Brighter condotel future set for both investors and buyers

Developers have welcomed the new dispatch guidance, but many business leaders are looking for even more, Photo Le Toan

Nguyen Manh Toan, a Hanoian who had bought a condotel in the central city of Danang, told VIR that he was at ease when his unit received an ownership grant from the local authorities. “I bought this unit three years ago and since then it has been suffering from very low benefits. But with the new guidance, my unit will attain a steady legal status,” Toan said.

On February 14, the Ministry of Natural Resources and Environment (MoNRE) issued Official Dispatch No.703/BTNMT-TCQLDD, providing instructions about use of land and grant of certificates of ownership of construction works other than residential homes, including holiday hotel condos, or condotels.

According to the dispatch, if related projects meet regulatory requirements for transfer under the provisions of the Law on Real Estate Business, granting certificates of ownership of such construction works to transferees will be subject to regulations laid down in Article 32 in Decree No.43/2014/ND-CP regulating details about implementation of several articles of the Law on Land. It will also be subject to Clause 22 of Article 2 in the Decree No. 01/2017/ND-CP amending and supplementing several decrees elaborating on implementation of the Law on Land.

Tran Dao Duc, deputy general director of CEO Group, one of the largest developers of condotels, said that the guidance is a basic movement on the legal status of condotels in Vietnam. “Its issuance has been awaited by developers for the last three years. Thousands of condotels are equivalent to tens of billions of US dollars. Everyone in this business will profit from the new guidance, from developers to buyers,” he said.

Duc further emphasised that the dispatch also helps solve disputes on the legal status of condotels which has so far been unclear.

“This helps the government to build a legal framework and impose tax on transaction and leasing activities. Also, it will create more jobs, attract more investors into the sector, and create more room for the tourism industry,” he added.

Meanwhile, buyers and investors will have enough rights on asset ownership, mortgage, grant, and transfer. “The legal status for condotels is now on track. The only remaining issue will be how local authorities implement it,” Duc said.

Meanwhile, Huong Tran Kieu Dung, general director of FLC Group, told local media that the guidance is an effective tool to instruct local authorities to solve difficulties for investors and developers. He suggested that the government may allow foreigners to buy condotels.

Nguyen Tran Nam, chairman of the Vietnam Real Estate Association also highly appreciated the update. “The guideline for granting ownership for condotels confirms that competent bodies have listened to developers and investors’ opinions,” Nam said.

Furthermore, the dispatch was welcomed by local authorities. Mai Trung Hung, deputy director of Ba Ria-Vung Tau Construction Department said that local authorities will now be able to solve remaining issues in projects that have been frozen for a long time.

Standstills remain

Although the guideline is welcome by all sectors, some issues remain unsolved.

Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association said the Ministry of Construction should clarify the concept of a “condominium” and a “condotel” so that local authorities can implement these in the right way. Moreover, Chau said that the current guideline does not mention townhouse condotels and shoptels which both occupy a significant part of many projects.

Kevin Hawkins, co-executive partner from Zico Law Vietnam, told VIR that despite the guideline being a good sign for the market, unfortunately, it provides little in the way of resolving the current situation, except to clarify the existing laws.

Accordingly, the MoNRE instructed local authorities to apply the current laws in a way that uniformly allows for land use right certificates to be issued for “construction works” on leased land. Condotel resort land is commonly leased as commercial land with a maximum duration of 50-70 years depending on the circumstances.

“While this may provide some additional clarification for issuing a form of asset ownership and transfer for the resort developer, it should provide more comfort to prospective buyers as it does not bring these non-residential condotels under the governance of the residential housing laws,” Hawkins analysed. “This means that condotel resort owners would have little voice in the decisions regarding the common areas of the property, such as pools, gyms, and parking lots, which typically attract buyers to invest in the property in the first place.”

He further added that unlike apartment complexes, which have management boards comprised of unit owners, there is no such mechanism under the land or tourism law that can be applied to construction works, considering that the condotels and villas are assets constructed and attached to leased land. “How this will affect the rights of unit owners and developers remains to be seen. Similarly, the effect on the marketing and sale of such units remains vague,” he added.

According to Hawkins, many issues still need to be addressed to unfreeze the condotel market. For instance, the issuance of a comprehensive decree or law for condotels, defining what a condotel is in contrast to other tourism properties. Further issues regard investments, payment guarantees of promised property returns, non-recourse mortgaging permissions, especially for properties with a contractual revenue stream, and legal reviews of the investment documents by qualified lawyers.

Positive expectations

Despite remaining at a standstill, thanks to the recent issued guideline, the condotel market is expected to be more active in 2020 and beyond.

Vietnam welcomed over 18 million international tourists in 2019, according to the General Statistics Office. The number showed an on-year rise of 16.2 per cent. Tourists from Asia made up 79.9 per cent of the total, up 19.1 per cent. Meanwhile, arrivals from Europe, the United States, and Africa went up by 6.4, 7.7, and 12.2 per cent, respectively.

The Vietnam National Administration of Tourism noted that the country served 85 million domestic holidaymakers in the year, an increase of over 6 per cent.

According to tourism experts, with an average growth of international arrivals to Vietnam from 9 to 11 per cent annually, the country would need around 700,000 rooms this year to host them. This figure could grow to up to 1.45 million in 2030.

Local condotels could not only be a way to increase the number of rooms but also offer high-quality accommodation above four stars for tourists, which many cities and provinces still lack.

Nguyen Huong - General director, Dai Phuc Land

Condotels are classed as a type of asset which has been quickly developed in recent years across the country, from the north to the south.

This type of asset can bring high benefits for its investors and buyers.

After a rapid development time in several provinces and destinations which have large pockets of international and domestic tourists such as Quang Ninh, Quy Nhon, Danang, Nha Trang, Phan Thiet, Vung Tau, and Phu Quoc, the condotel market has exposed challenges as the current legal frameworks have not mentioned it in any documentation.

Therefore, this new dispatch guidance makes it possible for those involved to break through these difficulties and can make the condotel market become more active.

Nguyen Trong Thuc - Senior manager, CBRE Hotels Vietnam

The official guidance only quotes the existing laws and clarifies the certain understandings, while not providing much new legal insight. However, this is still a positive signal from the government in the quest for a more transparent and well-regulated holiday property market.

The document confirms that land for villas and apartments whose purpose is for trading and services should be categorised as land for such.

Land use tenure should be determined based on land use purpose, and thus in the case of holiday villa and vacation apartment projects, land use tenure cannot exceed 50 years, or 70 years in special circumstances, with requests for extension to be considered after this period.

In the last five years some sales agents in the market have made misrepresentations to prospective buyers that they will be issued a “freehold ownership certificate” after purchase. This new document helps to confirm that such statements are incorrect.

This official dispatch also states that if related projects meet regulatory requirements for transfer under the provisions of the Law on Real Estate Business, granting certificates of ownership of such construction works to transferees will be subject to regulations laid down in Article 32 in Decree No.43/2014/ND-CP, and Clause 22 of Article 2 in Decree No.01/2017/ND-CP.

Looking up “regulatory requirements for transfer” under the Law on Real Estate Business, it seems that ownership certificates mentioned here are for transfer of a project from one developer to another, while the issuance of ownership certificates for individual buyers of holiday apartments and villa is still unclear.

Su Ngoc Khuong - Senior director of Investment, Savills Vietnam

This new guideline brings some positive signals to Vietnam’s real estate market, especially for hospitality developers and investors. If the guideline is officially implemented, it will be a great support and leverage for the hospitality sector.

Generally speaking, the hospitality market investors have two main sources of income: either selling second-home villas and condotels, or selling leisure and entertainment services within their projects.

Currently, as the revenue of hospitality services has dramatically dropped, investors can take advantage of the fact that the buyer is entitled to own the property certificate to stimulate the needs of buyers, thereby preserving the initial investment.

For individual investors this is also considered a positive move, as the real estate market in big cities is facing numerous issues related to legal problems or limited supply.

They will also be more assured in proactively increasing profits by owning a new type of property such as a second home, condotel, or officetel.