Condotel: Many Benefits but Various Challenges

11:31:31 AM | 27/12/2019

According to experts, condotel investment will benefit the economy and real estate market creating momentum for the growth of related industries such as construction, services and especially tourism - a field designated to develop into a key economic industry.

According to the Ministry of Construction, there are currently about 148 condotel projects from 52 investors in many coastal provinces and cities across the country. In the period of 2017 - 2019, about 27,000 - 29,000 apartments have been available for sale. In particular, condotels are concentrated mainly in Da Nang, Khanh Hoa, Phu Quoc (Kien Giang), Ba Ria - Vung Tau and Binh Thuan.

According to Dr. Vu Tien Loc, President of Vietnam Chamber of Commerce and Industry (VCCI), condotel and homestay are new models that can mobilize social resources into the development of infrastructure and tourism of Vietnam.

Currently, Vietnam welcomes between 15 and 18 million arrivals of international tourists and over 80 million arrivals of domestic tourists each year. According to the statistics of the Vietnam National Administration of Tourism, in 2018 alone, with 15.5 million arrivals of international visitors and 80 million arrivals of domestic tourists, the total revenue from tourists to Vietnam was over VND620,000 billion.

In order for Vietnam tourism to take advantage of new types of models, according to Dr. Loc, Vietnam needs to remove bottlenecks for tourism development, and one of the main bottlenecks is infrastructure, which is a tourism real estate system, and especially high quality accommodation facilities. However, to develop new business models, it is necessary to ensure transparency and consistency in the legal system. Transparency will ensure peace of mind for investors, allowing them to make long-term investments.

According to Mr. Do Viet Chien, General Secretary of Vietnam Real Estate Association, former Director of Urban Development Department under the Ministry of Construction, condotel was the most developed resort real estate segment in the period of 2016 - 2017 and the first part of 2018, meeting the market demand, creating many comfortable and high-quality accommodation facilities for the State's tourism development goals, contributing to economic growth and the national tourism development strategy. However, there have been signs of slowing down.

It is worth mentioning that this is a dual feature real estate product that has not been regulated by the law on standards, regulations on planning, ownership, transfer, sale, purchase and operation management, especially ownership, because buyers want to be granted permanent red books while condotels are governed by two laws: the Tourism Law and the Housing Law. According to the Tourism Law, resort tourism products can only be rented for a limited time and under the Housing Law, permanent red books will be issued.

This makes buyers wonder, and investors do not know which law to apply, and the State is confused in issuing certificates of land use rights and managing condotel development.

In addition, according to Mr. Chien, currently the condotel profits agreed between the buyers and sellers are very high at 8-10-12%, these are unrealistic interests. Therefore, not all businesses have fulfilled this commitment, resulting in issues of arrears, deferred payments and ultimately non-payments, leaving buyers dissatisfied.

Besides, there were some local administrations trying to bypass law by giving a concept, in which condotels built on residential lands will form residential units. This meant that the housing has no social infrastructure, they even adjusted the plans into residential lands to grant red books to buyers.

These are real issues that have arisen but have not been regulated by the law, causing risks of planning disruption and social instability.

Therefore, Mr. Chien said that for condotel projects built on resort lands to be converted into houses, their planning must be reviewed, re-evaluated and clarified which areas are converted and which ones are not. If converted, whether it is partly or wholly converted, and the question of where the social infrastructure is must be answered. Construction must be well planned and not disrupt the landscape and the original plans. At the same time, the land fund for construction of social infrastructure has to correspond to the population. On the other hand, it is required to ensure parking requirements and the ratio of static traffic land according to laws.

In order to find solutions to the problems mentioned above for the real estate market in general and condotels in particular, Mr. Chien said that in terms of condotel permanent ownership, when a condotel is built on a land designated for tourism, service, and commercial resort, a limited lease will be applied in accordance with the tourism laws. In case a condotel is built on a residential land, the housing law and standards for housing will be applied and red books will be issued.

In case condotels have been built on tourism or resort lands and investors want to convert to residential houses built on residential lands, the Government should direct relevant ministries and agencies to immediately provide guidance with specific criteria for investors to review and re-evaluate the projects to clarify which places to be remained for tourism and which ones to be converted to residential purposes.

“It is necessary to issue standards for condotels soon to help investors overcome difficulties and continue investing in developing this type; giving buyers peace of mind, enjoying social infrastructure and legal ownership. The State gradually controls the market in the direction of stability, transparency, sustainable development, creating favorable conditions for large and reputable enterprises to affirm their position in this potential big game,” said Mr. Chien.

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

The new thing in tourism real estate is that a tourism property can be used for many functions like residential purposes, long-term leases or short-term accommodations for tourism, rental offices, as well as many other functions, as long as the criteria of human living space are ensured. This is an expression of a sharing economy making the most of all resources in order to be economical and highly effective.

Therefore, when applying the land law carefully, it can be affirmed that the allocation of residential land to develop new tourism real estate projects is legal.

It is necessary to build a legal framework for multi-functional real estate based on shared economic management concept. It is necessary to supplement Land Law, Housing Law and Real Estate Business Law by the provisions on the management of multi-functional real estate.

Regarding land, the Government should allow investors of real estate projects with the goal of serving the tourism business to choose the form of long-term land use in association with payment of residential land use levy, or short-term land use associated with the payment of land rent for business - service, corresponding to each appropriate land area of ​​the project. Regarding real estate management, it is necessary to put in place the principle of accepting some permitted and required functions for multi-functional real estates.

Ms. Tran Thi My Loc, Deputy General Director in charge of sales of Vinhomes JSC

In the context that Vietnam tourism is growing strongly, it is necessary to mobilize resources to develop infrastructure, including accommodation facilities. The advantage of condotels is that investors can mobilize capital from individual investors to build hotel apartments, meeting the increasing accommodation needs of tourists.

The key point here is the profit is too large, beyond the actual ability to operate and exploit business, as the basis for payment and fulfilling the commitment of the investors. If investors hire an operator and hotel management unit like InterContinental then this official cost is already up to 3-4%. Investors can only pay 5-6% for condotel buyers and the figure 10% is unrealistic. However, in cases where the investors have the experience of self-management, existing business systems and customers, the project has many special advantages, the profit commitment of 10% is reasonable.

The public needs to have a proper assessment to return the market to the right development track of its inherent potential. Because the resort real estate market of Vietnam is only in the first phase and there is a lot of potential for outstanding growth in a short time.

Mr. Nguyen Chi Thanh, Vice Chairman of Vietnam Real Estate Brokers Association

Condotel model is a growing trend in Vietnam and the whole world. The percentage of families on vacation accounts for 60%, the models of apartments and resort villas are very good and suitable to the needs.

Therefore, it is necessary to determine that the residential land will be used for resort or tourism apartments, but with the areas planned for tourism when there is no infrastructure to serve residential land or demands, converting into residential land or apartments needs to be considered.

Some coastal cities, such as Da Nang, prioritize the sea surface as a tourism development area and do not allow residential units to form in order to serve the majority. This is a civilized planning view.

The concept of suggesting granting long-term ownership of condotels or apartments, hotels is not a problem, but it is necessary to determine what the land planned for that area is for, then issue a certificate accordingly.

In addition, it is affirmed that resort apartments will be demanded in a long-term. According to statistics of transactions with the Vietnam Real Estate Transaction Association, the market absorption with resort apartments is still good. The occupancy rate in the summer is always high, and at the current rate of tourism development, we need a high number of tourism and resort apartments in the next 5-10 years.

Quynh Chi (Vietnam Business Forum)