It looks like it’ll be a while yet
Wheels of change are in motion in Vietnam. On 1 July 2015, two new policies were introduced that could transform the country’s investment landscape, especially in the recovering housing sector.
The first policy is a revised visa-free travel policy, valid for 15 days, for five European nationalities – German, French, British, Italian and Spanish – which could help increase international tourist arrivals in the country and subsequently drive demand for hotel and rental properties.
The second, and arguably more significant rule change, is the much-awaited legal reform on the Law on Residential Housing (LRH), which removes many restrictions for foreign buyers in real estate, following the government approval in November 2014.
“This is a game changer for the real estate market and a large policy shift for Vietnam where the right of foreigners to own property in Vietnam is concerned,” said David Lim, managing partner of ZiCOLaw Vietnam. “These positive developments are expected to boost demand and help improve market liquidity, especially for mid-to-high end residential housing as well as vacation and/or second homes.”
Under the LRH, foreign individuals who are granted a visa to Vietnam are allowed to buy residential properties – whether condominiums or landed properties such as townhouses – with no limit (as long as the number of units owned by foreigners does not exceed 30 percent of the total units, or 250 landed property units in a particular administrative ward), for a 50-year leasehold tenure with possibility of renewal. Properties of foreigners can now also be sub-leased, inherited and collateralised, which were only previously for owner occupying purpose.
Lim noted that while Vietnam’s domestic market experienced a widely reported slow down over the last few years, the new law is set to position the country as a more attractive investment destination for overseas buyers, especially compared to less developed neighbours like Cambodia, Laos and Myanmar.
“But Vietnam still has a lot to do to catch up with Singapore, Thailand and Malaysia, which have established foreign ownership regimes in place,” he added. “There was growing concern that countries that have lesser developed real estate industries may leapfrog Vietnam simply because they have more open real estate markets.”
Vietnam’s two main markets, Hanoi and Ho Chi Minh City (HCMC), are already witnessing a revival with huge growth in demand for residential properties. Before the implementation of the LRH, new launches in Hanoi went up by 82 percent, year-on-year, as of Q1 2015, while in HCMC new launches rose by a staggering 163 percent, y-o-y, based on data from CBRE Vietnam. Sales in Hanoi also doubled in the same period, while figures went up by 138 percent in HCMC.
The implications of the new law may not be felt immediately, according to Marc Townsend, managing director of CBRE Vietnam, although there are early signs that local markets would continue with their recovery given the boost of the new policy changes. CBRE currently estimates the take-up rate at about 60 percent for HCMC and 50 percent for Hanoi.
“It might take at least a year to see a number of foreign buyers actually buying into the market and they are expected to raise just about 3-5 percent of take-up,” said Townsend, adding that CBRE expects buyers from North and South East Asia like Hong Kong, Taiwan, South Korea, Japan, Singapore, to make significant investments in Vietnam.
“This long awaited change will help create a more balanced, transparent and sustainable residential property market in Vietnam and is expected to play a major role in correcting, to some extent, the above-mentioned issues, but the participation of the private sector players will also play a big role.”
Local developers have welcomed the change with open arms, with many real estate companies starting to offer sales packages specifically intended to lure foreign investors, while some waited for the implementation of the LRH to launch their latest developments. For instance, the sales launch for Vinhomes’ Landmark 81 condominium, which is set to become the tallest residential building in Vietnam at 81 storeys, opened on 1 July to take advantage of the hype surrounding the new law.
Jane Tung Wai Chee, deputy general director for international investment and relation at Tan Hoang Minh Group, says that the revised policy is definitely in favour of the residential sector, especially the high-end segment, as these types of properties are ideal for sophisticated foreign buyers who are keen to invest in the country. She said that the firm’s new D.’ Le Roi Soleil project in Hanoi’s West Lake would likely appeal to foreign buyers, noting that in the past decade, no high-end residential apartment had been built in the area.
Other foreign players are also eyeing the Vietnamese market. Ayala Land of the Philippines previously announced plans to find a local partner in the country and establish a foothold in the market as part of its expansion programme in Southeast Asia. With the LRH, the Manila-based developer may have find the right opportunity to tap into the market.
The revitalised property sector, positive investor sentiment and sunny economic outlook, which is estimated to grow 7 percent, will also play a significant role in the development of the sector.
“Foreign buyers have been and will be following the market carefully and will be keen to buy when they see the market turning round,” Townsend said. “Foreigners buyers, however, should be seen as a logical extension of a maturing market, not just a quick fix.”