Following stagnation that extended almost half a decade, the Vietnamese real estate market is finally showing signs of recovery. This has happened due to a combination of factor – the change in government policies, renewed interest by foreign investors, better economy and positive regional trends.
After the property bubble burst in 2009, the realty market in Vietnam stagnated; property prices that had started to skyrocket in 2007, were hit by the global economy downturn and transactions on real estate exchanges plummeted by 60-80 per cent.
As explained by chairman of Hong Kong-based Viasa Fund, Alan Phan: information about real estate in Vietnam is quite inaccessible for individual home buyers. Moreover, the law on property at that time was complex, leading to speculation fueled price hikes, which did not sustain.
The sector has been showing strong signs of recovery as it attracts more 1,600 projects funded by foreign investors. This has been further supported by recent change in global economic climate and new government’s policies in the country.
Stimulus package and Government policies
The Vietnamese government has been making efforts to revive the real estate market by bringing the VND30 trillion ($1.4 billion) stimulus package. In early 2013, the state introduced the stimulus measure to offer loans for social housing purchase at preferential interest rate of 6 per cent. Although only 14.5 per cent of the package was disbursed, the results in 2014 were gradually stabilising of the market and boosting of transactions.
This year, the market is waiting for the VND50 trillion ($2.34 billion) stimulus, that will support the commercial housing segment.
The Vietnamese economy too has grown beyond expectation in 2014. The gross domestic product (GDP) growth in the year reached 5.98 per cent, higher than the level of 5.25 per cent and 5.42 per cent of the previous two years.
The economy also saw an increasing number in new enterprises, which was up 88.8 per cent year-on-year for the real estate sector. As a result, investment is expected to increase in the real estate market.
The return of foreign investment
Last year, the foreign direct investment (FDI) reached new high. Nearly 1,600 projects were licensed with a combined registered capital of $15.6 billion, rising about 10 per cent in value over 2013. Of the total FDI last year, investment in the real estate sector accounted for 13 per cent, second in the list of sectors that attracted the most FDI.
Entering 2015, foreign players poured $1.2 billion in Vietnam in the first two months, data by the General Statistic Office showed. The conventional industry of manufacturing continued to top the investment value, with $952 million. Meanwhile, real estate came in second, with $111.4 million (9.3 per cent) investment.
In the premium realty sector, two Singaporean companies Capital Land and Keppel Land have invested, collectively, in about 23 projects in Vietnam. Meanwhile, Malaysia’s Gamuda Land has invested in two mega urban city projects.
At the medium level, Sunwah Vietnam (a branch of Hong Kong-headquartered Sunwah Group) holds 48 per cent of the $200 million apartment project in Binh Thanh District, Ho Chi Minh City. Japan’s Creed Group has 80 per cent stake in the City Gate Towers, which has a total investment capital of VND1.3 trillion. The City Gate Towers is first of the investment deals by the group in Vietnam and accounts for just 10 per cent of the total outlay that the Japanese investor plans to invest jointly with Nam Bay Bay Investment Corp.
The trend of foreign investment has shifted from contributing some capital in joint ventures to merger and acquisition (M&A) to take control of the promising projects.
Nakata Yasuyuki, CEO of Becamex Tokyu Co Ltd., the owner of the Binh Duong Tokyu Urban Area, said: “The Vietnamese real estate market has competitive advantages in terms of high demand, a young population and a stable economy. These are the decisive factors when foreign investors consider their investment in the country.”
According to VietCapital Securities Company, foreign investment will be one of the two pillars for Vietnam’s real estate development in 2015. As prices of premium projects declined by 20-25 per cent compared to the market peak in 2008-2009, the securities firm predicts foreign investors will foray into the segment.
In terms of policies, the revised law on housing ownership allows foreigners to own property in Vietnam. They are allowed to buy land properties with just an entry visa. These constructive change has partially contributed to the recent growing demand and encouraged foreign investment.
In another perspective, the amended law on real estate defines the minimum legal capital of a real estate company to VND20 billion ($938,960), which, according to vice president of the Ho Chi Minh City Real Estate Association Le Chi Hieu, is relatively high and capable of helping the market select good investors.
The movement of the local market is in line with predictions for the Asia Pacific region by international property advisory company CBRE. The agency forecasts that investment value in the region will increase to $118 billion this year, up 5 per cent year-on-year.
According to CBRE, the region’s investment growth is supported by a number of factors – new private equity real estate funds, an increase in institutional investors’ allocations for Asia Pacific, growing activity by Asian institutional investors, and adequate debt financing.
The sector will need strong funding to take advantage of the market situation. The real estate investment trust (REIT) has been a popular means to raise funds, in many countries around the world but is not yet available in Vietnam.
Currently, the Vietnamese legislation hampers real estate companies or property owners from contributing property to the funds. The rules also prohibit the funds from borrowing more than 5 per cent of its net asset value after its establishment. Unlike laws in other countries, the law includes no preferential tax policies for real estate funds, such as tax exemptions.
The Vietnam State Securities Commission has said it will work to make amendments to Circular 228, which regulates the establishment of REIT.
Related story: Understanding Vietnam: 5 insights for investors