On 14 February 2020, the Ministry of Natural Resources and Environment (MONRE) issued Official Letter No. 703/BTNMT-TCQLDD to provide guidance on land use regime, land use term and the registration of ownership title of new non-residential products, including condotels (or "tourist apartments") and resort villas (or "tourist villas") (Official Letter 703).
In response, developers such as Vietnam National Real Estate Association (VNREA)1 and the Ho Chi Minh City Real Estate Association (HoREA)2 formally welcomed Official Letter 703. These developers also urged the competent state bodies to issue further instructions and regulations in order to develop a stable legal framework for condotels and other tourism real estate products.
We take this chance to update you on some of the main issues and surrounding developments concerning Official Letter 703.
Vietnam has seen tremendous growth with regards to new types of real estate products. According to VNREA, there are currently at least 82,902 condotels in the market, 28,099 resort villas and 15,663 shop houses across the country, with a total estimated value of US$ 23 billion.
However, a recent combination of factors have slowed this momentum, resulting in a low supply of new products as well as a significant decrease in the transaction volume of condotel products since 2018. The main reason for this downturn is the lack of a clear legal framework for new real estate products, which has created uncertainty for project developers, product buyers and real estate managers.
In April 2019, the Prime Minister promulgated a Directive calling for the following actions to be taken in regards to new real estate products, including condotels, resort villas and officetels (Directive 11):3
- The Ministry of Culture, Sport and Tourism (MOCST) is to issue guidance on the business and management of condotels and resort villas in accordance with the Tourism Law and related regulations;
- The Ministry of Construction (MOC) is to finalize construction standards and criteria for condotels, resort villas and officetels. The MOC is also responsible for issuing specific regulations on managing and operating officetels; and
- The MONRE is to issue detailed guidance on land use regimes. The MONRE has also been tasked with researching and supplementing the Draft law amending the current Land Law with regulations on land use regimes, as well as issuing certification of land use rights and ownership over assets attached to land in respect to new real estate products.
Official Letter 703 was issued by the MONRE in response to Directive 11 and follows the issuance of related guidance from two other Ministries (as briefed below).
Summary of Official Letter 703
1. Land use regimes and terms
The MONRE has confirmed that condotels and resort villas are considered to be non-residential “tourism accommodation establishments” for the provision of accommodation services under the Tourism Law.4 As stated in Directive 11 and affirmed in Official Letter 703, "condotels" are to be specifically understood as “tourism apartments” as defined under the Tourism Law.
Under Official Letter 703, tourism real estate may only be constructed on "commercial" land leased from the State, with a term not exceeding 50 years (or 70 years in certain exceptional cases). The State has discretion to extend land use terms beyond their designated expiry upon the request of land users.
It is therefore apparent that buyers of condotels or resort villas (in an individual or corporate capacity) are not entitled to obtain freehold titles with indefinite terms. This will be unwelcome news to buyers who had believed that their title was indefinite even though the underlying land was not residential in nature.
2. Certification of ownership rights
The MONRE has also clarified, in general terms, that condotel product buyers can obtain certified ownership rights for tradable condotels and resort villas, which is in line with current regulations on certifying ownership for real property transferees.
This can be construed to mean that condotel product buyers can be granted Land Use Right Certificates (LURC) certifying their ownership rights over condotels and resort villas for a maximum of 50 years (but not exceeding the operation term granted to the underlying project).
Other key issues in Official Letter 703
1. Impact on previous guidance from other government agencies
In response to Directive 11, the MOC and the MOCST have also issued their own guidance. However, lingering inconsistencies between these guidance and Official Letter 703 mean that further guidance is required to reconcile these discrepancies.
a. Ministry of Construction
The MOC issued Circular No. 21/2019/TT-BXD on national construction standards for apartment buildings (Circular 21), which defines “condotels” as:
- “apartments within a mixed-used apartment building”; and
- apartments used for leasing or accommodation that are sufficiently equipped and serviced for these purposes.
The terminology used to denote condotels as “apartments for accommodation” by the MOC may be inconsistent with the understanding of condotels as “tourism apartments” under the Tourism Law, as adopted by the MONRE in Official Letter 703.
Moreover, Circular 21 only refers to “condotels” which form part of mixed-use apartment buildings. The MOC has not issued similar regulations on complete condotel buildings, which are the norm for resort projects.
b. Ministry of Culture, Sport and Tourism
The MOCST issued Decision No. 3720/QD-BVHTTDL to provide guidance on the business and management of condotels and resort villas. This legislation lays out the general rights and obligations of individuals and organizations engaging in the tourism business in regards to condotels and resort villas.
The MOCST also adopts the Tourism Law/MONRE definition of “condotels” as “tourism apartments”, which may be inconsistent with the MOC’s guidance.
2. Practical implications
Although a general mechanism for the certification of non-residential construction work has been promulgated under previous land laws and related regulations, Official Letter 703 provides a limited basis for buyers to obtain ownership titles (albeit subject to a lease term) over condotels and resort villas. This development will help eliminate inconsistencies in the interpretation of land laws between different provinces, as well as provide insight into the direction of the final amendments to the current Land Law.
Condotel project developers are once again reminded to:
- Review the current status of their ongoing or contemplated condotel projects;
- Review any commitments to grant permanent ownership rights to condotel unit buyers, as this may no longer be possible;
- Review their commitments under real property management agreements with real estate managers/hotel operators in relation to condotel products; and
- Review up-to-date zoning plans of their projects in order to ensure that the actual use conforms with the underlying land use purpose.
Although Official Letter 703 has instructed local authorities to assess all projects under their purview, no recommendations have been provided in terms of specific enforcement actions. It remains to be seen what practical measures will be adopted at the provincial level, in particular whether condotel projects already built on residential land will be required to undergo procedures to convert to a “commercial” land lease, and whether more buyers who were sold indefinite titles will need to have their ownership term revised.
3. Unresolved issues
Many have pointed out that Official Letter 703 and previous guidance from other Ministries in relation to condotel products have not addressed some existing issues surrounding tourism real estate, in particular:
- Other types of tourism real estate products have not yet been clearly provided for, most noticeably shop houses, "shoptels" and similar products in resort projects;
- Whether or not condotel project developers have to pay land rent in full for the entire lease term in order to grant LURCs to condotel unit buyers; and
- Whether or not the LURCs of condotel products can be granted to foreigners, who then may put these products into rental or leasing programs and earn rental incomes.
- Whether and how timeshares, fractional ownership and other forms
of alternative o
wnership models will be regulated in the future;
- How management of projects comprised of owned and leased properties will be regulated.
We expect the Government to provide further guidance to address these issues, which have been raised in a number of proposals to the relevant authorities.
1 Official Letter No. 14/2020/VNREA.VP dated 25 February 2020 of VNREA to the Prime
Minister with respect to proposals to improve laws and policies, and to resolve difficulties for
2 Official Letter No. 14/2020/CV-HoREA dated 15 February 2020 of HoREA to the Prime Minister and other competent state bodies regarding with respect to completing the legal framework for condotel
3 Directive No. 11/CT-TTg dated 23 April 2019 of the Prime Minister on a number of solutions to promote the stable and healthy development of the real estate market
4 Article 48, Law on Tourism No. 09/2017/QH14