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Condotel market faces challenges yet remains a promising property segment

Condotel market faces challenges yet remains a promising property segment

Though the condotel market is facing major challenges, investment in condotels remains appealing and is expected to benefit the real estate sector, as long as a clear legal corridor is established to protect investors.
18:30, 30/12/2019
An aerial view of Cocobay Danang condotel complex in the central coastal city of Danang. Investment in condotels remains appealing despite defaults in profit commitments by property developers. (Photo: Empire Group)

At the forum, held by the Vietnam Chamber of Commerce and Industry and Dien Dan Doanh Nghiep on December 14, participating experts stated that the benefits from investments in condotels included saving land and stimulating the development of the construction, service and tourism sectors. As for enterprises, this is a channel where capital can be mobilized legally and effectively.

However, the experts pointed out that many condotel developers have suffered losses due to high interest rates and there is a lack of laws governing the condotel business or regulations on operating condotels.

No regulations governing condotels have been added to the Land Law, the Law on Real Estate Business or the Civil Code. Condotels are not recognized as residential apartments, so buyers are not issued ownership certificates.

Former Deputy Minister of Natural Resources and Environment Dang Hung Vo noted that new types of tourism property projects are playing an important role in developing the tourism sector. However, the absence of laws is preventing these projects, mainly in the condotel segment, from growing, he remarked.

The difficulties facing the condotel market will immediately be addressed if long-term land use certificates are granted, the Vietnam News Agency reported, citing Vo.

A representative of a firm said that if the condotel segment is governed closely, negative effects will be minimized, large amounts of capital will be mobilized from residents and bank loans for the real estate sector will reduce.

Do Viet Chien, general secretary of the Vietnam Real Estate Association, suggested that the relevant ministries and departments take steps to remove bottlenecks facing the real estate market and especially the condotel market to allow it to gain ground.

Addressing the forum, Vuong Duy Dung, from the Department of Housing and Real Estate Market Management, under the Ministry of Construction, stated that in line with the prime minister’s directives, the ministry had researched the standards and regulations applicable to residential apartments, including condotels and officetels.

A set of these standards and regulations has been drawn up and submitted to the Ministry of Science and Technology for appraisal and evaluation prior to release, he said.

Speakers at a workshop in HCM City discuss the legal framework needed for the condotel property segment. (Photo: Bo Xuan Hiep)

Speaking at a seminar on December 17 in HCM City, Luong Hoai Nam, member of the Tourism Advisory Council, said that condotel investment would continue to be attractive because of fast-paced development in tourism infrastructure.

However, investment remains risky because of the “lack of a legal framework, limited ownership period (often 50 years), and lack of management capacity of the developers”, according to Nam.

Le Hoang Chau, president of the HCM City Real Estate Association (HoREA), said it was important to protect the rights of investors. “We think that an ownership certificate should be issued for each condotel.”

He said there was no need for a new law, but current laws need new content to ensure the rights of investors.

The law should clearly stipulate the conditions for raising capital for future condotel projects. These would include construction permits and complete infrastructure systems before the sale of the units. The condotel projects must also be guaranteed by a bank, Chau said.

Mai Van Phan, deputy head of Land Administration under the Ministry of Natural Resources and Environment, said that under the Tourism Law, a condotel means a hotel condo operating as a hotel which is a service business and does not have a residential purpose.

“Land for building condotels is categorized as land for lease for production and business within a period of only 50 years, not for residential purpose (which is longer term), so it’s impossible to grant long-term ownership certificates for such condotels,” he said.

Huynh Phuoc Nghia, deputy head of the International Business and Marketing Department at HCM City University of Economics, said that several disruptions had occurred in condotel profit commitments, forcing investors to be more careful.

The segment was riskier than others because of limited ownership, a lack of a clear legal framework for the sector, and lack of management capacity, he said.

However, Mauro Gasparotti, director of Savills Hotels Asia Pacific, said that “condotels are good for individuals to own and are attractive to developers”.

“Yields of 4-6 per cent are the right expectations for a sustainable rental return,” he said.

But he noted that both buyers and developers should have a full understanding of condotels.

Condotels contain residential characteristics to ensure that buyers will identify it as a “second home” product. They also have “hospitality” features, which need to be designed following hotel models and standards to ensure profitability, according to the director.

Statistics from the Ministry of Construction indicate that the country has 148 condotel projects being developed by 52 investors across many provinces and cities.

Some 27,000-29,000 condotels, mainly in Danang, Khanh Hoa, Phu Quoc, Ba Ria-Vung Tau and Binh Thuan, are estimated to have been put into service in the local market in the 2017-2019 period.

In the first half of the year, 11,855 condotel units came on the market led by the coastal markets of Nha Trang, Da Nang, Phu Quoc and Quang Binh, but only 25 per cent of them have been bought, according to the Viet Nam Association of Realtors.

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