Housing Law Amendments Set To See Surge After July This Year

Foreign real estate ownership in Vietnam

In late 2014 the Vietnamese central government passed a series of amendments to its property ownership laws with the aim of boosting what was an ‘ailing real-estate market’[i] and looking to put some life back into economic growth.

According to Savills Vietnam[ii], a leading property company, the amendment ‘has had support from all levels of the government and throughout the Vietnamese property industry.’

As Savills notes, ‘Once adopted in July 2015, it will allow foreigners to lease and own a maximum of 30 percent of an apartment building or up to a maximum of 250 villas or townhouses. This effectively provides a registered 50-year leasehold title and gives foreigners the same rights as Vietnamese as they can now sub-lease, mortgage, trade and inherit.’[iii] Further information suggests a 50-year lease can be extended for a further 50 years at its expiry, although given such a lengthy passage of time it would be foolish for anyone to be able to predict just where the marketplace will be so far into the future; and most expats probably wouldn’t be bothered anyway.

Previously, property ownership for foreigners was restricted to those married to Vietnamese nationals or foreigners who were considered to be making significant contributions to the development of Vietnam.

The housing amendment was also aimed at boosting economic growth to a hoped-for 5.8 percent for 2014 and into 2015 and to help clear up bad debts within the financial system, a number of which were tied to property.[iv]

The government had launched a foreign ownership pilot program in 2008, but this proved relatively unsuccessful. Up until the second quarter of 2013 a mere 108 individuals had purchased local property under this program. As at 2013 there were officially 74,000 foreigners residing in Vietnam, but this number could in fact be as high as 90,000 or more.[v]

Real estate investment in vietnamGiven that expats are usually in quite strong financial positions, it made sense for the government to consider ways of making it easier for foreigners to become involved in the ownership of local property, especially as the vast majority would be looking primarily at investing in Ho Chi Minh City.

The amendment also places Vietnam in a better position vis-à-vis its near neighbours, especially Thailand and Cambodia. The residential property market in Vietnam, by offering a 50-year lease arrangement on apartments (condominiums), townhouses and villas, looks very competitive alongside a similar situation in Cambodia and the Philippines. These latter countries also have 50-year leasehold title arrangements, although the Philippines does permit foreigners to own land and commercial property.

Of the other ASEAN nations, Malaysia offers the best deal in the region, with 99-year residential, commercial and land leaseholds, while Indonesia and Thailand have, respectively, only 25 and 30-year leasehold permissions.

Rental returns in Vietnam are also attractive to foreign buyers, with around six percent being the current gross yield in a key centre such as Ho Chi Minh City.[vi] This compares favourably with other major world centres such as Tokyo (4.6 percent), London (4.0 percent), Singapore (3.9 percent), and Hong Kong (2.7 percent).

In reality, the numbers for Vietnam are likely to change to some significant degree after July this year, and there will probably be some ‘lag’ time before the real effects are witnessed across the real estate environment in the country.

A major plus with the new amendment will be in the area of financing for properties. The government is allowing foreigners to ‘pay for the property via a financial organization operating in Vietnam’.[vii]

The downside to this though is that any debt can only be tied to the length of a valid visa, which is currently a maximum of two years. So, more than likely the extent and number of loan arrangements to purchase property by foreigners will be quite small, and instead it would be expected that most will purchase their holdings outright with existing funds.

Under the Vietnamese Constitution all land belongs to the state. That situation is unlikely to change in any significant way for a very long time. Yet, Vietnam will also be one of the 10 states which will be forming the ASEAN Economic Community (AEC), which is due to begin on 31 December 2015.

The AEC will help forge even closer ties between the very disparate nations of Southeast Asia, and the Vietnamese political and economic paradigm will no doubt see further changes, similar and possibly just as dramatic as though which have been seen since the thawing of relations with the United States in the early 1990s.

The government of Vietnam is well aware of the economic competition it faces from its neighbours, and it has shown itself to be quite pragmatic when it comes to improving the general standard of the local economy.

Encouraging foreign investment in the form of business capital as well as bringing in foreign exchange by way of foreign investment in local property can only be good for the long-term health of the economy.

Since the announcement of the Housing Law amendment the Ministry of Construction is quoted as saying the real estate market has witnessed over 8,000 successful transactions in the first quarter of this year, triple the number for the same time period in 2014.[viii]

The chairman of the Hanoi Real Estate Club, Nguyen Huu Cuong, commenting on the amendment stated, “It is a very good change of policy, opening up the real estate sector to expats, and creating an image of an opening of the economy to foreign capital.”

Certainly long-term foreign investors in Vietnam, such as the South Korean company Lotte, Sun Wah Group from Hong Kong, Singapore property developer Keppel Land, and others have expanded their investments in Vietnamese property, sending a positive signal to the entire marketplace.

[i] www.bloomberg.net : vietnam-expands-foreign-property-ownership-to-boost-economy, accessed 15/5/15

[ii]  http://www.savills.com.vn/ , accessed 15/5/15

[iii]  ibid, Savills Residential Sales Publication Q1 2015, pp 22-23, accessed 15/5/15

[iv]  www.bloomberg.net : vietnam-expands-foreign-property-ownership-to-boost-economy, accessed 15/5/15

[v] http://xotours.vn/blog/2013/10/27/a-guide-to-living-in-vietnam/, accessed 15/5/15

[vi] Savills Residential Sales Publication Q1 2015, pp 22-23, accessed 15/5/15

[vii]  ibid, accessed 15/5/15

[viii]  http://www.thanhniennews.com/business/vietnams-property-market-generates-new-foreign-interest-40519.html