With many investors getting duped by developers, the Ministry of Construction says it will enact new laws to regulate the condotel sector.
The ministry will work on a standard contract between condotel developers and secondary investors, setting out specific rights and responsibilities for buyers and sellers, in addition to strictly controlling money lent by banks to invest in the condotel business model, Deputy Minister of Construction Le Quang Dung said at a government press conference Monday.
He admitted that the biggest problem was that there was no legal corridor for this business model, adding that neither the Law on Tourism, Land Law nor Housing Law have identified this type of business. Therefore, there was no regulation granting ownership or management rights to condotel owners, he added.
The press conference followed the announcement a few days ago from the Empire Group, developer of the Cocobay Da Nang Complex, that it will stop paying shophouse and condotel buyers the annuity it had promised them, citing financial difficulties.
It had guaranteed annual returns of 12 percent on the purchase price of properties until 2026.
Earlier, Bavico, another project in Nha Trang, had promised 15 percent annual returns, only to renegotiate them down to 8 percent, then defaulting on them altogether.
“A condotel pledging annual returns between 12 and 15 percent, which is two or three times higher than bank deposit rates, is far too unreasonable. The returns should at most only be equal to deposit rates,” Dung said.
However, the annual returns commitments between condotel developers and secondary investors being a civil matter, the regulatory agencies will only intervene “at an appropriate level,” he added.
In accordance with a directive from the Prime Minister, the ministry will study and enact regulations and standards for the operation of condotels by December.
The Ministry of Natural Resources and Environment has been tasked with providing guidance related to ownership and land use rights of condotel owners.
A condotel is typically a hybrid that joins a condominium and a hotel, operating as a commercial hotel even though the units are individually owned. The first condotel project in Vietnam came up in 2013 on a seaside street in the central resort town of Nha Trang.
In 2016, it became a craze, with condotels appearing at coastal resorts alongside villas and other houses. Over the two following years, many developers, small and big, entered the condotel sector with projects dotting the country’s entire coastline.
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 have been added to the market this year.
Increased competition in the sector saw developers enticing investors with promise of high guaranteed returns on their purchases. Major developers of condotel units or resort villas began to promise guaranteed returns of 5-10 percent per year for 5-10 years, and newer developers promised even more.
Despite real estate experts like Savills and CBRE warning that returns of over 10 percent per year was extremely high and tough to achieve, investors still flocked to buy up the properties.