Q: I am a French citizen currently living in Ho Chi Minh City in a rented property. I am interested in investing some money into local assets. I’ve tried to open a stock trading account with a local brokerage but it seems like the stock market is extremely volatile, and asset prices do not often reflect company fundamentals. As an alternative, I’ve been looking at buying some physical real estate, as there are many new projects popping up around the city.
Do you have any insights into the local property market and are there any projects that you would recommend investing in?
Sven Roering, Managing Partner at Tenzing Pacific Investment Management, advises:
A: Since the state first allowed foreigners to purchase property in July 2015, the local property market has been in somewhat of a ‘honeymoon phase’ when it comes to foreign investing. The fact that you see so many new projects materializing around the city shows that property developers are expecting foreigners (as well as locals) to consider investing in their supply of new developments.
There are many positive economic aspects which could drive more foreign and domestic investment into the local property market:
Firstly, neighboring countries such as Hong Kong and Singapore have been experiencing property market downturns. In Hong King, residential sales have decreased around 70% since the beginning of 2015; and Singapore’s residential property price index has decreased by 14 points since the beginning of 2014.
Secondly, gross yields received on properties in Vietnam (i.e. the amount of money you receive from letting your unit relative to the price you pay), are higher than most cities in Asia – at around 8%.
Thirdly, there are a number of monetary positives:
- The central bank has kept its benchmark interest rate the same since 2014
- The Vietnamese Dong maintains a stable currency peg to the USD
- Inflation for 2016 is forecast at around 3%
All of which mean that there should be no shocks to the credit market in the near future, which is important seeing that more investors are buying property on credit (Fact: loans to homebuyers increased 22% in 2015).
Lastly, demographic shifts are taking place and urbanization is ever-increasing. More and more properties are being bought by younger individuals and families – on credit – all of which will drive prices positively going forward.
The kinds of properties available
There are many inventories available, from apartments, penthouses, retail space, to villas and office space. Residential property is usually priced around $2300 per square meter.
There are also many new units around the city, known as ‘officetels’, which are essentially hybrids of office space and residential real estate, designed for young entrepreneurs working for small companies. These are usually priced at $3700 per square meter.
It is relatively easy to purchase property as a foreigner:
- All you require is a valid passport and Vietnamese visa (tourist or business)
- You will be required to sign a purchase agreement and pay transfer funds – either the entire value of the property up-front, or through a payment schedule dictated by the developer
- If you would like to purchase a unit in a development where the basement level has not yet been completed you will have to sign an additional deposit contract
Regarding this last point, you may ask: “Why would I want to buy an apartment in a development in which the foundations have not yet been completed?” The truth is that there is so much demand for units around the city that many of these new developments will have sold 80% of the total units before the second floor is even complete.
Safe as houses?
One of the more trusted developers around Ho Chi Minh City is Novaland. They have over 20 projects available around the city, comprising penthouses, apartments, officetels and retail space.
If you are looking for a more luxurious investment, tempt your tastes with the Sanctuary Residences near the Ho Tram Strip, a 1.5 hour drive from Ho Chi Minh. These are beautiful beachfront villas located in close proximity to the Bluffs Ho Tram golf course.
The real estate debate
It cannot be ignored that there are a number of pitfalls when it comes to investing in the local property market:
- As with any frontier market, it is often difficult to obtain accurate market data
- Speculative activities by local investors could lead to dramatic property price increases in the near term, resulting in boom and bust cycles (as happened in China)
- Also, it is often difficult for foreign investors to obtain mortgages from local banks unless they are married to a Vietnamese citizen
I believe that the Vietnamese real estate market is a relatively risky one. However, if you have a long-term horizon and have a portion of your capital held in safer, less volatile investments, why not take a punt on property?
For more property and investment advice, get in touch with TPIM: http://tpim.co/contact-us/