1. The Rise of Condotels: A Promising Investment Model
Condotels—short for condominium hotels—emerged in Vietnam as an attractive investment option, combining the concept of individual property ownership with short-term hotel rental operations. Investors are drawn to condotels due to the potential for high returns, the opportunity to use the property for personal vacations, and the expected appreciation in property value in popular tourist destinations like Da Nang, Nha Trang, and Phu Quoc. Between 2015 and 2019, these properties became highly sought after, particularly as the country’s tourism industry boomed. Developers promised guaranteed returns of up to 8-12% annually, which further fueled the market. However, while these investments appear lucrative, they come with significant legal complexities.
2. Legal Framework and Key Challenges
In Vietnam, there is no specific legal framework that addresses the unique aspects of condotel ownership. Condotels are typically built on land designated for commercial or service purposes under the Land Law 2013. This distinction means that condotels are not treated as residential properties and are subject to different regulations, including a land-use term of up to 50 years, with the possibility of renewal. While investors may obtain an ownership certificate for their condotel units, the process is not always straightforward and depends on the compliance of the project with local construction and planning regulations.
A critical issue for condotel owners is the lack of consistency in issuing ownership certificates. The Ministry of Natural Resources and Environment issued Official Letter No. 703/BTNMT-TCQLĐĐ in 2020 to clarify that ownership certificates can be issued for condotels, but this guidance is not legally binding, and its implementation varies across local authorities. This uncertainty about ownership rights is compounded by the fact that condotel ownership is generally tied to a time-limited land-use agreement, unlike traditional residential properties, which may lead to challenges in reselling or financing the property.
3. Risks for Investors and Practical Considerations
Investing in condotels comes with significant risks, primarily due to the legal and market uncertainties. Investors may find that the promised guaranteed returns are not met, particularly in the wake of the COVID-19 pandemic, which severely impacted the tourism sector. Many developers failed to honor their income guarantees, and some projects were delayed or left incomplete. Furthermore, condotel owners typically have limited control over how their units are managed. The developer or a third-party hotel operator usually retains full control over the operation, including rental pricing and management, which can affect the potential for profit.
Investors must also consider the broader regulatory environment. With increasing government scrutiny over the real estate sector and tighter credit regulations, the condotel market is under pressure. The government has indicated that stricter policies will be implemented to regulate real estate projects, potentially affecting the future of condotels. As a result, investors must carefully assess the legal status of any condotel project, ensuring that the developer has secured all necessary approvals and that the project complies with relevant land-use and construction regulations.
Conclusion
Condotels in Vietnam offer an enticing investment opportunity, but they come with a range of legal uncertainties and market risks. The lack of clear regulation and consistent legal frameworks makes condotel investments riskier than traditional real estate. While the high returns and vacation use rights are appealing, investors should approach the market with caution, perform thorough due diligence, and seek legal advice before committing to such projects. As the legal landscape surrounding condotels continues to evolve, staying informed and aware of potential regulatory changes will be key to navigating this complex market.
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1. Lawyer Vu Thi Phuong Thanh, Manager of TLA Law LLC, Ha Noi Bar Association
Email: vtpthanh@tlalaw.vn
2. Lawyer Tran My Le, Chairman of the Members’ Council, Ha Noi Bar Association
Email: tmle@tlalaw.vn.
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