Condotel conversion must avoid infrastructure pressure
Although the conversion of some condotels to apartments has been approved in Vietnam, worries have been outlined over population density knock-on effects which may create pressure on urban infrastructure.
Last month, Danang People’s Committee said it would approve the conversion of several condotels into apartment units, and developers will now be allowed to negotiate with homebuyers to cancel old condotel purchase contracts and re-sign contracts to buy apartments for residential use.
One project affected by the move is the two towers of Danang Times Square, located opposite Bien Dong Park and My Khe Beach, after recognition that it boasted the conditions for mobilising capital last month. The project began in 2017 and was set to provide thousands of condotel units, expected to be handed over in 2019. The venture was frozen because of the pandemic, and the government had not yet permitted granting ownership for condotels.
Danang is also home to another project which was permitted to be converted into apartments for residence in 2022. The Empire resort and housing project, also known as Cocobay, has seen more than 1,000 out of 1,860 hotel apartments converted to apartments.
According to Thanh Do Investment Development and Construction JSC, the investor of Cocobay, the company issued and sent notices to buyers in March to liquidate condotel sale contracts and switch to receiving apartment units. Accordingly, buyers can choose to either receive the converted house, or get a refund of money previously paid.
So far, only Danang has reported official conversion of condotels into apartment units. Other active localities are Nha Trang in Khanh Hoa province, and Phu Quoc island in Kien Giang provinces. However, no specific project has yet been recognised for completion of their conversion process.
Le Van Tuan, vice director of Danang Department of Construction said the city ensures that the conversion of functions must be in accordance with urban planning, ensuring social and technical infrastructure indicators according to current standards and regulations.
“When carrying out any conversion in this manner, developers must adjust planning at all levels to ensure the project’s social infrastructure, green space, kindergartens, community houses, and parking lots are synchronised to the plans,” Tuan said.
While allowing thousands of
nd condotel units to be converted into apartments for residents in Danang has been considered a temporary fix to address the condotel stockpile, social infrastructure planning could be disrupted.
Hoang Nam, director of Nam Viet Real Estate Consultants in Danang, said that relevant management agencies need to research and consider all aspects cautiously before approving a conversion.
“Conversions must not be approved overnight to prevent developers from rushing to convert condotels into apartments, and creating a bad precedent for urban planning,” Nam told VIR.
According to Nam, it is necessary to determine from the beginning that the condotel type is not a permanent residence but serves the purpose of tourism and short-term accommodation.
“Condotel investment does not require urban infrastructure or accompanying social infrastructure for the purpose of long-term residence of people. Therefore, once converting from condotel to apartment, there will be many problems that need to be resolved,” Nam said. “The conversion may bring a source of revenue for the immediate budget, but in the future it will be costly to reinvest in infrastructure, clearance, and urban depopulation.”
Architect Pham Phu Binh, vice president of the Vietnam Construction Consulting Association said, “The dense population as a result would surely bring an overload to the water supply, drainage, and electricity supply, not to mention the lack of schools, kindergartens, hospitals, and green parks.”
However, according to Binh, converting to apartments is convenient for investors so that they can have long-term ownership with certification, so it is easy for trading and attaining capital returns.
“Condotels still have prospects in the long term. Therefore, only parts of a certain project should be allowed to convert so that developers are supported through difficult periods but without putting too much pressure on urban infrastructure,” Binh added.
According to DKRA Group’s first quarter 2024 report, the condotel segment continues to face many difficulties in liquidity, with investor confidence as well as segment recovery still low.
In the first quarter, there were 45 condotel projects opened for sale, of which only two were new projects, with a supply of around 4,850 units. Overall market demand recorded the lowest level in the past five years, with the majority of projects showing slow sales. Some 90 per cent of condotel projects did not record any transactions in Q1.n