Once eager investors who had jumped on the condotels wagon discovered that the promises of guaranteed returns and even greater profits were a mirage, they hit the streets in protest, and a lot of shortcomings were highlighted.

The biggest of these was that the resort real estate sector lacked a clear legal framework to protect investors, even though condotels had been around for over three years.

Despite raising this issue at multiple conferences and National Assembly sessions, regulators are yet to introduce comprehensive legislation for the sector, which basically means that property buyers do not get a ‘pink’ book, as the title deeds of apartments and houses are referred to, and therefore get no protection from the law in case of conflicts with developers.

Because the condotels is a new business model in Vietnam, the Law on Tourism, Land Law or Housing Law have not identified it specifically, and therefore cannot grant ownership or management rights to condotel owners, Deputy Minister of Construction Le Quang Hung said at a government press conference in early December.

Resort real estate, especially condotels, which are individually owned apartment units operating as a commercial hotel service, became a craze in Vietnam in 2016. Over the two following years, many developers, small and big, entered the condotel sector with projects dotting the country’s entire coastline.

Investors queued up to buy condotels and the projects’ open sales events attracted hundreds of potential customers and registered hundreds of successful transactions. In some projects, investors were able to resell their units just 1-2 months after buying for profits of hundreds of millions of dong (VND100 million = $4,300).

However, from the end of 2017, legal disputes over condotels began to emerge and have continued to be a major obstacle for investors up until now.

The second major issue that has marked the resort real estate sector in 2019 is plummeting supply. This year, new supply of of condotel and beach villa units plunged 30-50 percent year-on-year in each area, according to real estate firm DKRA Vietnam.

For instance, 12,600 condotel units were launched in the first quarter of 2018, while in the third quarter of 2019 only about 7,000 were released into the market. Consumption was even poorer, with less than 1,000 units bought up in Q3, which was around a third of absorption in Q3 2018, DKRA said in a report.

Reports named new land review, inspection and management practices in some provinces and cities a major cause of falling supply.

While major coastal tourist destinations such as central Da Nang City, central Nha Trang Town, and northern Quang Ninh Province each constructed tens of thousands of new condotels during the 2016 boom, in some of these places, no new resort projects were registered in 2019.

Thirdly, local banks continued to tighten lending for real estate, citing concerns about bad debts, given the inherent instability and other difficulties still faced by the sector.

In the second quarter, commercial banks raised mortgage rates by 1-2 percentage points, with some beginning to offer loans of no more than 70 percent of the property’s value, instead of the previous 80-90 percent.

Cocobay controversy

The biggest shock to the market occurred in November when Empire Group, the developer of the Cocobay Da Nang Complex, announced that it will stop paying shophouse and condotel buyers the annuity it had promised them, citing financial difficulties.

The front entrance to Cocobay condotel complex in Da Nang. Photo courtesy of Empire Group.

The Empire Group had in 2017 had guaranteed annual returns of 12 percent on the purchase price of properties until 2026, a promise that had been a primary factor in attracting thousands to invest in condotels.

Although Cocobay was not the first project to have reneged on promises of high returns, it was a large-scale project with a total investment of around $5 billion, affecting over 1,800 buyers. Its decision sent shockwaves through the market.

Many investors, who had invested tens of billions of dong (VND10 billion = $432,000) and taken out banks loans of up to two thirds of the investment, said they were left with overwhelming debt payment obligations. Some investors had even bought multiple units or an entire block in hope of receiving large payments in guaranteed returns.

They had rushed to buy up the properties despite warnings from analysts that guaranteed returns of over 10 percent per year was extremely high and tough to achieve.

Real estate firm Savills had said that profit of 5 percent per year was already considered a good figure for condotels in Thailand and Indonesia, while others said 6 percent is the maximum feasible rate given current market conditions and competition.

After this incident, many developers scrapped new projects to wait for the negative sentiment to pass, while others became hesitant about guaranteeing high returns. Many buyers who lost confidence in the model also began to sell off their units at discounts to cut losses.

However, experts at the Vietnam Real Estate Forum 2020 last week said that resort real estate in Vietnam still has a lot of potential, and may still remain an attractive investment as long as a legal framework is established.

Last month, the Prime Minister issued a directive tasking the Ministry of Construction with enacting new laws to regulate the condotel sector by the end of this year.

Accordingly, the Ministry will formulate a standard contract between condotel developers and secondary investors, setting out specific rights and responsibilities for buyers and sellers, in addition to strictly controlling money lent by banks to invest in the condotel business model.

In the last few weeks dozens of lemon tea franchises have sprung up on major Hanoi streets such as Ta Quang Buu, Nguyen Van Huyen, Van Cao, and O Cho Dua, some even right next to each other.

On a 500 meter strip in Cau Giay District there are two shops with a third being set up, each being hundreds of meters in size. Three tea shops can be found on Ta Quang Buu Street alone.

Many shop owners say they have opted to sell lemon tea because of its attractive profit margins of 25-30 percent, low investment and its popularity due to affordable prices.

Depending on the location and size, a shop costs VND200-500 million ($8,642-21,604) to set up plus VND50-70 million ($2,160-3,025) for the franchise, vendors said.

Some franchisors do not collect licensing fees, but instead opt for 5-8 percent of total revenues or the franchisees to use materials or equipment from them, they said.

Nguyen Huyen Dieu, owner of a lemon tea shop on Xa Dan Street in central Hanoi, said on crowded days her shop gets a turnover of VND15 million ($650).

“On average, with an initial investment of VND450 million ($19,446), a lemon tea shop could break even in two or three months.”

Nguyen Thi Ngan, the owner of another shop in downtown Hanoi, said the peak sales time is from Thursday to Sunday, when daily turnover could be VND8-12 million ($346-519).

Lemon tea shops target school and university students and low-income earners, and so their prices range from VND10,000 to VND50,000 ($0.43- 2.16). They also sell other drinks such as milk tea, coffee, yoghurt, and fried foods and snacks, said shop owners.

Nguyen Mai, CEO of Baobab Trading Service JSC, a restaurant and cafe franchisor, said next few months would see which shops sustain revenues by diversifying their menus, renovating sitting spaces and keeping the quality of drinks and services high, but even that might not be enough because customers tend to continuously crave experiences.

Bubble tea came to Vietnam in 2009, but Vietnamese began going gaga over the product in 2017. There are now around 30 major brands and over 1,500 outlets competing for a slice of the $282-million market, which is slowing down.

The market was growing 20 percent in 2017, according to British research firm Euromonitor International, but the latest report from market research firm Q&Me predicted the growth to reach only 10 percent this year.

But in the last few months several chains such as Ten Ren, which had 23 outlets at the end of 2018, have closed down. TP Tea, an affiliate of the Mon Hue restaurant chain, which closed down suddenly leaving suppliers in the lurch, was another casualty.

Five Vietnamese airlines and over 70 foreign carriers from 24 countries were participating in Vietnam’s aviation market as of September end, Civil Aviation Authority of Vietnam (CAAV) statistics show.

National flag carrier Vietnam Airlines held 36.69 percent, Jetstar Pacific, in which Vietnam Airlines has a 70 percent stake, 11.42 percent, budget carrier Vietjet Air, 42.83 percent; Bamboo Airways, which entered the market in January, 5 percent; while Vietnam Air Services Company (VASCO), also owned by Vietnam Airlines, had 4.06 percent.

In Vietnam’s international flights market, Vietnamese carriers held a total 57.8 percent of the market share. The combined share of Vietnam Airlines and Jetstar Pacific, was 23.9 percent, and that of Vietjet, 18.3 percent. Bamboo Airways is yet to operate an international flight.

As of September 2019, Vietnamese carriers were operating around 200 fixed-wing aircraft, nearly double that of August 2014 (102 aircraft). Vietnam Airlines and VASCO own 98 aircraft, Jetstar Pacific 18, Viejtet 70, and Bamboo Airways 10.

According to CAAV, Vietnamese airlines are regularly operating 138 international routes and 50 domestic routes. Vietnam Airlines on its own flies 60 international and 33 domestic routes.

Including foreign airlines, Vietnam’s aviation market served 53.3 million visitors from January to August, up 11.5 percent year-on-year.

A forecast by the International Air Transport Association (IATA) has placed Vietnam among five fastest-growing markets in terms of additional passengers per year, reaching 150 million by 2035.

Meanwhile, with a population of nearly 100 million, Vietnam’s domestic aviation market is projected to grow at an average of 15 percent per year, the IATA said.

Vietnam has six commercial airlines: Vietnam Airlines, Vietjet Air, Jetstar, VASCO, Bamboo Airways, and the latest Vietstar Airlines, which has yet to begin flying. Thien Minh Group, Vietravel Airlines and Vinpearl Air have all applied for licenses.

Apartment prices in HCMC averaged $2,067 per square meter in the third quarter of this year, up 23.8 percent year-on-year, according to a market report released Thursday by real estate firm JLL Vietnam.

Prices of high-end apartments reached a new historical high at $5,320 per square meter, up 64.9 percent year-on-year, driven by high prices set on new launches as supply remained generally limited due to lengthy sale approval procedures with local authorities, the report said.

For ready-built property (RBP) including villas and terraced houses, average prices on the primary market reached $4,689 per square meter in the third quarter, up 20.2 percent year-on-year, while prices in the low and mid end segments rose 16 percent.

Demand was particularly strong in the terraced house segment of units priced between $170,000–$250,000 per unit, which mainly came from owner-occupiers and capital gains investors.

New supply of RBP by the end of this year is expected to remain limited, reaching just over 2,000, half that of 2018, also because of slow procedures, while some demand will shift from investors in the high-end apartment segments, the report said.

According to JLL, these investors, the main demand source for high-end apartments, have already begun shifting their investment to RBPs to enjoy better capital gains, given that the cost to acquire high-end apartments have now reached a new high, making the investment less attractive.

From January to August, sales of imported cars rose 178 percent year-on-year to 82,800 units, while that of locally-assembled vehicles dropped 14 percent to 119,700 units, according to the Vietnam Automobile Manufacturers’ Association (VAMA).

The former earlier this month called on authorities to instruct other airlines to list net fares as stipulated by regulations. It cited a 2013 government decree which says listed prices of goods and services must include all taxes and additional fees.

Other airlines list fares without taxes and fees, which are only revealed when customers reach the payment stage, Vietnam Airlines said in a letter to the Ministry of Finance’s price management department and the Civil Aviation Authority of Vietnam (CAAV).

This practice misleads customers into thinking those airlines are cheaper, and affects its competitiveness, it said.

All airlines should uniformly follow fare listing regulations, the carrier demanded.

In response, budget carrier Vietjet wrote to the same two government bodies saying the listing of net fares like Vietnam Airlines does not guarantee transparency since customers do not understand what the components of their fares are.

Regulations do not specify whether a business must include taxes and fees in the listed fares, and so it was doing nothing illegal, it said.

In an obvious reference to Vietnam Airlines, Vietjet said customers have to pay by default for check-in baggage and meals even if they do not need them.

Most budget carriers charge separately for baggage and food. There are no international regulations for listing airfares, it added.

Officials are scratching their heads over the war of words.

A CAAV executive, who asked not to be named, said airlines must list their net fares, but enforcing this is the responsibility of the Ministry of Finance.

But the ministry has rejected this argument, with Dang Cong Khoi, deputy head of its price management department, saying airline fare listing should be managed by the aviation authority.

But the ministry would discuss the issue with the aviation authority, he said.

Only Vietnam Airlines lists net fares inclusive of taxes and fees, while Vietjet, Bamboo Airways and Jetstar Pacific, the low-cost subsidiary of Vietnam Airlines, do not include taxes.

Vietnam has six commercial airlines: Vietnam Airlines, Vietjet Air, Jetstar, VASCO, Bamboo Airways, and the latest Vietstar Airlines, which has yet to begin flying. Thien Minh Group, Vietravel Airlines and Vinpearl Air have all applied for licenses.

Vietjet accounted for 44 percent of the aviation market share in the first half of this year, followed by Vietnam Airlines with 35.9 percent, Jetstar Pacific 13.9 percent, Bamboo Airways 4.2 percent and VASCO 2 percent.

Local airlines served 38.2 million passengers from January to August, up 9.5 percent year-on-year, according to the General Statistics Office.

In 2015 the average price of a high-end apartment was VND40 million ($1,720) per square meter. It had risen to VND61 million ($2,630) by August, and would continue to increase in the coming months, the firm said.

The average price of a mid-range apartment rose from VND21 million ($900) to VND32 million ($1,380) between 2015 and August 2019, a 52.4 percent increase. But the gain has been slow this year.

In the affordable segment, prices have increased from VND16 million ($690) to VND24 million ($1,030), a 50 percent rise. In the last 12 months they have risen by 9 percent.

Prices are expected to keep rising due to a short supply since projects are taking a lot of time to complete legal procedures even as demand remains strong given the high net migration to the city, DKRA said.

According to real estate firm Savills, total supply, which includes unsold units and newly built units in the city in the last quarter of 2018, fell 44 percent year-on-year.

This number fell by a further 34 percent in the first quarter of 2019 to just over 12,000 apartments, which represents a 57 percent drop compared to the first quarter of 2018. One of the problems the city market faces is the legal difficulty in selling apartments, Le Hoang Chau, chairman of HCMC Real Estate Association, said.

Many projects are stuck at various levels from applying for approval from local authorities and getting permission to begin construction to getting permission to begin selling.

According to the city Department of Statistics, Saigon’s base population at the end of 2018 was 8.85 million people.

Together with chained cafés and bars, sales reached VND88 trillion ($3.8 billion) last year, up 6 percent from 2017, according to market research firm Euromonitor.

It is the first Vietnamese airline to receive such permission, according to FlightGlobal, a leading news site about the global aviation community.

The national flag carrier will be allowed to operate flights from Ho Chi Minh City and Hanoi, Vietnam’s two biggest metropolises, to Los Angeles, San Francisco, New York, Seattle and Dallas-Fort Worth. It can also continue these routes to the Canadian cities of Vancouver, Montreal and Toronto.

The permit also allows Vietnam Airlines to operate its flights to the U.S. via stops in Taiwan’s Taipei and Japan’s Osaka and Nagoya airports.

The U.S. Federal Aviation Administration (FAA) granted a Category 1 rating to the Civil Aviation Authority of Vietnam (CAAV) under its International Aviation Safety Assessment program last February, which meant the latter met safety standards to operate flights to the U.S.

Besides Vietnam Airlines, low-cost air carrier Vietjet Air and Bamboo Airways are in the running to launch direct flights to the U.S. and are ordering aircraft for the purpose.

There are currently no nonstop flights between Vietnam and the U.S. Flights now take 20.5 hours to fly from Ho Chi Minh City to San Francisco via South Korea’s Incheon International Airport, while the planned direct service to major cities along the U.S. West Coast would take only around 13 hours.

Thanks to simplified visa requirements, Vietnam has emerged among the fastest-growing international travel destinations for Americans, who are big spenders in the country, shelling out on average $3,233 per trip, according to a survey released last year by travel insurance comparison site Squaremouth.

Americans are among the top foreign visitors to Vietnam, with 687,226 arrivals last year, an 11 percent year-on-year increase.

An ethnic Vietnamese population of over 2.1 million in the U.S. is also expected to be a steady source of travel demand.