Singling out Trustworthy Property Projects

11:49:51 AM | 2/7/2019

In addition to condotels and villas, the vacation property market has launched more products since the second half of 2017, including commercial townhouses for business and dwelling, gigantic resorts with casinos, parks and golf courses. Investors, authorities, operators and managers face many opportunities and challenges.

Land investment has become an increasingly popular trend in coastal tourist sites. However, a lot of warnings have been raised to investors of this segment in the coming years.

An integrated report from the Association of Vietnam Realtors showed that residential land projects are currently implemented very strongly in seaside tourism sites across the country. Main products are houses and residential land.

In 2018 alone, new supplies all over provinces and cities were estimated at 100,000 units. The average adoption rate in offering projects reached over 60% in 2018, reportedly better than in 2017. The association stated that residential land prices in provinces may rise 10-15% in 2019.

Notably, tourism growth has resulted in the boom in vacation property throughout the country, ranging from seaside property projects in Phu Quoc, Nha Trang, Phan Thiet, Thanh Hoa, Binh Dinh and Da Nang to projects in tourist cities and mountainous areas in Hanoi, Da Lat, Sa Pa and Ho Chi Minh City.

Mr. Vo Tan Thanh, Vice President of the Vietnam Chamber of Commerce and Industry (VCCI), said, although the tightening credit policy has given rise to a slowing vacation property market, this is still an attractive investment segment because the supply just meets a part of the demand. Hence, investment in this segment is hugely potential.

In addition, vacation property prices in Vietnam are lower than other countries of its class of tourism development. Localities with air traffic connections like Phu Quoc, Da Nang, Khanh Hoa and Quang Ninh have great potential for strong tourism development.

He added, given a wide room for development, investors should not miss this opportunity. In 2018 and 2019 alone, about 40,000 condotel apartments were opened for sale. The booming development of these projects has helped increase condotels, services and utilities to serve tourists and change the face of local tourism industry.

However, the real estate market is unsustainable and potentially risky. Real estate database and information, including planning, investors, implementation and trading, are inconsistent, incomplete, unreliable and non-transparent.

In the face of such a hot development, what concerns investors and businesses is an unclear legal corridor for vacation property which has not legally defined as a property for living or a property for business.

“For investors, an uncertain legal framework for these types will present many risks in business. In addition, how to manage and operate tourism property projects effectively and sustainably is also a great concern,” said Mr. Vo Tan Thanh.

According to experts, it is time to make clear that vacation property is not a sustainable investment channel but merely a trend-based investment channel which carries hidden risks such as the risk of being trapped by seasonal factors or market factors of this market; the risk of buying land of unclear legality. Some projects deliberately abandoned their projects or changed their projects after they sold residential land to customers.

Given the above risks, capital flows into this market will disburse and shift to more active investment channels than residential land like highly liquid assets.

According to Mr. Thanh, not only vacation property, investors should be careful about any product when they invest in it. They should choose qualified project developers.

Coastal condominium products with clear legality are traded more actively than in condotels in 2018. This shows that investors are becoming increasingly more cautious about legality and potential of products.

Currently, customers tend to buy apartments for living in good locations and lease them to tourists. In this homestay form, investors are fully active in seeking profits and managing their real estate assets, not depending on developers’ commitment policies.

In the coming time, when all development elements are converged, the real estate market in general and the vacation real estate market in particular will be very developed. Seeking high potential areas will also be a new direction for investors interested in the vacation property market. If investors know how to make sound investments, they can take huge profits in this market.

Mr. Nguyen Tran Nam, Chairman of the Vietnam Real Estate Association

Currently, there are no specific legal framework for condotel-related issues. There are many existing condotel issues like unclear architectural specifications, and no population to condotel criteria.

Regarding the granting of long-term land use rights, commercial and service land has a term of 50 years but there is no specific regulation on the term of condotel: It is uncertain where it is commercial and service land or residential land, or both.

An existing condotel issue is regulations on purchase, sale and transfer of future products, guaranteed purchase and especially provisions on foreigner-purchased apartments.

Each project has its own policy as there is no common legal basis. In order to ensure rights and responsibilities of condotel project developers, there is a need for regulatory guidance on investment procedures and authorized sales contracts.

Prof. Dang Hung Vo - Former Deputy Minister of Natural Resources and Environment

It is essential to add regulatory provisions on multifunctional real estate management to the Land Law, the Housing Law and the Real Estate Business Law. Regarding land, real estate developers with intention to serve tourism business are allowed to select the long-term land use form subject to land-use tax payment or the termed land use form subject to duty payment of service and business land use. With respect to real estate management, it is necessary to introduce rules on some functions and requirements of multifunctional property

Of course, when the law is amended and supplemented, there are always transitional provisions, i.e. regulations on handling of licensed condotel projects.

Therefore, the best way is allowing project owners to choose the long-term use of ​​land area and the termed rent of service land area. Land-use tax, land rent and project certification must be adjusted to match the area already chosen by the project investor. Only by doing this will condotels be able to promote the nature of this type of property.

Mr. Do Huy Hoang, Department of Housing and Real Estate Market Management, Ministry of Construction

In the first quarter of 2019, Vietnam attracted about US$1.7 billion of foreign investment, up 36% year on year. FDI investment into real estate has always ranked second in the last three years, including vacation property.

According to incomplete statistics, in 2018, more than 8,000 condotels were opened for sale in 12 localities, mainly in popular tourist destinations like Da Nang, Khanh Hoa, Ba Ria Vung Tau, Kien Giang, Phan Thiet, Quang Ninh. Particularly, Quang Ninh, Da Nang and Khanh Hoa accounted for 19%, 14%, and more than 26%, respectively.

In 2018, successful deals reached more than 7,800 units, representing an absorption rate of over 92%. This showed that vacation property caught much attention. In just the first quarter of 2019, the number of condotels opened for sale in the south was higher than in the north. Deals were numerous in southern provinces, especially in Da Nang, Nha Trang and Phu Quoc.

The second half of 2019, the vacation property market has many advantages. First, the potential is huge due to the increasing demand for leisure. Second, Vietnam is beginning to see some new types of vacation tourism such as sightseeing tourism, medical tourism, MICE tourism, spiritual tourism and shopping tourism. These are the new types of tourism trends. Third, real estate legality is clearer than in previous years despite some incomplete definitions. Fourth, localities are actively calling for tourism investment. Fifth, the business investment trend of investors is huge. Finally, the Government policy that sees tourism as a spearhead economic sector is an opportunity.