Vietnam Management Channel

Will 2018 be a bad year for Vietnam’s Condotel market?

Real estate contractors and investors in Vietnam are worried that 2018 will be a difficult year for the local condotel market due to oversupply. According to the Ho Chi Minh City Real Estate Association (HoREA), 23,000 condotels were built in Vietnam in 2017.

In the first quarter of 2017 it was estimated that 2,078 new condotels were put on the market, yet despite this high number, only 387 properties were sold in this period, less than 19% of available homes.

The dismal first quarter estimates follow a report that only 33% of new condotels were sold in 2017. In 2016, approximately 65% of all condotel units were sold, so 2017 sales represent an almost 50% decline from 2016.

Although condotel sales numbers look bad, investments in Vietnam have not slowed since 2016, despite multiple warnings about oversupply.

HoREA issued a warning in August 2017 that the condotel market was softening at the same time investment has increased and the association estimated that between 2017 and 2019, 29 ~ 30,000 new condotels would be put on the market.

At a recent condotel conference held in March, Nguyen Van Sinh, Deputy Minister of Construction, said that one of the reasons for the low demand is the lack of a legal framework to manage them since they are not clearly specified in Vietnamese law. Deputy Minister Nguyen also said that investors and sub-investors are concerned about the lack of ownership and management rights because authorities do not issue red books ~ the legal documents that confirm real estate ownership in Vietnam for condotels.

Despite the legal challenges, experts believe that condotels have long-term potential in Vietnam, and that the oversupply of properties is temporary and will be “balanced” by 2020. There are several major reasons for this optimism:

First, international tourism arrivals have increased an average of 30% during the last three years, with 12.9 million visitor arrivals in 2017. According to Nguyen Van Tuan, general director of tourism under the Ministry of Culture, Sports & Tourism there will be a growing demand for condotels in the years to come due to increases in both domestic and international tourism.

Second, condotels are being developed in many of Vietnam’s most popular tourism areas. The central beach city of Nha Trang accounts for 52% of all current condotels in Vietnam, with other major development in key tourism cities such as Binh Thuan and Da Nang in the central region, and Phu Quoc Island in the south of Vietnam.

Third, because of their lower cost of condotels compared to villas, Vietnam's growing middle class is more likely to be interested in condotels as a form of real estate investment. Many condotels have great potential because of the 8 to 12% profit that investors guarantee buyers.

In order to bring order to the market, the Ministry of Construction said in April that condotels should be treated as residential properties so that owners are granted long-term ownership. The ministry also suggested that Vietnam's laws on housing, land and construction should be modified to clear the difficulties investors face with condotels. While the ministry’s remarks are encouraging, no timeline for the legal changes were mentioned, so many potential investors have put off their purchase decisions pending further clarification of the legal status.