Policy changes instituted by the central government, alongside stimulus measures designed to attract investment in real estate, and strong GDP numbers have all helped in revitalizing the realty marketplace in Vietnam.
Two years ago the Vietnamese central government decided it needed to try and revive the real estate market in the country, which had been in a slump since 2009. Naturally, the global financial crisis of 2008 (one of those major economic disasters which now possesses its own acronym, namely, the GFC) impacted Vietnam, as it did much of the rest of the world, leading to a downturn of anywhere from 60 to 80 percent in the Vietnamese marketplace.
In 2013 the government’s stimulus package revolved around offering loans at a preferential six percent interest rate. While only 14.5 percent of the VND 30 trillion (US$1.4 billion) package was disbursed, it had the effect of stabilising the market throughout 2014.
The central government has announced that in 2015 it has up to VND 50 trillion (US$2.34 billion) available to pump into the real estate sector, this time with the aim of stimulating the commercial housing side of the economy.
Given that the Vietnamese economy grew at around 5.25 and 5.42 percent in 2012 and 2013 and then saw GDP grow at 5.98 percent last year (figures which exceeded expectations), it is no real surprise to see the real estate segment of the market now beginning to witness strong recovery.
According to the International Monetary Fund, Vietnam’s GDP is expected to be between five and six percent this year.[i] This is the second-highest GDP growth within the ASEAN top five of the Philippines, Singapore, Malaysia, and Indonesia, as well as Vietnam. The figure compares well with the IMF’s expected forecast growth for Thailand, for example, which is only around two percent.
Indeed, foreign direct investment (FDI), much of it centering on the commercial as well as private real estate sector has seen 267 newly licensed projects as at 20 March this year, according to the General Statistics Office of Vietnam. While this represents a six percent increase in the number of projects, the actual amount of registered capital (at US$1.216 billion) is down by just over 40 percent on 2014 figures.[ii]
What must be remembered however, is that 2014’s figures represented a new record high for Vietnam, being 10 percent in excess of the figures achieved in 2013. Last year, there were around 1,600 projects licensed to start up in the country, and around 200 of these were in the real estate market.
The affect of the recently revised laws regarding foreign real estate ownership are likely to take off over coming months. Foreigners are now allowed to buy properties with just an entry visa, although the amended law does make it clear that the minimum legal capital of a real estate company is VND 20 billion (US$939,000). According to the Ho Chi Minh Real Estate Association, while this figure is relatively high, it should mean the marketplace gets quality investors.
According to a survey conducted by the regional realty consultant CBRE, up to 5,150 apartments went on sale in the first quarter of this year, three times the number for the same period in 2014.
Back in 2014, CBRE conducted its first ever consumer survey for Vietnam, interviewing 1,000 respondents in Hanoi and Ho Chi Minh City. Although the survey concentrated on the retail shopping habit of consumers, it has relevance for the real estate market and real estate investors in the commercial marketplace.
The survey found Vietnamese shoppers to be more concerned about security and cleanliness than price, although younger consumers (aged 34 and under) were more interested in what entertainment was available, or what kind of food and beverages were on offer at their local shopping outlet. [iii]
Overall, CBRE is forecasting that investment value across the Southeast Asian region will increase to US$118 billion this year, which is up five percent year-on-year. Vietnam is increasingly being viewed as one of the marketplaces worthy of heavy investment, especially from institutional investors and new private equity real estate funds.
One thing missing from the Vietnamese real estate equation is the real estate investment trust (REIT). This is popular as a way of raising funds in many countries but is not yet available in Vietnam.
At the present time, Vietnamese law prevents property owners or real estate companies from contributing property to real estate funds. The laws also do not allow funds from borrowing more than five percent of its net asset value after being established. This is a restriction which is likely to change over time.
The Vietnam State Securities Commission is on record as stating it will make efforts to make amendments to the regulations which govern the establishment of REIT’s.
Although REIT’s may not yet be available along the same lines as elsewhere, general consensus seems to be that the Vietnamese real estate market possesses some competitive advantages. Apart from high demand, the country has a young population, especially when measured against ageing populations like Japan, Thailand and most Western nations, and a stable market-driven economy. These are seen as major plusses for foreign investors.
As noted earlier, FDI has been strong in the first quarter of this year and there’s no reason why that situation won’t continue for all of 2015 and beyond. The prices of premium projects peaked in early 2009 and have since fallen by as much as 25 percent. It is quite probable that this segment of the market will prove attractive to foreign investors, especially as they will be keen to take advantage of the relatively cheap prices now on offer.
There are still serious issues to be addressed, especially in relation to small investor protections (where Vietnam currently ranks 165th according to the World Bank), but the government has indicated it wants to improve these poor levels so that FDI will continue to help drive the economy over the long term.
[i] International Monetary Fund, World Economic Outlook, page 63
[ii] http://www.gso.gov.vn/default_en.aspx?tabid=622&ItemID=14252, accessed 25/5/15