"There will be a Great Wall along the beaches if red books issued for condotels"

Mr. Than Thanh Vu - Vice Chairman and General Secretary of Vietnam Tourism & Property Association (VnTPA) said that if the Government agrees to issue the residential red books for condotels, there will be a Great Wall along the beaches of Vietnam.


(Mr. Than Thanh Vu. Photo: VinaForum)


*** Condotel is Vietnamese term for condominium hotel or apartment hotel. A condotel is also referred as a hotel apartment.


This article is published on Sep 28th, 2018, according to the interview of VietnamFinance newspaper with Mr.Than Thanh Vu – Founder, 1st Vice Chairman and General Secretary of Vietnam Tourism & Property Association (VnTPA), the Founder of VinaForum & VnInvestors. We would like to post this article again because of its topicality after the Ministry of Public Security has just petitioned the Prime Minister not to legalize the projects of tourist apartments, tourist villas, and offices combined with accommodation into residential houses.

Vietnamese resort real estate market has reached a very strong growth rate over years, yet faced many controversial issues among investors and policy makers.

Whether the market is saturated or still available at present? Whether the profit commitment policy is feasible or not? Should any mechanism be made for condotel? What are the hidden risks of the market? …

To answer above questions, VietnamFinance made an interview with Mr.Than Thanh Vu.


The resort real estate is not only saturated but supply has exceeded demand.

Could you please make some evaluations about the resort real estate since the beginning of this year?

Mr.Than Thanh Vu: There are a lot of reports released but I do not believe in any of them. When talking to other people in this industry, they complained that the market has been super challenging since the beginning of this year. I have received about 30-40 messages per day for resort real estate marketing. As a result, marketing pressure at this time is really high.


What is the reason for this situation?

Firstly, the stock is too much. There are a lot of projects from North to South of Vietnam coming out at the same time. Even in areas such as Khanh Hoa, the number of projects is extremely "huge".


Resort real estate is for high-income people. However, high-income people have many options to invest. In addition to resorts, they can buy a second and third house in Hanoi, or Ho Chi Minh City for lease, saving money or buying stocks, etc…. More supply and less demand, high pressure for selling is obvious.

Other crucial reasons are buyers not believing why resort property in Vietnam is too expensive. For example, for condotels, buyers will ask why they have to spend 20 - 30 million VND to buy 1 square meter, while with that money they can buy a 1 square meter apartment in Ho Chi Minh or Hanoi with clear legal papers. Or for resort villa, in Malaysia, a 350m2 villa costs only 300-350 thousand USD but in Vietnam it costs more than 1m USD, while the number of tourists and our infrastructure cannot be compared to those of Malaysia. Buyer asked themselves such questions and easily gave up.


What do you think about the market in the last 3 months of this year as well as next year?

You can see the condition of the market when looking at the moves of investors. If the market is okay, does the project developer need to lobby for red-book for condotels?

Now due to the problem in selling, developers have to lobby.


There is an opinion that the current resort real estate market has been saturated, what do you think about that?

Currently, supply exceeds demand, purchasing power is reduced, selling pressure is high, and developers promise to buyers that resort real estate would earn skyrocketing interest rates. There is no need to promise if your business is in a good condition. There are provinces reporting construction growth up to 60% and tourism growth only 30%. The market now is not only saturated anymore, with supply exceeding demand, but inventory stocks are very big.

Now developers are just using selling techniques to transfer the inventory stocks from this speculator to another speculator, and I don’t see the actual filling by tourist occupancy.

(The Cocobay condotel project in Danang City. the Cocobay developer has failed to fulfil their obligations to the investors leading to big lawsuits and crisis in the market)


Commitment to unrealistic profits increases the risk of market breakdown.

What is your opinions about the current profit commitment program?

The 8% - 12% profit amount of couple years may have already included in the selling price. For example, people sold the house that's worth 500 thousand USD at the price of 1 million USD, then took this big difference profit and gradually used it to pay back to their investors as profit program commitment of 8-12% / year. That is the method to take money from the investors first and then give it back to the investors.

In reality, the highest rate of rental income for rent in Ho Chi Minh City or Hanoi is only 4% per year, but that is for the whole year rent while resort real estate is only for seasonal rental, or even for daily basis. … So I don't think it can ever reach 8% - 12%.


May this profit commitment program pose any risks?

Many Vietnamese investors focus on advertisements of high profit program commitment, but not on any professional investment analysis. So developers make use of this to sell high prices to investors with promises of high investment return profits. It is okay to charge first and pay back later. However, what will happen if you take money from the buyers and spend it all somewhere else and then you run out of cash to fulfil your profit program commitments to your investors?

Your business will fail if you can’t pay it all. This case may happen in real life because many developers take money from sales of one project to inject in another project and then keep going like this for many other projects. When one of those project get stuck, the whole chain will collapse. Not paying interest for customers in 2 or 3 years will take you to lawsuit. The first lawsuit will lead to the second. I am not optimistic about the market in the next years.

(Investors on demonstration against FLC group as FLC hasn't fulfil their obligations as promised)


As you said, I imagine that if there is a real estate crisis, that crisis will arise from resort real estate?

You need to analyze the case thoroughly before you can come to a comprehensive forecast. For the current resort real estate market, there are 2 problems I personally think: first is the promise of unreasonable high interest rate (it's like cheating); the other is the developers trying to lobby to get red book for the condotel, and trying to concretize the beaches.

Another problem is that resort real estates locating mainly in popular beach areas such as Khanh Hoa, Phu Quoc, Ha Long - Van Don, …. In these three areas, people have tried to lobby to make a macro-level policy which can give it the special zone mechanism. In special zone, the budget money is used to invest more in infrastructure and to reduce taxes. In other words, budget money is taken to support project owners / developers to sell the real estate faster.

The special zone draft law has led to a land fever. It attracts everyone come there to buy land; no one is thinking of doing something to increase the value of brainpower or to create products that can compete internationally.

Like Phu Quoc, apart from economic growth from land, what can Phu Quoc contribute to Kien Giang province and the whole country?

I have observed carefully, but found nothing. Even the resolution of labor is also not good, because hotels and resorts in Phu Quoc are currently hiring staffs of Filipino, Sri Lankan, etc…as they are more professional and speak English.

Vietnamese people are always the buyers of land and buildings built from land. Does Phu Quoc have any projects with large foreign investment capital yet? Not yet, only the domestic business. You should ask yourself a question: why have foreign investors not come in, what are they waiting for or whether they feel unstable?


Maybe it's already a crisis and you don't know about it.

As you said previously, the crisis’s assessment must be considered thoroughly, so why can’t people consider it thoroughly?

Our data is not enough. It's scattered and no one has assembled or tried to assemble it completely, which leads to an uncompleted picture, just a faint and patchy painting. Therefore, we can’t find the way to go.

There should be a statistic report, but the General Statistics Office cannot do this. It's not always possible to rely on the foreign consultant's reports. Everyone has lobbied in their own way. State agencies are lobbying the data that they have and business’ petition. Businesses are lobbying under the pressure to make money, following the trend. All are lobbying without knowing whether they are doing right or not. In other countries, the data is very complete and transparent. When you buy a house, you can know the history of that house and surrounding area as well. Moreover, data is available on public domains for everybody. In Vietnam, the land registration office of the Department of Natural Resources and Environment (DoNRE) or of the Tax Department is not publicized to us. No one takes responsibility on that data, and all are "lobbying blind".

I am very worried that it would happen. Maybe the market at the moment was already in big crisis.


Everybody needs to accept the growth momentum and focus on condotel plannings

One of the major problems of the current resort real estate market is the legality of condotel. Some businesses are advocating for the concept of "residential land does not form housing units"while HoREA is advocating for the concept of "tourist land". The Ministry of Natural Resources and Environment is considering two options: commercial land or long-term residential land having red book. What is your opinion about this issue?


The condotel case that I said previously, now has difficulty in selling due to the large amount of stocks. The developer who wants to push their business promotes the Government to come up with a new policy that elevating the condotel's level, instead of just a purchase and sale contract, now the red book. If the developers can provide the red books to their condotel product buyers, they can increase the selling prices more and can clear the stocks faster.

What will the mechanism be like if the Government issues developers the red books? If provinces have the authority to do so, they will implement in their own way and we will have a Great (concrete) Wall along the beach. In the end, there will be no beautiful beaches left. Then can the infrastructure catch up with that way, e.g. how is wastewater treated?


At the moment, I think they shouldn’t focus on issuing red book, they have to do planning: where to build condotel, where not to build. When the plan is determined, you can determine the legality of the condotel according to the plan. It’s very dangerous for doing without a specific planning.

(Waste water coming directly to Nha Trang beach for years. Video: July 2020, SaoKhue-Water)


What you said is in the long term, how about tens of thousands of condotels had already built?

I think what has been built should be accepted in the form of contracts but developers have to sign the commitment to implement investment project. This is to avoid the case that developer has sold the condotels to investors, and they also mortgaged the property of this condotel project in banks. If your business can not work well, the investors would lose everything because they don’t have any ownership title in hand, but only the contract.

The Authority will protect whom? Of course, they have to protect the buyers / the investors, because they are the real investors, developer is only an intermediary. They can protect those investors by forcing developers to sign the commitment to implement investment project, prohibiting project transfer or bank mortgage because the developer has already sold the condotel units to investors.


Aren't the customers still holding the contract?

No, they hold nothing. The bank is not responsible for that. They just keep the red books of the project property. The condotel contract is just an agreement between two parties to buy and sell the condotel. Holding the contract means holding the promise of the developer, not holding any land use rights, so when the crisis occurs, they will lose everything.

In case developer builds a condotel on the tourism land, not residential land, but he promise to issue residential red books. When client forces him to provide the red books, he turns to lobby the State for making a policy for providing red books with a lot of shit reasons for that action.



(a beach in Vietnam with a 'long concrete wall' of concrete condotel buildings)


For Vietnamese original version of this article, click here


----- Quoting the opinions of the Ministry of Public Security ----


Potential risk of insecurity

According to the Ministry of Public Security, a number of real estate businesses have recently announced to suspend profit payments to customers who buy resort apartments according to the commitments with buyers. For example, Thanh Do Investment Development and Construction JSC announced the termination of profit payment for the buyers of resort apartments in Cocobay project (Da Nang); FLC Homes JSC has announced to suspend profit payments for customers as committed in The Coastal Hill Quy Nhon, Condotel Quang Binh, Condotel Ha Long projects because the business has faced a financial difficulty.

In addition, regulations on the management and operation of resort apartments and mixed buildings (residential apartments and resort apartments) are weak, not mentioning the role of developers, which can lead to potentially dangerous insecurity and safety of the building. For example, at the Our City project in Hai Phong by Hiep Phong Vietnam Co. Ltd. (100% capital of Hong Kong-China), hundreds of Chinese people enter Vietnam as tourists, renting apartments in this project for gambling on a very large scale. The Ministry of Public Security arrested 395 Chinese people and handed them over to China for handling.

At the Oceanus Muong Thanh Vien Trieu high-end hotel complex project in Nha Trang City with five 45-storey buildings, 1,000 apartment units, of which about 50% of the total units for living and 50% for rent. At present, many apartment developers are renting out their apartments in many forms without the management and supervision of building management board or local government.

This leads to a complicated situation for residents and tenants of the apartments, affecting security and order. Khanh Hoa police arrested 14 Chinese renting houses for tourism. However, they use a large number of computers and technology equipments suspected of criminal activities with modern technology.

The petition is not legalized

As a result, the Ministry of Public Security has proposed to the Prime Minister to direct the Ministry of Construction to urgently study and propose amendments to the Law on Real Estate Business, specifying names, management forms and business, purchase, sale and lease conditions of resort apartments, tourist villas, offices combined with accommodation.

Coordinating with the Ministry of Culture, Sports and Tourism at the same time to complete regulations on the management and operation of mixed buildings for living and office leasing, tourism …

The Ministry of Natural Resources and Environment shall study, amend and supplement legal provisions on land classification and grant certificates of land use rights, ownership of houses and land-attached assets for many types of new real estate for the implemetation of local authorities; projects of resort apartments, tourist villas, offices and accommodation are not legalized.

The Government Inspectorate inspects the implementation of resort apartment, tourist villas, offices combined with accommodation projects in some localities that develop these types of real estate, detects and treats the wrongdoing cases.

The Ministry of Public Security has proposed to the Prime Minister to direct the People's Committees of provinces and central cities not to develop more projects of resort apartments, tourist villas.


---------------End of Quote-------------

Thank you for this interview!


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Thuy Khanh

(Translated & edited in English

by Xuan Thanh & My Thanh)

support@vinaforum.org


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