Place with private residence clubs primarily aimed at skiing and seaside vacations.
TIMESHARE VERSUS
FRACTIONAL OWNERSHIP
here are fundamental differences between timeshare and fractional ownership and prospect buyers should clearly understand what they are buying! Timeshare and Fractional ownership are vacation concepts that involve two different types of customers. Fractional customers take a long-term few on investment, they have substantial funds, typically hundreds of thousands of dollars, to buy into a multi-million dollar home in a resort they couldn't otherwise afford and to which they return frequently. Timeshare customers look for a resort-style holiday and are willing to invest a few thousand dollars in a specific resort, or if offered by the operator, buy units of time that can be exchanged for accommodation in other resorts of the exchange program.
Many developers in today’s international market offer “hybrid” models that could fall into either category depending on contractual conditions and country specific property legislation. For example, there are two timeshare options that are in fact fractional ownership models. One is “Fee-simple timeshare”, a deeded timeshare whereby you purchase an interest in the real estate and in return own a share of the property; the other is “Leasehold timeshare”, a non-deeded timeshare where your ownership rights will expire after a specified period of time (length of the lease). At first glance there appears to be no difference, yet you could end up paying a far higher price for what you get with such hybrid timeshare options compared to a straight forward fractional ownership. The reason is that the actual value of timeshare property is often far lower than the combined amount invested by the people sharing the property. The difference in price is generally used to cover high marketing cost and sales commissions that such programs incur. In contrast, the value of fractional property usually reflects the actual amount invested by the developer since such property is valued by professional real estate appraisers.
BRIEF REMARKS
espite the various concepts used in international markets, it is highly likely that Vietnam’s Leisure Properties market will expand more strongly around projects that offers privately owned, deeded property as part of a Rental-pool plan. There are amble examples, especially along Vietnam’s central coast, of great success stories for this like the Hyatt Regency Da Nang, the xxx, and the xxx, to name just a few.
Resorts that offer Leisure Property based on a Timeshare concept are under development, e.g. the Manna Resort in Cam Ranh Bay, however it is yet too early to judge if such concepts are well received by domestic buyers who dream of owning their holiday home. The success of the concept largely depends on adjusted legislative frame conditions and the support received from international hotel brands, which generate the income for these resorts and ultimately provide the Leisure Property owners with their return on investment.
Content: Rubix Navigation
Photo: Internet
Design: Rubix Navigation
By Reno Mueller
August 08, 2018