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(Vietnam) Second home legal revisions may see development potential resumed

The second home concept was introduced years ago since 2014, with the expectation of it becoming a real estate highlight. Coastal areas witnessed a boom in supply but enthusiasm was short-lived caused by the lack of legal framework.

The boom of second home market in Vietnam leaded by the expectation of local investors for freehold ownership certificate. The first shock in mid-2019 was the government’s announcement that second home is considered as commercial asset with 50 years ownership. Following by that announcement, the second homes became less attractive and investors tried to divest from this market. Combined with the effects of COVID-19 pandemic, the outlook for second homes is uncertain. The biggest hindrance to asset class growth is the present legal framework.

In February 2020, an official letter (703/BTNMT-TCQLĐĐ) from the Ministry of Natural Resources and Environment to relevant local authorities, requested they further clarify non-residential real estate project licensing regulations, which includes condotels and officetels and other second home assets. According to this document, condotel and officetel land use rights are classified as commercial land, which means the state lease lands for commercial purposes to a maximum 50 years, or 70 years for larger scale projects in more economically challenged areas. The Official Letter No. 703 also confirmed local investors may receive 50-year ownership certificates for certain products.

However, the Ministry of Construction is now proposing the Prime Minister allow foreign investors to buy second homes. Previously, foreign investors were only able to enter a lease agreement for a condotel. The proposed amendment, if successful would mean they would get the ownership certificate which increases the liquidity of this market in term of investment.

Thanh Tu Nguyen, Investment Manager, Savills Hanoi commented: “Easing legal restrictions would certainly help the second home market. Having certified ownership would encourage more investors into the second home market and accelerate foreign interest. However, Official Letter No. 703 is merely offers guidance to local authorities. It is expected to start removing obstacles to ownership certification, but any effects are yet to be seen”.

Despite this welcome initiative, the second home market still faces challenges. The new regulation is really just guidance, with any confirmed implementation date alongside guidelines for granting land use right certificates left unclear.

The second home market is also at risk of oversupply after so many developers got involved in this asset class boom, while it lasted. Combined with the significant reduction in tourism demand due to COVID-19 the forecast of slow recovery, mid-term condotel-officetel prospects are not bright.

Silver-linings exist though: the new document demonstrates official willing to transform the second home landscape. The Ministry of Natural Resources and Environment is anticipated, with the Ministry of Culture, Sports & Tourism alongside the Ministry of Construction, to draft a revised legal framework for future real estate developments with amendments to better protect buyers. With a stable economy, bright outlook and strength of the political situation showed through its world-first pandemic containment, Vietnam will soon be one of the safest second home investment destinations anywhere.

Source: Savills Vietnam


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