Empire Group, the developers of the Coco Bay Da Nang resort complex through Vietnam’s real estate market into turmoil this week, with the announcement to 1,700+ buyers that due to financial difficulties, it will be unable to pay buyer the annual investment returns that it had promised.
According to the Empire Group, it will stop paying the 12% annuity from next year. Empire Group began sales of the Coco Bay project in 2016 and promised buyers that it would pay a minimum of 12% of the cost of units for eight years. This rate was considered unusually high at the time and many individuals and companies became buyers in the project.
Nguyen Duc Thanh, Chairman of Coco Bay Da Nang said the projects financial crisis began in August 2017 and worsened since due to legal obstacles faced by condotels. Because of unclear legal regulations regarding condotels, and the fact that buyers cannot receive property red books from the developer, most banks refused or limited the credit they would provide the project.
A snowball effect then happened, with contractors pulling out of the project, followed by foreign partners who then ceased their partnerships with the Empire Group.
Coco Bay Da Nang has been designed as a 51-hectare hospitality and entertainment complex in the Ngu Hanh Son District, Da Nang City. Construction began in 2016 and the total project construction costs were budgeted at $5 billion USD.
The project development plans called for the Empire Group to build 10,000 three-star, four-star and five-star rooms, but to-date, the company has only built 3,000 units. Empire Group says that it has been accumulating losses since 2017, including a loss of $5.78 million USD in 2018. The company’s total debt obligations are estimated at $438.4 million USD.
Coco Bay’s story follows other condotel projects in Vietnam that have also promised high rages of return but have ultimately been unable to repay the buyers investments.
According to the Vietnam Association of Realtors, the first half of this year 11,855 condotel units came into the market, but only 25% of them have been sold.
Coco Bay says that it is offering alternatives to owners. These options include the owner paying 15% of their investment to turn their condotel into an apartment and to live there or the owner can lease out the apartment on their own. Other options include swapping CocoBay property for other Empire Group projects and the owners selling their individual units to anyone who will buy them.
The majority of individual and corporate buyers say these “alternatives” are very unattractive and buyers said they would never have bought into the project if they had anticipated these problems.
The legal status of condotels has been a “gray” area for several years and the Vietnamese Real Estate Association and other real estate industry groups have asked the national government to either define and set rules related to condotel sales, or to allow local governments the flexibility to establish regulations on their own.
It seems that the problems with the Coco Bay Da Nang project will push the legal issue forward and it is hoped that regulations can be established in the next year so that the industry will have a defined legal framework and buyers will be protected from future condotel projects that may run into difficulty.