Q. I’m a Vietnamese/US dual citizen. I interested in buying property in another country (such as the USA), instead of saving money in Vietnamese banks or investing domestic assets in unstable conditions. I’m looking to buy house in Houston because it seems to have cheapest price range in America. My wife is a Vietnamese citizen and I would also like to know if it would be possible for her to purchase a house in her own name abroad?
And how would it work to rent out the house in the USA while I’m living in Vietnam? What about tax and other concerns?
Sven Roering, Managing Partner at Tenzing Pacific Investment Management, advises:
A: Your concerns about saving money in Vietnam are valid – although interest rates on deposits in Vietnam may be relatively high compared to the US and Europe (which are almost zero), it is important to note that when all your savings are denominated in Vietnamese Dong (VND) you open yourself up to risks relating to currency depreciation.
The most significant risk in terms of the long-term value of your VND saving is that the government would like the value of the Dong to actually decrease over time to make Vietnam’s exports cheaper than neighboring competitors, thus promoting growth of the economy.
Along with many other factors, this points to the VND becoming less valuable over time compared to developed market currencies such as the US dollar. The fact that you would like to invest in the US and have your savings/assets valued in US Dollars would mean protecting your purchasing power over time; compared to saving in VND, where your purchasing power would decline as the VND becomes weaker.
Buying property in the US seems like a plausible option, as US homeowners have the benefit of universal property rights and one of the world’s oldest democracies. This means that you are able to take legal action against any person or government entity that tries to lay a claim against your property.
The fact that you have US citizenship is key, because if you solely hold Vietnamese citizenship (like your wife does) you are not able to transfer money to the US for the purpose of investment or saving. It would therefore be easiest for your wife to have joint ownership of property with you, which would be paid for from your own accounts.
Location, location, location…
Looking more specifically at Houston, the obvious driver of the property market is the oil industry, which makes up more than 50% of tenants in the metro area. Although you have mentioned that prices in Houston are still cheaper on an absolute basis than many other cities, when looking at the All Transactions House-Price Index measured by the Woodlands-Sugar Land, prices in Houston are currently at an all-time high.
Relative prices paired with the bleak prospects for the city’s biggest employers – oil and gas – means that there is not much room for growth in property prices, and your investment. Try looking at other cities such as Chicago, which has a more diversified tenant base and currently has lower relative prices.
In terms of investing in US property specifically, there are various trends you should consider before settling on this option:
Demographics and property purchasing trends have changed quite substantially in the US. Younger people are saddled with more student debt; and wages have not grown much over the past 20 years, which means that more people are living with their parents for longer and the frequency of home purchases will decrease over time, which would be a dampener on your property investment in the future.
It’s also important to note that if you are living in Vietnam and have the rent you receive from your tenant remitted to your bank account s in Vietnam, that you would continue to be liable for the above taxes, since the US is one of three countries in the world that tax their citizens on income earned regardless of where they live.
When it comes to taxation, you are liable for:
- State property taxes (which in Texas are 1.93% of purchase value – one of the highest rates in the country)
- Federal income taxes – which you would pay on the rental you receive from your tenants based on your tax bracket
- Capital gains taxes – equal to 20% that you would pay on the profit you make on the property once you sell it.
Bearing this heavy taxation in mind when profiting from US property, you may wish to consider other investment options, such as securitized property investments (Real Estate Investment Trusts, for example) as these are far more liquid, give you access to a diversified pool of property investments which are far more efficient from a tax reporting point-of-view.
For professional financial advice, don’t hesitate to get in touch with TPIM for private wealth management across Southeast Asia and beyond: http://tpim.co/contact-us/.