Workshop study on international science improving condotel efficiency on the market property before the change of the digital technology time in Vietnam

The combination between expensive rooms and high tourists rate gives Condotel a quality cash flow; Besides profits from leasing, owners can also enjoy the added value of real[r]

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WORKSHOP STUDY ON INTERNATIONAL SCIENCE IMPROVING CONDOTEL EFFICIENCY ON THE MARKET

PROPERTY BEFORE THE CHANGE OF THE DIGITAL TECHNOLOGY TIME IN VIETNAM

Assoc Prof Dr Doan Hong Nhung and Duong Thi Thu Hang School of Law - Hanoi National University (VNU)

1 Introductions

At the World Economic Forum – also known as the Davos Forum, held in the city of Tianjin, China at June 27th 2016, the concept of the Fourth Industrial Revolution‘s official emergence was for the first time brought up by Professor Klaus Schwab, of Federal Republic of Germany nationality, chairman of the 10th World Economic Forum (1) The Fourth Industrial Revolution has officially led mankind into a new era, greatly affected every facet of social life and completely changed the habits of customers

In the field of real estate brokerage, human achievements in the Fourth Industrial Revolution are Artificial Intelligence (AI), internet of things and big data, all of which has helped managing the business models become simpler, and approaching customers in a more reasonable and faster fashion

In recent years in Vietnam, new forms of real estate like Condotel, officetel, shophouse … is increasingly developing due to essential needs of the market and potential developments in the future However, real estate brokerage in general is still facing many difficulties In Condotel (2) case, we can see that brokering requires some additional and specific skills compared to other traditional real estate like houses, apartments, villas and garden houses …

Condotel is considered ―a second home‖ (3) Brokering for Condotel requires the broker to have a certain degree of living experience and foreign language capability, in order to approach potential customers To successfully persuade them is extremely strenuous due to limited time window, as well as the challenge in accurately assessing customers‘ financial potential, so as to convince investors Brokers working for Condotel need to master the advanced and professional marketing skills in order to prosper Only successful transactions can grant brokers satisfactory amounts of commission matching their efforts, or acknowledge the maturity of their career

2 A short history of Vietnam’s real estate brokerage development

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Economic Regions (4) had a strong impact on the real estate market and investment orientation for real estate traders However in this period, the condition of operating for profit could not have yet overcome people‘s traditional way of thinking Therefore participants in real estate transactions didn‘t need to comply with the law nor follow broker‘s counsel, confirmation paperworks from local authorities only were sufficient Furthermore, the general public‘s view on brokerage were still very negative and biased then, limiting the development of professional real estate brokerage of the period From early 2013 to present day, the real estate market has strongly and positively transformed, although there are still many fluctuations but in general it has been stable and steadily growing Helping contribute in that achievement is a significant part from the activities of real estate brokers Along with economic and social developments, scientific and technological advancements, real estate brokerage has been and is still getting more and more professional

3 The present state of Vietnam’s real estate brokerage

Firstly, supervision of law enforcement is still limited and inadequate Many who have not received professional training nor granted working certificate are still currently practicing as freelancers In accordance with the Circular No 11/2015/TT-BXD from the Ministry of Constructions, from February 16th 2016, it is mandatory to have a working certificate in order to practice as a real estate broker However, it is quite common nowadays that brokers who have not been methodically trained still practice freely, spontaneously and semi-professionally Underground transactions, hand-to-hand transactions, driving up property price, brokers impersonating investors to sell projects in the future … these issues still exist due to ineffective management from authorities, making the feasibility of law enforcement not really guaranteed in business practice

Secondly, adjusted regulations of the law are still incoherent and have many loopholes In the middle of 2017, many citizens of Ho Chi Minh City have gathered in Dong Nai to seek audience with the People‘s Committee Chairman of that province, accusing Kim Phat property Joint Stock Company of embezzling hundreds of millions Vietnam Dong from people who made deposits to purchase land plots at the new urban area project in Phuoc An commune, Long Thanh district, Dong Nai province and residential areas according to the planning of hill commune 61 (5) The people then continued to accuse Viet Hung Phat Company of fraud, selling a fake project named Diamond City Specifically, the two companies have renamed a series of projects and claimed to be investors even though they were brokers These two companies have implemented a series of capital investment agreement activities This has obviously violated the law, according to Clause 3, Article 62 of the Business Law of Real Estate in 2014, as a brokerage company must not at the same time be a brokerage company and make transactions in real estate trading But brokers took advantage of loopholes in the law to carry out such misconducts

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by said parties This loophole stems from the incompatibility between the Civil Code and the Business Law of Real Estate issued in 2014 Additionally, there have been a series of disputes over the loggia area of the apartments, part of the reason for this was because the Ministry of Constructions had not issued an official document to guide the process of calculating this area (6)

Another complication is the arrival of escrow contract, its nature being a capital contribution contract: buyers will make a deposit for unfinished projects (7) but investors won‘t collect it directly; rather, they sit down with a bank and sign an escrow contract, putting the money in the bank‘s escrow account Only when the projects are finished and all legal paperworks are completed, then this amount is transferred to investors, considering the payment from buyers is made

This kind of contract has not been specified in the Business Law of Real Estate, but only a practical measure of guarantee; its nature is also different from that of a deposit contract: when investors don‘t fulfill their part of the agreement, they must only return the money in escrow and not receive any penalty; as for deposit contracts, if the same case happens, investors must not only return the deposit, but also pay a fine equal to the deposit, as agreed upon

4 Condotel’s real estate brokers facing the changes of the times

4.1 Essential needs of the market and development potentials in the future

According to the quota of Vietnam‘s tourism development plan until 2020, with a vision to 2030, approved by the Prime Minister, by the year 2025 Vietnam would need 754,000 hotel rooms for the estimated 72 millions tourists

Meanwhile based on the data from Vietnam National Administration of Tourism, there are only about 387,000 rooms in 2016 (making 51.3%) That means by December 2017 the shortage of hotel rooms would be about 367,000; with projections that the average growth of tourists would be to percent annually, this shortage will only be exacerbated (even when already having considered Condotel and tourist villas) Tourism booming in recent years has overcrowded the resort infrastructure, and 5-star hotels in a constant state of fully-booked during travelling seasons has affected tours negatively

Investing thousands of billions in building hotels and then recovering ca pital in 10 to 15 years is not a feat that any enterprise could Condotel‘s form of business managed to mobilize idle funds from secondary investors in order to develop projects Condotel project model is becoming the trend of resort real estate all ove r the world due to the dual benefits it brings, including investment – resort – leasing and exchange with associated resort in other countries

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Profit from leasing is divided with a professional management company The owner does not have to pay the fee for this overhead Instead, the management company takes a share of rental revenue to operate The Condotel is built in strategic locations in luxurious resort areas and is a destination for urban clientele, paid high for each night and is always positively evaluated for the annual tourists rate

The combination between expensive rooms and high tourists rate gives Condotel a quality cash flow; Besides profits from leasing, owners can also enjoy the added value of real estate over time, Condotel can also be resold as any other kind of real estate; Condotel is also a common type of real estate, the owner has the right to buy and sell it normally like other types; in addition to that, owners can still loan to buy like other common real estate

The luxurious from to 5-star Condotel hires the most experienced specialists in the hospitality and tourism industry to operate, exploit and use in a most effective way This also means these specialists will work and look after the Condotel for owners The most obvious benefit of having a professional company operating the Condotel lies in the sublease factor

The biggest concern of apartment owners is the management of sublease and the revenue capabilities they can achieve: the highest business value and doing everything necessary to attract subtenants Looking at this level of profitability, most investors are attracted by the factor: accumulating resort real estate assets, and at the same time, having a stable and profitable flow of income annually

4.2 The present state of Condotel real estate brokerage

It can be said that Condotel has great potential for development However, the current situation of the Condotel real estate market shows that it is coming to a halt (8), specifically:

First: There are no legal regulations for Condotel yet (9)

Second: The duration of Condotel ownership is not clearly defined The lands on which Condotel situate are commercial, the purpose of building Condotel is for business Therefore, once the legal regulations for Condotel are established, the state may issue a certificate to Condotel owners This certificate of ownership is very likely to be temporary However, in reality, many advertising channels and the projects themselves claim to sell Condotel along with the guarantee of permanent ownership, just like regular real estate

Third: the profit rates that investors of the Condotel model promised are not feasible The reason is there are no grounds for the commitment, despite investors claiming on advertising channels and at the projects that profit from Condotel will come in from years to decades with the interest rate of to 15 percent (10)

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like natural disasters, epidemics,… also directly affect this kind of resort real estate‘s power to make profit

Fifth: Management from the company managing Condotel In the hospitality and tourism industry, the quality of service directly affects the profit making ability of Condotel investors Therefore, potential of gaining greater profit depends on the professionalism of the management company Meanwhile, the reality in Vietnam is that such companies still offer limited sophistication In addition to that, information of guests number, room rates and mainteinance costs is all under direct control of the management company, leaving investors and Condotel owners in a passive position Due to all of this, choosing a prestigious management company with recognizable brand and high expertise is also a big challenge for investors who expect to make good profit from this model of business (11)

5 Proposal of methods that can improve performance of Condotel brokerage

5.1 Application of digital technologies

It can be said that one of the reasons for the backlog and risks in real estate brokerage in general and Condotel brokerage in particular is the loose management But nowadays, with the advancements of digital technologies, problems regarding management can be solved with management software, virtual reality technology, fly camera… (12)

First: Most of the Condotel currently being sold are of the kind that forms in the future, therefore the risk in transaction is great However, investors can definitely make use of virtual reality, buyers can totally preview their model apartment at home and follow the contruction progress remotely When trust and satisfaction are established between customers and investors, signing the contract of transaction becomes easier than ever

Second: Condotel properties will each have a different and unique code, with information and detailed pictures updated on management softwares Each broker wiill need to possess a practice certificate and will be provided with his own encrypted card which will be required in order to log in the management software and have access to information regarding the property: number of real estate on sale, their location, surface area, features and listing price … When one property has been purchased or deposited for purchase, other brokers will be notified, minimizing the likeliness of selling one property to different buyers Additionally, the broker who had helped in signing the contract of transaction will have his name added on the trading channel, avoiding secret, hand-to hand transactions and forfeiting his commission On the other hand, buyers can also review service quality in order to promote competitiveness and professionalism of brokers

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other specifications of the property like room space or resort facitlities right at home with the help of virtual reality technology They can naturally review service quality on these softwares as well This ensures that customers can relax and trust in the services they pay for, owners will feel more confident about the responsibility of the management company, timely intervention (if required), as well as helping improve room usage efficiency (13)

Fourth: Regarding maintenance, Condotel investors can also use virtual technology to oversee the situation of their property and its depreciation Pictures of the Condotel can be updated monthly, quarterly or annually, depending on the agreement between owner and management company This way, Condotel owners can have complete confidence in giving their property to the management company

5.2 Evaluation of information’s authenticity

Every real estate brokerage company and every real estate broker has their own customers list However, to be able to approach plenty of potential customers‘ sources, brokers all need professional marketing channels: Advertising channels on Google, Facebook, Youtube, television or radio … require a big sum of money and are paid for by investors; simpler channels like telesales, flyers, sale on-site,… can be used by any brokers due to their lower costs

The benefits of applying digital technologies to real estate brokerage are a big plus, however the downside of it is information censorship The information updated on marketing channels and management softwares … is it really accurate ? And which authority is responsible for censoring the information and maintaining authenticity ? Who must take responsibility for inaccurate information, and what are the sanctions of penalty that follow ? The author offers a proposal with solutions as below:

First: Regarding the training and accumulating knowledge of real estate brokerage, the Business Law on real estate and issuing practice certicicates; tighter management and regulations must be made, avoiding frauds commited by uninformed brokers

Second: Real estate exchange companies with a director as representative must take responsibility for its information‘s authenticity regarding Condotel

Third: For fraudulent and untrue information with the intent of profiting, coming from investor, broker or a coalition of the two against customers, stricter sanctions of penalty must be regulated Tighter regulations are required in order to effectively control information In the age of digital technology, the law on real estate brokerage must coordinate with the Network Security Law in 2018 and the Advertising Law in 2012 in order to issue strict regulations against false information of real estate, to consider criminal responsibility for large-scale fraudulent acts, causing great damage to society and the community

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FOOTINGS:

1

Klaus Schwab (2016), (The Fourth Industrial Revolution), translated by Đồng Bích Ngọc and Trần Thị Mỹ Anh Accessed 11:00 June 4th 2019

2

See more at: http://www.baoxaydung.com.vn/news/vn/bat-dong-san/condotel-da-phat-trien-nhu-the-nao-tai-viet-nam.html Accessed 12:00 June 5th 2019

3

See more at: THE VACATION INDUSTRY BLOG Actualidad – Update & News

Lizarza Abogados S.L.P C/ Marcia Auxiliadora 5, 29602 MARBELLA (Málaga) Spain TEL, CONDO HOTEL / CONDOTEL: INTRODUCTION; ITS COMERCIAL AND LEGAL BEGINNINGS (I), Lizarza Abogados 2013 https://mixed-use-resorts.com/2013/11/20/introduction-its-comercial-and-legal-beginnings-i/ Accessed 10:00 June 7th 2019

4

See

http://chinhphu.vn/portal/page/portal/chinhphu/noidungvungkinhtetrongdiemquocgia? articleId=10000721 Accessed 11:00 June 7th 2019

5

See more at: http://baophapluat.vn/dieu-tra-bd/bat-nhao-cho-troi-dia-oc-o-dong-nai-bai-3-nhung-lien-minh-bat-dong-san-mo-am-433326.html https://ngaynay.vn/dia-oc/nhieu-khach-hang-to-cong-ty-viet-hung-phat-lua-dao-dat-du-an-81499.html Accessed 12:00 June 7th 2019

6

See more at: https://www.tienphong.vn/dia-oc/tranh-chap-dien-tich-can-ho-vi-sao-kho-giai-quyet-1322072.tpo

and https://nld.com.vn/thi-truong-nha-dat/tranh-chap-dien-tich-can-ho-chung-cu-do-thieu-quy-dinh-thuc-te-20180901081632055.htm

7

See more at: https://dautubds.baodautu.vn/chuyen-gia-noi-gi-ve-hop-dong-ky-quy-bat-dong-san-d67059.html Accessed 12: 25 June 7th 2019

8

See more at: Asc.Professor Doãn Hồng Nhung – Senior Professor of Law Faculty, National Univerisity of Hà Nội, ―Condotel có phải khoản đầu tư khôn ngoan?‖ Financial Journal, 28/03/2018, http://tapchitaichinh.vn/thi-truong-tai-chinh/condotel-co-phai-la-mot-khoan-dau-tu-khon-ngoan-137289.html Accessed 4:00 June 10th 2019

9

See more at ―Bộ trưởng Bộ Xây dựng: Trong năm 2019 có quy chuẩn pháp lý cho condotel‖ according to Minh Anh June 4th 2019 https://theleader.vn/bo-truong-bo-

xay-dung-trong-nam-2019-se-co-quy-chuan-phap-ly-cho-condotel-1559640923312.htm

10

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Thế Lâm, https://laodong.vn/dien-dan/hay-noi-that-ve-tinh-trang-condotel-de-cac-nha-dau-tu-khong-ao-tuong-624115.ldo Accessed 5:00 June 10th 2019

11

See more at: ―Đối thoại với PGS.TS Doãn Hồng Nhung Condotel‖ Vietnam Real estate Digital journal, https://youtu.be/ObB8styFivo Accessed 3:00 June 10th 2019

12

See more at: ―Công nghệ 4.0 thay đổi cách kinh doanh bất động sản‖, https://vnexpress.net/kinh-doanh/cong-nghe-4-0-thay-doi-cach-kinh-doanh-bat-dong-san-3897381.html and

http://vneconomy.vn/cong-nghe-40-chia-khoa-dua-bat-dong-san-viet-vuon-tam-the-gioi-20180912101147492.htm Accessed 6:00 June 10th 2019

13

Assoc Prof Dr Doan Hong Nhung (editor) "Legislation on real estate brokerage in Vietnam" (first revised version) Justice Publishing House in 2019 Page 128; MGI GLOBAL – Pioneer in applying 4.0 tech in real estate brokerage in Vietnam,, Brokerage in the age of technology – change to thrive, Hồ Chí Minh City, w.w.w reas.asia, April 9th 2019

LIST OF DOCUMENTS REFERENCE

1 The Law on Real Estate Business in 2014;

2 Land Law 2013;

3 Civil Code 2015;

4 Housing Law 2014;

5 Decree No 43/2014 / ND-CP of the Government dated May 15, 2014 detailing the implementation of a number of articles of the Land Law;

6 Decree No 01/2017 / ND-CP of the Government dated January 2017 amending and supplementing a number of Decrees detailing the implementation of the Land Law; Decree No 76/2015 / ND-CP of the Government dated September 10, 2015 detailing

a number of articles of the Law on Real Estate Business;

8 Decree No 117/2015 / ND-CP of the Government dated 12 November 2015 on the construction, management and use of information systems for housing and real estate market;

9 Decree No 11/2013 / ND-CP of the Government dated January 14, 2013 on management of urban development investment;

10 Joint Circular No 20/2013 / TTLT-BXD-BNV of the Ministry of Construction and the Ministry of Home Affairs dated November 21, 2013 guiding Decree No 11/2013 / ND-CP of the Government on investment management Urban Development;

11 Circular No 20/2010 / TT-BXD of the Ministry of Construction dated October 27, 2010 guiding the pilot to determine and announce the index of real estate market assessment; 12 Official Letter No 1436 / BXD-QLN of the Ministry of Construction dated June 30,

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13 Ho Chi Minh City Real Estate Association HoREA, Report some concerns about the 2019 real estate market, http://www.horea.org.vn/hoat-dong-horea/36-CV -HoREA- Bao-high-cap-nhat-mot-so-kien-comfort-cu-the-crab-business-nghiep-bat-dong-san.html;

14 Assoc Prof Dr Doan Hong Nhung (editor) "Legislation on real estate brokerage in Vietnam" (first revised version) Justice Publishing House in 2019

15 The History of Condo Hotel http://www.condohotelcenter.com/ask-expert/history-of-condo-hotels.html;

16 Abstrac& 2017 The Authors Production and hosting by Elsevier B.V This is an open access article under The CC BY-NC-ND licence