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Vietnamese sensation

01.03.2009
Author: Laura LETHEM
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For several years, Vietnam has seen unprecedented economic growth, now the government, sacrificing growth rates, but seeking to curb the price spike, has tightened the rules for selling real estate to foreigners. As an emerging market, Vietnam is unpredictable, but for gambling investors willing to take risks, it is now one of the most interesting destinations.
No one imagined that in five or six years Vietnam, which occupied one of the last places among the countries of the region, including significantly losing to Thailand and Malaysia, would enter the list of the most attractive destinations for buying real estate on the planet.
The sharp rise in the national economy occurred after 2002 due to the fact that the Government of the country began to actively pursue a policy aimed at restoring and enriching the state, and to a large extent by attracting investments from foreign companies. Air carriers from the United States and Europe, seeing positive changes, introduced direct flights to Vietnam, at the same time hotels belonging to international hotel chains began to appear here, and developers announced new projects in this exotic direction. As a result, the country's GDP grew by 7%.

Fighting demand
However, it cannot be argued that it was the investments of foreign companies that boosted the country's economy. Experts most often cite another reason: the number of young people in Vietnam has grown and the middle class has strengthened, which in general has become more ambitious, has begun to work and earn more than the previous generation. The business and trade sectors have risen, and the demand for real estate has grown: modern independent young Vietnamese do not want to live with numerous relatives, and there is a tangible demand in the domestic market in terms of not only buying, but also renting.
In addition, now those Vietnamese citizens who had previously moved abroad have also paid attention to their homeland. Realizing that the purchase of housing in Vietnam can now be considered as a promising investment, they use their right to purchase housing for full use in major cities and resorts in order to rent it out to local residents or expats, of whom there are more and more in the country every year.
According to Matthew Kozior from CBRE Vietnam, the most popular destinations among both foreign and local buyers are Ho Chi Minh City (until 1976 – Saigon) and Hanoi. "This is explained, firstly, by the size of these cities, and secondly, by the fact that most of Vietnam's money is concentrated here," he believes.
Like most analysts of the national market, Matthew Koziora says that since February of this year, there has been a significant slowdown in the growth of the residential real estate sector in Vietnam. Such a decline occurred primarily due to a state ban on local banks financing home purchase transactions: thus, the authorities want to cool the overheated market of the country, but, in addition, they also achieved a reduction in average prices in Ho Chi Minh City by about 20%.
Elite complexes have fallen in price the fastest: sales of housing worth more than $1,500 per 1 sq. m. m are falling. Matthew Koziora notes that mid-range complexes (no more than $1,300 per 1 sq. m) and cheap options are still selling well.
"Although the demand from average Vietnamese buyers is obvious, the unavailability of loans limits investors' options," says Matthew Koziora. "Due to the imposition of government sanctions, developers and agents were also forced to suspend the construction and implementation of a number of projects."
However, this does not mean that Vietnam has fallen on bad times for all market players. Companies are holding back the supply of affordable housing, meanwhile, there is no noticeable drop in demand in this sector, therefore, those complexes that are already up for sale are selling out very well. So, in two recently completed projects in Ho Chi Minh City – Districts IV and VII – housing was sold out within just two weeks at an average price of $1,300 per 1 sq. m. "The vast majority of investors are interested exclusively in urban real estate," says Matthew Koziora. "In Vietnam, it is difficult to talk about the demand for rural housing, the only exception being some coastal areas."

How do I buy it?
One of the main investment areas is the port of Da Nang on the picturesque coast of the South China Sea. The surroundings of this city are famous for the most spectacular and picturesque landscapes due to the beauty of the Marble Mountains, the ancient cities of Hoi An, Hue and the Michon Temple complex.
This region is also famous for its amazing beaches – thanks to this, numerous tourist resorts are being created here. Some of them are very large projects, such as Banyan Tree, The Sanctuary and Raffles Resorts, which include not only hotels and spas, but also residential residences for sale.
Kate Simons from Savills1, a company operating in Vietnam, says that things are going very well at seaside resorts. Thus, the facilities in the Nam Hai complex, the construction of which was started in 2006, have now doubled in price. The expert believes that anyone interested in investing in the holiday home sector in Asia should closely monitor the situation in Vietnam, as prices here are still much lower than in such a hyped destination as Thai Phuket.
Unfortunately, right now, Vietnamese legislation regarding real estate ownership is quite confusing and does not encourage transactions with non-citizens of the country. All land in Vietnam belongs to the state, which leases it to both local residents and non-residents. At the same time, full ownership rights are issued to Vietnamese citizens at the conclusion of the transaction, and foreigners are limited in their right to dispose of housing.
Many agencies advising non-citizens on housing purchase issues advise them to buy securities of real estate investment funds, thus becoming homeowners. There is another option for those whose sole purpose is to earn money: real estate is purchased at the stage of the project or construction and sold before completion. Both paths involve certain risks, especially in an unstable market, which, according to many experts, is the Vietnamese market.
Alistair Rowell from Seven Continent Investment also recalls that a new law on ownership is due to come into force in 2009, according to which foreigners in Vietnam will be able to buy a house, pledging to resell or donate it after 50 years. At the same time, foreign nationals must either be married to Vietnamese citizens and permanently live in the country, or make direct investments in the economy, or work in the country. A non-resident has the right to use the purchased housing for his own residence, but not to rent it out.
A more reliable and easier way is to buy real estate from those few developers who have received permission to deal with foreigners. According to Rudy van Bork of La Perla International Living, non-residents can purchase housing in a resort complex such as, for example, Bai Tram, which is currently being built by the company on the west coast. Developers receive land from the state on a renewable lease for a period of 70 years, and this is undoubtedly better than, for example, in Thailand, where the lease term is only 30 years. In addition, Rudy van Bork is confident that the government, having seen the demand for local housing from foreign buyers, will eventually relax the prohibitions and allow the purchase of housing on the rights of freehold.

Pan or gone
The expert also believes that at one time, some developers overestimated housing prices too much, and the measures that the state is taking should spur investors. "When the authorities get their way, they will lift the restrictions," he optimistically predicts, "and as a result, all these events will not affect those buyers who hoped for a long–term perspective. If prices fall by 30-40%, it will mean that they will decrease from $6000-8000 to $5000 per 1 sq. m. I hope that this will be enough, and the market will stabilize by the end of this year."
La Perla International Living is one of the few developers in Vietnam that offer guaranteed rental income from renting out housing in their complexes. In the case of the Bai Tram project, the guaranteed annual income is 8% of the cost of the facility with 56% employment.
Kate Simons notes that there are still a lot of unclear points in the Vietnamese real estate market regarding what investors can hope for. "The local real estate market has only just begun to develop, and it is very difficult to make forecasts. The income will depend on the duration of the investment, and on the location, quality of housing – in general, as in any country in the world."
Matthew Koziora believes that, despite market fluctuations, it is quite possible to expect a profit from long-term investments. He motivates this by the lack of proposals for facilities under construction, with high demand from both foreigners and residents of the country. Therefore, if you are ready to take a chance on a new market, try your luck in East Vietnam.

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