Title deeds welcome, but condotel woes remain

Even though issuing title deeds for condotels, which operate as a commercial hotel with units individually owned, establishes a legal framework that had been missing for several years, it still fails to address the many real investor needs, Dang Hung Vo, former Deputy Minister of Natural Resources and Environment.

"Many buyers purchase condotels not only to lease them out but also with the expectation that they can live in them, while the current title deed only sets out rights within the scope of using them for business purposes," Vo said.

The government last week issued guidelines to local authorities on granting title deeds for non-residential properties, including condotels and officetels. Accordingly, ownership of these properties will be valid for 50 years generally, and for 70 years in localities with difficult economic conditions, with extensions to be considered after said time periods.

This is a relief for investors because despite rampant development of the model since 2016, there had been no legal framework for authorities to issue title deeds for such properties.

The government’s new guidance to issue title deeds will not by itself create a strong economic stimulus for the condotel sector, as it merely helps local authorities resolve disputes based on existing laws.

"How developers run and manage condotels is the more important issue that really affects the market," Vo said.

Nguyen Tho Tuyen, CEO of real estate developer BHS Group, said title deeds do not play a decisive role in the "life and death" of the condotel sector.

The condotel market had exploded to life in 2016 and 2017 when developers launched policies promising high annual returns. As buyers rushed to invest, condotel prices inflated up to double that of their actual value, but buyers still put down money because they believed in the reputation of developers and attractiveness of the investment, Tuyen said.

However, last year, a few major condotel developers ran into financial troubles and reneged on their guaranteed returns, or failed to pay on time.

"Buyer confidence took a hit, and from the end of 2018 until now, the market has been reluctant to consume properties of this type, and newly launched projects have not attracted as many buyers as before," Tuyen said.

Developers, therefore, need to sell condotel units at their real value, stop making unrealistic returns commitments, and focus on operating condotels effectively to increase profits for individual owners, he added.

Su Ngoc Khuong, director of real estate consultancy Savills Vietnam said legal recognition will give investors more peace of mind when making non-residential investments such as second homes, condotels or officetells, stimulating demand in those sectors.

Economist Nguyen Tri Hieu said that in the short term, the current Covid-19 pneumonia epidemic will have a much bigger effect on condotel demand, as it makes them a far less profitable form of investment.

Condotels, a form of resort real estate, relies on tourists, and Vietnam has lost a significant chunk of its arrivals since the outbreak, he said.

However, other experts have put forth a more positive view of the government’s latest move, saying the issuance of title deeds is the first step towards a more transparent condotel market.

According to real estate services firm CBRE, about 30,000 condotel units had been launched by the end of 2018 and another 3,000 units were added to the market last year.