VIETNAM CONDOTEL REGULATION: A LIFELINE FOR THE FUTURE OR A DEAD-END FOR THE TOURIST APARTMENT BUSINESS?

The Ministry of Natural Resources and Environment (BTNMT) recently issued Official Dispatch No. 703/BTNMT-TCQL, which provides guidance on the land-use regime and certification of ownership of non-residential construction works (“Corporate Law No. document 703”), with a focus on the land-use regime for “condotel,” “resort villa,” “officetel,” and other non-residential construction works. Investors and secondary investors alike welcome Official Letter 703 as a legal guarantee for their interests in the "condotel." However, the author feels that Official Letter 703 has limited utility in resolving present project obstacles and that it may only be useful in the licensing process for future projects.

This article aims to provide a comprehensive examination of existing legal restrictions as well as legal opinions regarding the legality of condotels so that readers can gain a better understanding of the legal difficulties surrounding "condotels."

LEGAL BACKGROUND

In terms of new sorts of real estate goods, Vietnam has seen enormous growth. According to VNREA, there are now 82,902 condotels, 28,099 resort villas, and 15,663 store homes on the market in Vietnam, with a total estimated value of US$ 23 billion.

From the Ministry of Natural Resources and Environment's draft proposal to amend and supplement the 2013 Land Law, which was presented to the Government in 2017, to the Ministry of Natural Resources and Environment's issue of Official Letter 703, which provides guidance on the land-use regime for condotels.

The MONRE recommended two possibilities for changing the 2013 Land Law in order to complete the legal framework for condotels in a report given to the Government in 2017 on the proposal to produce a bill amending and supplementing a number of articles of the 2013 Land Law. 

As a result, both possibilities intend to amend and supplement Article 153 of the 2013 Land Law to specify land use laws for resort tourist project implementation in one of two directions:

Option 1: Residential land is defined as land that has the function of being lived in; according to regulations, the project owner's land use term is 50 to 70 years; the investor is entitled to transfer the land use right during the project's operation term, and the right recipient is granted a certificate of land use right, ownership of houses and other properties attached to the land on a stable and long-term basis.

Option 2: Still remaining in accordance with the provisions of the Land Law determined as commercial and service land. According to regulations, the project's land use term is 50-70 years; the investor has the right to transfer the land use right during the project's operation term, and the right recipient receives a certificate of land use right, ownership of houses, and other land-attached assets within the project's terms.

THE PROBLEM WITH CONDOTEL 

Official Letter No. 703 was released at a time when the real estate market, particularly in the resort and condotel segment, was at a standstill. The real estate industry needs a boost to be able to reawaken after unfavorable developments due to the epidemic and events in a few projects. Although the issuance of Official Letter 703 was insufficient to provide a big push for the market, it did provide some prospect of government intervention. People believe that the impact of this formal letter can be compared to that of a wind chime, attracting some attention and helping to dispel the melancholy, but that it will take a lot of work and other adjustments to fix the basic difficulties of the situation.

Nevertheless, when it comes to the legal basis of condotel, it's a different story. Official Letter 703 is merely a guidance document issued by the Ministry of Natural Resources and Environment in this regard, and it does not contain any new information or precise instructions on the legal foundation and procedures for applying for a Pink Book for a vacation villa or condotel. To put it another way, this document does not replace or supplement any current legal requirements governing the issuance of ownership certificates for non-residential structures, nor does it provide a condotel legal basis. Although there are some implications and suggestions for the Project Owner and local authorities to hold to and be flexible in giving the certificate, this document should not be used as a legal basis for providing condotel or resort villa certificates. It can be seen as a MONRE consensus of views, with some thoughts and opinions that the provinces and the project owner have conferred with the Ministry for quite some time.

MAIN CONTENT OF OFFICIAL LETTER 703

• Regarding land use regime, land use term

Condotels and resort villas are classified as non-residential "tourist accommodation establishments" for the purposes of providing accommodation services under the Tourism Law, according to the MONRE. 4 "Condotels" are to be considered as "tourist apartments" as defined by the Tourism Law, as indicated in Directive 11 and confirmed in Official Letter 703.

According to the terms of Point dd, Clause 2, Article 10 of the Land Law, as well as the provisions of Appendix 01 released in conjunction with the Ministry of Natural Resources and Environment's Circular No. 27/2018/TT-BTNMT dated December 14, 2018, stipulating the statistics, inventory of land and mapping of the current state of land use, the land use for the purpose of business services in the type of commercial and service land

• Regarding the issuance of land use right certificates

In general, the MONRE has clarified that condotel product buyers can get certified ownership rights for tradable condotels and resort villas, which is consistent with current legislation on certifying ownership for real estate transferees.

The procedures for issuance of the Land-use right Certificate (LURC) is regulated at Article 70, Article 79 of Decree No. 43/2014/ND-CP and Article 8, Article 9 of Circular No. 24/2014/TT-BTNMT dated May 19, 2014, of the Minister of Natural Resources and Environment about cadastral records; Clause 8 Article 6 of Circular No. 33/2017/TT-BTNMT dated September 29, 2017, of the Minister of Natural Resources and Environment detailing Decree No. 01/2017/ND-CP dated January 6, 2017, of the Government, amending and supplementing a number of decrees detailing the implementation of the Land Law and amending and supplementing a number of articles of the circulars guiding the implementation of the Land Law.

PRACTICAL IMPLICATION 

The legal basis of condotel is still not really clear both in the current legal regulations and explained in Official Dispatch 703 of MONRE

The Law on Real Estate Business 2014 does not provide conditions on the transfer of non-residential construction works but only provides general conditions on putting houses and constructions into business. Accordingly, specific conditions to be met include: (a) Having registered ownership of houses and construction works attached to land in the certificate of land use rights. For houses and construction works available in real estate investment projects, only a certificate of land use rights is required in accordance with the law on land; (b) There is no dispute over land use rights, ownership of houses, and constructions attached to the land; (c) Not to be distrained to secure judgment enforcement.

Dispatch 703 refers to Article 32, Decree 43/2014 (amended by Decree 01/2017), which stipulates that “For a project with multiple work items shown in the project approval decision, investment project, project investment decision, investment license, investment certificate, investment registration certificate issued by a competent authority, decision approving detailed construction planning, permit If the investor needs and fully meets the conditions, he/she shall be granted a Certificate of land use right and ownership of houses and other land-attached assets by a competent state agency for each public item. process or each subdivision of that work item”.

POTENTIAL RISK
The risk that the buyer must bear is the existence of the owner of the works on the land and the owner of the land use right, but these two owners are not the same individual or organization. The question here is that if the project investor only transfers the assets on the land but not simultaneously with the transfer of land use rights, what is the legal mechanism for the possession and use of assets on the land? , what will be the possession and use of land, whose rights will be protected first. In other words, the legal corridor to protect the rights of the transferee of the works on the land, in this case, is not complete and clear, even if the buyer is granted a certificate of public ownership. construction on the land.

UNRESOLVED ISSUES 

Many have pointed out that Official Letter 703 and past recommendations from other Ministries on condotel goods have failed to solve some current concerns in the tourism real estate sector, including:

• Other sorts of tourism real estate products, most notably shophouses, "shoptels," and comparable items in resort complexes, have yet to be clearly provided for.
• Whether condotel project developers must pay full land rent for the entire lease term in order to provide LURCs to condotel unit purchasers; and
• Whether or not foreigners can be awarded LURCs for condotel items so that they can rent or lease them and receive a rental income.
• If and how timeshares, fractional ownership, and other types of alternative ownership can be used
• How will the management of projects made up of both owned and leased properties be regulated?

The above article is our firm's perspective towards the new Official Letter 703. For more detailed information, please contact Doanh Tri Law Firm through the following means of communication: 

Hotline: (+84) 911.233.955 or Email: [email protected] 

Doanh Tri is always pleased to accompany and cooperate with clients./.