Many risks in investing in condotel real estate

VCN - With the growth of domestic tourists up to nearly 30 percent per year, international tourists ,more than 15 percent per year, along with the acceleration of investment in and development of resort projects, there are many new types of tourist accommodation facilities, such as condotel (tourist apartments).
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Cocobay Da Nang condetel project notifies stopping of profit payment as committed, causing damages to customers

According to the Ministry of Construction, since 2014 so far, there has been a trend of investment in condotel development nationwide, especially in coastal areas and islands such as Van Don, Ha Long and Do Son, Sam Son, Cua Lo, Da Nang, Quy Nhon, Nha Trang, Mui Ne, Vung Tau and Phu Quoc.Condotel model boom

Nha Trang, Da Nang and Phu Quoc are the three most developed areas. From 2015 to September 2017, there were 71 licensed condotel and officetel projects with a total of 25,639 apartments. There are 15,010 condotel apartments (Hanoi 4,114 apartments, Ho Chi Minh City 208 apartments; Da Nang 4,565 apartments and other provinces 5,823 apartments); there were 10,629 officetel apartments (Hanoi 3,726, HCMC 6,424 and other provinces 479).

The paradox is the proportion of condotel apartments is 56 percent, while hotel rooms only 44 percent, which is not normal, because in other countries the proportion of hotel rooms is always higher than condotel apartments.

In 2016, total supply of condotel apartments reached 16,000 apartments. In 2018 and 2019, it is expected about 20,000 condotel apartments will be launched each year, with an area of ​​approximately 45m2 per apartment.

The boom of condotel apartments has helped increase the number of rooms, services and facilities for tourists, changing the face of tourism in many localities and partially meeting demand of domestic and foreign tourists

Condotel products have also attracted many investors in recent years. Leaders of many localities have called for investment, created favourable conditions in terms of land funds and administrative procedures to attract investors to develop condotel projects for tourism, contributing to local socio-economic development.

"Decoy" for customers

To invest in a condotel project, in addition to equity, the investor sells condotel apartments to customers to raise capital to implement the project, in the same method as selling future houses (although the law has not allowed this method), so many risks have occurred.

Since 2014, many businesses have invested in condotels to sell to customers with very high profits, with interest from 8-12 percent per year, especially up to 15 percent per year for 8-12 years. Particularly, Cocobay pledged 12 percent per year, a project in Nha Trang committed profit of 14 percent per year.

However, according to Le Hoang Chau, Chairman of Ho Chi Minh City Real Estate Association (HoREA), this is a decoy, giving risks for "customers - secondary investors", because in contracts for sales of condotel apartments, the investors do not come up with solutions to ensure compliance with commitments on paying profits to customers.

In fact, when selling apartments, investors are committed two things about high profits in the long run and use right certificates for condotel apartments. There are no grounds to ensure the first commitment and the second commitment is similar because there has been no guidance from authorities on issuing use right certificates for a red book to condotel apartments.

Investors also do not have any specific agreement on supporting secondary investors after expiration of committed profits (after 8 - 12 years). Because every "customer - secondary investor" cannot conduct business in condotel apartments in resorts.

Moreover, investors have increased the selling price to the same price as high-end apartments in Ho Chi Minh City, so investors have not almost suffered from risk because they have immediately recovered their investment capital and gained profit. Risks in condotel business later mainly come to customers.

Since 2016, HoREA has warned about law loopholes and the lack of a legal corridor to regulate construction and business activities of condotels, leading to risks for customers because investors did not fulfill their commitments on profit payment

At present, many reputable and qualified investors only offer a commitment of more reasonable and feasible profit, about 6 percent per year. Although this profit is lower than the savings interest rate of more than a 12 month-term, "customers - secondary investors" still benfit, as they both receive profits and own condotel apartments.

To improve the legal system and strengthen State management of this model, the association proposes amending and supplementing a number of articles of the Land Law and the Law on Real Estate Business, which needs to continue applying land use regime with a maximum term of 50 years (not exceeding 70 years in special cases) for tourism land, including tourism land used for condotel development.

many risks in investing in condotel real estate Condotel segment awaiting removal of obstacles

VCN – Presenting from 2014-2015, the condotel segment (hotel apartment projects, villas, townhouses in the resorts) has ...

Thereby, buyers of condotel products in resort projects request to be granted a certificate of ownership of condotel apartments and land use rights with a definite term according to the duration of the project. Upon expiry of land use right, the use right will be extended as needed in accordance with the law.

In August 2019, Bavico Nha Trang condotel project "broke", failed to fulfill its commitment to pay 15 percent profit per year and recently, Thanh Do Construction and Development Investment Joint Stock Company, the main investor of Cocobay Da Nang condotel project has announced it will no longer pay 12 percent per year profit to customers who have purchased condotels. This is an awful "shock" and also caused great damage to the customer.
By Thu Diu/ Huyen Trang

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