Condotels friend or foe for the tourism industry?

The development of condotels has seen a rapid rise, in Vietnam, over the last 2 to 3 years particularly in the resort areas of Danang, Nha Trang/Cam Ranh and Phu Quoc. Some 23,000 units have been built in Vietnam over the last 2 years and a further 29,000 are expected to come to the market by 2019[1].

This follows a pattern often seen in Vietnam of “build and they will come” with developers seeing condotels as another creative way of financing resort developments through pre-sales and offering high guaranteed investment returns. Whilst many believe condotels are an alternative supply of hotel rooms, in resort areas, many are not well designed and are poor on quality and rather focus on density and profit[2].

Another issue is the operation with many international operators shying away from including condotels in their management contracts partly because of the potential pending legal issues because of the lack of clarity around ownership..

This is the biggest potential problem in that it is not clear, because of the dual nature of condotels, whether they fall under the Land Law and real estate regulations or the Tourism Law and regulations and this has yet to be determined. The key issue being that if they fall under the Tourism Law then condotels will not be granted land use rights and thus no ownership certificates will be issued, which is not the basis on which many buyers have purchased. This is likely to lead to disputes between buyers and sellers if they are ultimately deemed to be hotel projects.

Another looming problem for many developers is the ability to meet the commitment to guarantee high rates of returns to buyers, as the returns are just not there in the early years of operation.

The current lack of clarity has caused some authorities to cease issuing new licenses for condotels but this is not across the board and the lack of transparency often adds to the lack of clarity.

It is clearly in the interest of all parties to have the issue resolved and clarified as soon as possible.

Kenneth Atkinson

[1] Vietnam Investment Review August 20^th 2018

[2] Mauro Gasparotti VIR August 20^th 2018