Vietnam’s potential presents tempting prospect for real estate investors

30 Sep 2016

Ho Chi Minh City is a centre of Vietnam’s rapid growth.

Real estate investors around the region looking for a capital destination should take a long look at Vietnam.

40 years after reunification and the fall of Saigon, Vietnam has emerged to be one of the fastest growing economies in Southeast Asia. Since 2000, Vietnam has seen Gross Domestic Product (GDP) grow at more than five percent per annum, and stands at 6.7 percent, according to World Bank figures on the back of growth industries like manufacturing.

Vietnam’s growth story also presents investors with strong long term prospects. Vietnam’s population is young, with nearly half of its population below the age of 30. The Boston Consulting Group predicts that by 2020, Vietnam’s middle class is set to double and will likely rise from US$1,400 to $3,400 a year. Vietnam’s youth, with a literacy rate of more than 90 percent, are increasingly moving from the countryside into the cities, as they seek higher paying employment especially in manufacturing and service-based industries.

With growing incomes, a rising middle-class and rural-urban migration, it is no wonder that demand for homes in Vietnam is increasing. The World Bank predicts that urbanites will be half of Vietnam’s population by 2040. To meet demand, an additional 374,000 units need to be built annually, especially in metropolitan areas such as Hanoi and Ho Chi Minh City (HCMC)

To support housing demand from younger, urban Vietnamese, local banks have also taken steps to make credit available. A typical mortgage has a 70 percent loan-to-value ratio, and has a 20-year tenure.

The level of demand for domestic housing in the long term therefore presents several business opportunities for real estate developers and investors across Southeast Asia and beyond. The Vietnamese government has sought to capitalise on this by opening up the real estate market to foreign buyers and investors.

In July of 2015, Vietnam’s revised Housing Law went into effect, liberalising the real estate market and removing obstacles to foreign ownership of Vietnamese property. Under the amended laws, foreigners who have valid entry and exit immigration stamps may purchase and own residential properties. Foreign ownership, including by foreign organisations and business entities are limited to a maximum of 30 percent of the total condominiums in a single condominium building, or a maximum of 250 villas or townhouses in an area with a population size equivalent to an administrative level of a ward.

Individual foreign investors who purchase Vietnamese real estate are also attracted by strong pro-landlord regulations. For instance, landlords may terminate the agreements of non-paying tenants by serving a three-day notice, or seek 0.1 percent of the unpaid per day of delay, depending on contract clauses. Such regulations provide foreign investors confidence in the security of their investments.

The amended housing laws have also made it possible for the Vietnamese diaspora (or Viet kieu) to purchase property without restriction, if they have maintained their Vietnamese citizenship. Previously, Viet kieu were only able to purchase a single property in Vietnam.

Currently, Viet kieu remittances make up more than six percent of Vietnam’s GDP. By offering them such incentives, the Vietnamese government is looking at increasing remittances to further enrich the Vietnamese economy.

There are currently about 4.2 million Viet kieu and about 30,000 foreign executives working in Vietnam long term.

The timing also happens to be right for the Vietnamese market. Across Southeast Asia, wealthier economies like Singapore are seeing capital outflows, especially among middle class retail investors who face cooling measures in the domestic property market, coupled with prices that remain relatively high. An emerging market like Vietnam with a strong growth story presents investors a viable, more affordable alternative for investment, with the prospect of seeing faster returns.

Developers chasing investor dollars have also made efforts to sweeten their offerings to regional investors, such as by providing rental and buy-back guarantees, furnishing packages and so on.

Vietnam’s potential has also led many foreign developers to enter the market. Earlier in September, Singaporean developer CapitaLand announced their purchase of a prime site in HCMC’s District 1 for a sum of US$51.9 million, their third acquisition in Vietnam since June 2015. The developer is planning a 22-storey serviced residence tower as well as a 17-storey residential tower on the site.

Other developers who have made the foray into Vietnam include Keppel Land and Guocoland.

According to figures from the Vietnamese Foreign Investment Agency, foreign direct investment (FDI) in Vietnam was over USD11.2 billion, with the real estate industry the second highest contributor at over USD604.8 million. Investment in manufacturing and processing continues to make up the largest share by far of FDI, at USD8.06 billion.

Singapore is the second biggest investor in Vietnam.

This article was written by Chang Hui Chew, Content Marketing Manager at PropertyGuru.


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