Vietnam provides a real estate investment ecosystem full of energy colour and life, due in part to its dynamism and rapid development; the very foundation of its huge investment potential lies in its young and literate population (60% of a 94 million population are below 35 years old and literacy rate stands at 94.5%), emerging middle class (key cities at the forefront of Vietnam’s economic rise such as Ho Chi Minh, Hanoi and Danang are experiencing an increase in disposable income and demand for modern international quality offerings) , abundance of natural resources and land (Vietnam’s rich endowment makes it a significant import destination for certain produce and attractive country for investments due to access to raw materials).
Although unenlightened and deliberate policy decisions may have caused the excesses of recent years but Vietnam’s long term prospect prevails and opportunities remain available. The potential for capital appreciation in Vietnam’s real estate lies in its strong economic fundamentals: rising gross domestic product, positive demographics and large scale social infrastructure improvements. With increasing improvements to competitiveness and foreign direct investments, Vietnam is currently ranked above average on global indices with regards to productivity. Prospective investors can consider investing in a residential property in Vietnam for the following reasons:
Ho Chi Minh City (HCMC) comprising of 19 urban or suburban districts and 5 rural districts is at the forefront of Vietnam’s economic drive and reforms. It provides one of the up and coming real estate investment destination in the world; filled with raw potential supported by favourable demographic and economic factors. A city under transition whereby the cityscape is dotted by evidence of the old making way for the new: modern skyscrapers rising up from among dilapidated buildings, modern designs replacing colonial architecture and local retail outlets replaced by global brand names.
Rapid improvements to infrastructure have allowed areas around the city once with difficult access to develop on a large scale. As migration to the city and urbanization continues to keep pace with each other, HCMC will need to develop all available land on the peripheries of District 1 the Central Business District (CBD) and plan for satellite urban centres in outlying districts to better utilize the finite space within the confines of the city. Thus, paving the way for a vibrant and dynamic real estate market loaded with massive investment opportunities.
The majority of real estate investments both domestic and foreign are centered in the Central Business District (District 1) and its fringes (Districts 3, 4, 5, parts of 2, parts of 8 and Binh Thanh). Additional areas of significance are satellite urban centres that are being developed in strategic areas around the city; they comprise of District 2 and District 7. Such areas typically offer high rental yields and capital gains in real estate investments.
Comparing ‘apple to apple’, not only are residential property prices (within key cities) in Vietnam much cheaper compared to developed economies in the region (think Singapore, Hong Kong and Japan), it is also comparatively much affordable to countries ranked similarly in economic development (think Thailand, Indonesia and Myanmar).
Lucrative Rental Yields
Despite not having the cheapest residential property price in the region, rental income in Vietnam remains very attractive, rental yields here are one of the highest in Asia; the average Gross Rental Yield for residential property in major city centers in Vietnam is between 6 to 8%, while Net Rental Yield will be about 5 to 7%.
Huge Growth Potential
Vietnam is listed as a frontier market; meaning there is still a lot of room for development, which means more investment upside. City center price-to-rent ratio for developed countries (example: Singapore, China, Hong Kong, South Korea, Japan, Taiwan, etc.) are in excess of 35, indicating sky high property prices and/or low rental rates. In comparison Vietnam (at 23.48 lower than most comparable countries such as Thailand and Philippines) indicates the best time to make property investments in expectation of price increases.
High Occupancy Rates
Vietnam enjoys a high occupancy rate for high-end apartments in the central areas of major cities; due in part to the lack of supply of completed inventory (ready for occupancy). Many developers cut back on supply during the market downturn and freeze from 2008 to 2014, resulting in pent up demand post downturn not being immediately met. High occupancy rates present a window of opportunity as prices are forecasted to escalate as the property-cycle enters a period of boom.
Short Property Cycle
The property cycle in Vietnam is relatively shorter compared to other regional economies, due in part the government being able to affect market reforms more ‘directly’. The nature of such a property cycle, means capital appreciation can be realised in the mid-term (within 5 to 7 years) as compared to the longer assets holding period needed for more stable economies (Example: Singapore, Hong Kong, Japan, etc.).
The political environment is relatively stable in Vietnam as compared to neighboring countries like Thailand, Philippines and Malaysia. After the Second Indochina War (1955-1975), Vietnam’s socialist government consolidated complete political hegemony over the united nation, resulting in an extended period of stability that has allowed massive economic reforms to take place. Testimony to Vietnam’s political stability is the fact that a large number of the approximate 4 million overseas Vietnamese displaced by the wars are willing to return home to set up businesses or retire.
Competitive Roundtrip Transaction Costs And Taxes
Roundtrip transaction costs are competitive: investors only need to pay on top of the property purchase price a 10% VAT, 0.5% property registration tax (equivalent to stamp duty) and a personal income tax of 2% of the sale price upon selling the property (equivalent to capital gains tax). If the property is rented out, a 5% VAT and 5% personal income tax on the rental income is payable. Due to a lack of inflation and the constant devaluation of the Vietnamese Dong behind the United States Dollar, prices are increasingly affordable and there are many favorable deals in the market. Understand more about costs and taxes here.
Good Build Quality
Construction quality and architectural design are important considerations when investing in a real estate product; it determines resale value and rental income. As Vietnam moves to be further integrated with the rest of the world and consumers demand international standard real estate products; local developers are increasingly sensitive to build quality as it significantly affects their sales bottom line. Developing later means Vietnam is able to study the best practices and adopt the most current technology in build environment, skipping the learning curve (trial and error) most pioneering countries go through; current construction projects uphold stringent quality standards and future products will only continue to improve.
A common misconception about Vietnam is its lack of general safety and high crime rates; this was true only in the early days of nation building; however when social and penal structures were in place serious crime rates drastically dropped. Partly due to strict laws and the use of the death penalty for most serious crimes, crimes are restricted to just petty ones(snatch thefts, pick pockets, etc.). Vietnam is a much safer country as compared to the more developed countries in the region (compare it with Thailand, Philippines, Malaysia, etc.).