In early 2017, Mr. Tran Trung Duc, a 31-year-old businessman, was looking for a small office space in Ho Chi Minh City’s District 7 for his startup on agricultural products. 

After a few months of consideration, he selected a 35 sq m office apartment at Novaland’s Sunrise City, for around VND13 million ($570) a month. 

“I think the price is reasonable and the space suits our business,” Mr. Duc said. “It may be more expensive than a co-working space but we have a private and quiet environment to work in.” 

The office-tel model, which has been found in Vietnam’s real estate market for a decade, is a “hybrid” product between the office and hotel models, combining residential and commercial purposes. 

It has actually been the focus of many developers and been growing in popularity over the last three years. The segment remains unrecognized under the country’s legal framework, however, and been difficult to develop as a result.

Swift expansion

An office-tel is a self-contained living environment with an apartment and working space, on an area ranging from 25 to 50 sq m and sells for between $66,000 and $150,000. 

They are also equipped with facilities found in a standard apartment, such as a kitchen, a bedroom, a living room, and a bathroom. 

The owner of an office-tel can do business and live in the building without being concerned about annual rent increases. 

The first in Vietnam was Bitexco Group’s The Manor II, introduced a decade ago. 

The latest figures from CBRE show that the model has become more popular recently, especially over the last two years, with ten newly-launched projects in 2015 and 20 in 2016. 

As at the end of 2016, there were over 8,000 office-tel units in 39 projects in Ho Chi Minh City and over 1,000 units in two projects in Hanoi. 

The office-tel market is dominated by local developers, in which Vingroup and NovaLand are the most active.

The Novaland Group had launched a series of projects in Ho Chi Minh City by the end of 2015, such as Sunrise Cityview, Sunrise Riverside, and Orchard Parkview, with hundreds of office-tels included in each project. 

In 2016, it introduced RiverGate in District 4 and Lexington Residence project in District 2. There will be several thousand office-tel apartments coming onto the market over the next two years from these projects. 

Novaland has had more than 18 projects including the office-tel model. It is estimated that the profit from CBD office-tel leasing stands at around 10 per cent per annum and will continue to increase as trade agreements come into force in the years to come, bringing stable incomes and value added assets to investors, a representative from Novaland told VET.

The Saigon Commercial Real Estate JSC (Sacomreal) introduced a new project in District 10 in 2015, Charmington La Pointe, comprising 163 apartments ranging from 51 to 80 sq m and up to 345 office-tel apartments on areas from 31 to 45 sq m. 

At the same time, Hung Thinh Land also introduced several projects: Sky Center, with office-tels ranging from 34 to 60 sq m, and Florita in District 7.

Meanwhile, Vingroup and the Tan Hoang Minh Group have co-developed projects under the office-tel model in Hanoi, including Vinhomes D’Capitale and Vinhomes Giang Vo, which are expected to provide a total of around 3,000 office-tel apartments this year. 

“It isn’t an exaggeration to say that the office-tel model has emerged as a new investment channel and garnered much interest over the last few years in Ho Chi Minh City,” said Mr. Alex Crane, General Manager of Cushman & Wakefield Vietnam (C&W). However, “certain obstacles remain in the segment,” he added.

Legislative limits

A conference on the office-tel market held in Ho Chi Minh City in March raised a host of issues relating to development demand and difficulties in promoting office-tels. 

According to Mr. Nguyen Tran Nam, Chairman of the Vietnam Real Estate Association (VNREA), the model has been mushrooming over the last three years, especially in Ho Chi Minh City, where there are 40-50 projects. 

As it is a relatively new concept, however, the legal framework is yet to be adjusted, creating many concerns and problems for authorities, investors, and customers regarding approval, licensing, investment, distribution, and transactions.

“The greatest obstacle is the issue of granting land use rights certificates, because the apartment is neither fully used for accommodation nor as an office,” Mr. Nam said. 

For example, in a ten-story building with seven floors for apartments, the owners of the apartments are entitled to a long-term land use rights certificate, while the owners of office-tels on the three remaining floors can only secure a 50-year license. 

As a result, there will be issues 50 years down the track as to how authorities will act. In cases where office-tels are built on land that is projected to become apartments, this violates regulations in the Law on Housing, and if they are built on land projected to be office space, owners will not be allowed to stay, he added.

Lawyer Tran Duc Phuong from the Ho Chi Minh City Lawyers’ Association told the conference that the latest Law on Property 2014 does not regulate office-tels, so the government must promptly complete the legal framework to recognize and regulate the segment. 

He suggested that in multi-purpose buildings, whatever proportion is larger should determine the type of land use rights issued. It is necessary to distinguish between 50-year land use rights and land use rights for building construction.

Meanwhile, Mr. Nguyen Manh Khoi, Deputy Director of the Department of Housing and Real Estate Market Management under the Ministry of Construction, pointed out there are five main obstacles that need to be resolved when building the legal framework for this type of real estate. 

Firstly, there needs to be an accurate definition of an office-tel as being be an office in combination with living or residential areas. Secondly, will ownership be 50 years or indefinite. 

Thirdly, it is necessary to specify that investors are authorized to build office-tels on land that is planned for housing or for mixed-use developments. 

Fourthly, if defining it as a type of property for living, investors must pay other land use fees. 

Finally, office-tels must also have distinct standards in design, utilities, and infrastructure. It therefore would take at least three years before a full legal framework dedicated to office-tel segment is in place, he said.

Nevertheless, some experts commented that office-tels will not be easily accepted by authorities because of difficulties in management, and even developers themselves don’t want to be in competition with a property model outside of legislation. 

According to Mr. Nguyen Van Duc, Deputy General Director of Dat Lanh Land, if this segment is not strictly regulated there will be a series of office-tel projects appearing with small apartments, and buyers will use them as a place to live, not to conduct business. 

Mr. Nam added that office-tels should only be built in multi-function zones and be restricted in area. For instance, the space used for office-tels should be limited and not exceed 15 per cent of the living space in a building. 

Concurrently, office-tel buildings must have their own construction standards in apartments, lifts, parking lots, and other facilities, he said.

Potential for development

According to the Vietnam Association of Small and Medium Enterprises (SMEs), as at the end of 2016, the number of SMEs operating in Vietnam accounted for nearly 98 per cent of the country’s enterprises. 

As Vietnam is also encouraging startups, demand for office-tels is expected to rise due to the increasing number of startups and expats coming to work in Vietnam, experts said. 

Moreover, office-tel projects are often concentrated in the CBD, which is convenient for business transactions. 

Office-tel products have good liquidity due to their multi-function nature and being still in the early stages of development. 

According to some investors, the segment’s rate of return has been fluctuating from 8 to 12 per cent of total investment capital. The investment channel is usually suitable for investors with a need for both profitability and asset value preservation.

A C&W survey found that office-tels are well-suited to SMEs, startups, foreign companies wishing to open a representative office, and long-term foreign experts working in Vietnam. 

Forty per cent of tenants at most office-tel projects are startups and companies wishing to open representative offices, while 10-15 per cent of buyers have actual accommodation needs and the remainder are buyers planning to sub-lease.

Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), said the trend towards the development of office-tels in complex projects has been emerging and is a good sign for the local real estate market. 

The office-tel model is particularly suitable with the startup spirit of an economy in which SMEs account for the majority of companies. 

“Vietnamese people may be ready to exploit an effective and stable real estate asset over 50 years without insisting on indefinite ownership,” he said. “Office-tels will have many opportunities to soar.” 

CBRE Vietnam has commented that with the combination of both commercial and residential elements, office-tels provide many benefits to both the investor and the owner or user. 

The economical element is also a positive point in the eyes of users, rather than paying office rents and other fees. It also provides more options in terms of office rentals and contributes to enriching a real estate product’s structure and helps in recovering cash flow faster than other types of commercial property.  

VN Economic Times