MoC proposes condominium lifespan limits: A major impact on the market?

According to the appraisal dossier for the draft Law on Housing (amended), the draft law is structured into 13 chapters with 150 articles, a reduction of 48 articles compared to the current Law on Housing, aiming to streamline regulations and meet management requirements in the new era.

Condominium buildings will have their lifespans determined based on design dossiers and actual usage time. (Credit: Quoc Tuan)

Proposal to Impose Condominium Lifespans

One of the most notable new points is the addition of regulations on limited-term ownership of condominiums. According to the draft, apartment ownership is established from the moment the State recognises ownership rights and will terminate when the construction reaches the end of its design lifespan or even before that lifespan ends if it falls under cases where demolition is mandatory by law.

To determine the condition of the building, when a condominium reaches the end of its operational lifespan or shows signs of serious deterioration that no longer guarantee safety, the provincial People's Committee will organize a quality inspection. Based on the inspection results, the competent authority will decide to extend the usage period if the building still meets safety conditions.

The draft also specifies plans to handle residents' rights after a condominium is demolished. Accordingly, if the owners agree to renovate or rebuild the condominium, they will continue to use the existing land area and contribute construction funds proportional to the ownership area of each apartment.

In cases where residents do not participate in contributing capital to rebuild, the land fund will be handed over to the State to select an investor for a new project. At that point, owners will be compensated for the value of land use rights corresponding to the shared-use area in accordance with land laws at the time of compensation.

For land plots that are no longer zoned for rebuilding condominiums after demolition, owners will also be compensated for land use rights under current regulations.

In addition to rights, the draft also stipulates that apartment owners are responsible for complying with relocation, demolition, and site clearance, as well as fulfilling obligations related to compensation, support, and resettlement in accordance with the law.

According to the Ministry of Construction, adding this regulation aims to gradually shift public perception regarding condominiums. The drafting agency believes that many people still view apartments as permanent, lifelong assets, whereas in reality, they are construction works with a specific lifespan that will deteriorate over time.

A Major Impact on the Market

In reality, this is not a new proposal. When presenting the proposal to amend the 2014 Law on Housing to the Government, the Ministry of Construction proposed adding new regulations on limited-term condominium ownership under the housing ownership policy instead of the current permanent ownership regulation.

Accordingly, the Ministry of Construction proposed two options, which were approved by the Government and reported to the National Assembly to be included in the 2023 legislative program (under Submission No. 53/TTr-CP dated March 28, 2022).

The value of a permanently owned apartment will differ from a limited-term owned apartment, which is believed to affect homebuyers' rights.

One of the two proposed options was to determine the condominium ownership term based on the construction's usage lifespan. However, that proposal was subsequently removed.

According to experiences from Asian nations, many places have already applied lifespan limits to condominiums.

Singapore: During the initial phase, regulations stipulated ownership rights for these apartments at only 30 to 50 years. Later, as building quality improved, the State extended this period to 70 years, and for newly built condominiums today, the "lifespan" has been raised to 99 years. Only 15% of commercial condominiums invested by private enterprises are owned permanently (as the regulation specifies a 999-year term); however, by law, even commercial housing must be demolished once it reaches a certain "age."

China: The Constitution also restricts this through regulations on the purpose and duration of land use (specifying 40 to 70 years). China is currently applying a 70-year lease system and is drafting laws for unconditional contract renewals. Meanwhile, Hong Kong automatically extends terms for older properties based on the payment of annual fees.

However, looking at the practical reality in Vietnam, many opinions suggest that Vietnamese people traditionally desire permanent ownership when buying a home, making the implementation of lifespan limits a difficult puzzle for developers when selling products.

Mr. Pham Duc Toan, General Director of EZ Vietnam Real Estate Joint Stock Company, pointed out that a condominium building's cost comprises land-use fees, construction costs, and other expenses. Currently, the difference between land-use fees for commercial/service land and residential land is not very significant, so developers will reduce home prices marginally, if at all. Applying limited-term condominium ownership will only impact the residents' ownership rights, especially when mortgaging the apartment to borrow money for the purchase.

The value of a permanently owned apartment will differ from a limited-term owned apartment, which will affect the rights of homebuyers and reduce condominium values. Additionally, conflicts may arise when commercial/service land and residential land are treated similarly, despite different land-use fee structures.

From an association perspective, Mr. Le Huu Nghia, Vice Chairman of the Ho Chi Minh City Real Estate Association (HoREA), stated that whether the term is limited to a certain number of years or is permanent, the accompanying benefits and purchase prices differ. Furthermore, condominium buildings only exist up to their structural durability limits.

According to Mr. Nghia, the Law on Construction stipulates that the durability limit for condominium structures is 50 years. After 50 years, a re-evaluation must be conducted; if the building is still in good condition, usage can continue, with a possible extension of 20 years. At the end of that 20-year extension, another evaluation is required.