Legal framework lacking for new-style resort real estate

Vietnam’s new-style tourism and resort real estate segment does not have a legal framework to follow, wrote Prof. Dr. Dang Hung Vo, former Deputy Minister of Natural Resources and Environment.

Professional property developers have taken the initiative to switch from residential real estate to new-style tourism and resort real estate.

For old-style tourism and resort real estate, developers invested in a hotel, resort or amusement park. Meanwhile, the new-style sector features multiple functions and developers can sell each part of the project to individual investors.

The first sector has a full legal framework stated in the Land Law 2013 and the Law on Real Estate Business 2014, but the second does not.

For example, a multi-storey building or multiple real estate units, some of which are used for handicraft production, some for business and service purposes, and some for living. So should it be classed as residential, production or business land?

On the other hand, the current law only allows housing projects for sale in the form of future-formed housing, so can multi-purpose projects sell future-formed real estate?

The new-style tourism and resort real estate segment has developed in the absence of a legal framework.

Development of such projects is based only on "vague" verbal commitments between provincial authorities and project developers, and between project developers and individual investors who have purchased real estate units.

Regarding operational methods, individual investors entrust project developers to exploit their real estate units for profits as committed. Projects that want to attract individual investors must commit to high profits. In fact, the committed profits vary from 8%, 10% and 15% per year. However, an 8% profit is difficult to fulfill in the first few years of operation.

When this investment "movement" thrived, developers often took the benefit of selling future-formed properties of this project to pay for the individual investor profit of the previous projects. When new-style tourism and resort real estate projects revealed disadvantages that gradually caused illiquidity, individual investors "turned their backs" and did not invest in this segment anymore.

The collapse of the mega Cocobay project in the central city of Danang was the first fragment of this segment. Since then, a series of other projects have fallen into illiquidity and could no longer continue, highlighting the "uncertain" development of the new-style tourism and resort real estate market.

The Covid-19 tragedy hit the tourism market and the tourism and resort real estate market. When the pandemic was under control, the difficulties facing the new-style tourism and resort real estate segment reappeared, and there is still no reasonable legal framework to support its development.