The idea of buying property in Vietnam seems like it could be a step too far for many UK overseas property buyers. In many ways, the country is so far away on the other side of the world, that it is almost as if it is only being seen as a property and economic hotspot because everywhere else has been mentioned.
After all, the country was ravaged by years of fierce fighting, and has remained in a volatile position ever since. However, with recent law changes allowing certain foreigners to buy certain properties, an open forum for development and an expanding economy, Vietnam has many advantages. And all of this is without considering the 3,400 km of coastline.
In addition to the booming economy and the gorgeous coast, Vietnam is emerging as a trading and tourism centre in ways in which we do not hear about here in Europe. The coastal resorts are popular with tourists from Australia and New Zealand, while the country has opened up to international trade, allowing more multinational companies to enter the market in Vietnam on an equal footing with local companies.
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Extending 1,650 km north to south, Vietnam is only 50 km across at its narrowest point. Home to more than 86 million people, it is a huge country, but the majority continue to live simple and often poverty-stricken lives. Vietnam is mostly low-lying, and should there be a significant rise in global sea levels in coming years, much of the south of the country would be in danger of severe flooding. While much of the population remains in the countryside, the development of cities like Hanoi has long been watched with interest in the region. Ho Chi Minh City has grown to accommodate more than eight million people, and is still developing with new tunnels and bridges across the river to link the various city districts.
Hanoi has had much the same story – rapid development of infrastructure to deal with the growing population with disposable income to spend. At the same time, the business community has grown to help the levels of money in the cities continue to grow, and as the government has lifted the restrictions on how many foreigners are allowed to work in a business, which brings a different perspective and atmosphere to the city.
With the growth in the population and the way in which the wealth is distributed, there has been a rapid development in the Vietnamese economy, and any recent issues that have blighted the reputation of the economy seem to be abating slightly. Vietnam had an explosion of growth in the early part of this century – GDP and exports took off in a huge way and without proper controls in the form of interest rates, inflation ballooned. While this has begun to relax a little, the current rate of inflation of 25 per cent will take some years to get down to a more manageable single-digit level.
The temptation for panic seems to have been resisted among the business and private community, and there is predicted to be a period of consolidation. High inflation is something to be expected in emerging markets, and is not a reason for investors to be diving for cover. Food and oil prices have risen across the world, which has taken the sting out all but the most remarkably immune markets. No collapse in the Vietnam economy is predicted – the market is strong and the doom and gloom is unlikely to materialise.
Demand for property in the two major cities – Ho Chi Minh City and Hanoi – remains strong, and although there is currently some consolidation going on with developers and investors, the properties that are coming onto the market will not be enough to cover demands in the coming years. In Ho Chi Minh City, some new 38,000 properties are due to be delivered to market by 2011, which will not be enough in a city that has a rapidly developing infrastructure.
The properties that have already been delivered to market in Vietnam’s cities have been of the higher-end variety. With predictions that only around 10-20 per cent of the population currently have the means to buy their own property, it is expected that developers will begin to build more mid-level developments. This will allow more growth in the market from the bottom upwards and bring property ownership to more people in the city, while at the same time maintaining a healthy rental market for those who are able to get in early and buy to let.
While the economy has slowed the growth of the country to a certain extent, rising construction costs of have slowed the building of new developments, meaning that the market has remained strong. The situation has not arrived where there are thousands of units arriving on the market with no confidence in the economy among local investors. While there are not the queues for new apartments that were seen in 2007, new developments are still over-subscribed, and with the change in the property laws coming in 2009, foreigners will be supplementing the numbers of buyers and creating more demand.
Legal issues
Following the boom in property buying that resulted in the queues to reserve off-plan developments, and what was a somewhat relaxed attitude from developers to building schedules and deadlines, the Vietnamese government established a strong legal framework for the property industry. In addition, the government has changed the law to allow certain foreign investors fulfilling pre-defined criteria to buy condo apartments from 2009, eliminating the need for buyers to go through forming an official joint venture in order to buy property.
The first piece of real estate regulation is known as Decree 153, and relates to the funding of projects that are sold off-plan. Previously, it had been known for developers to take payments for project that had not even broken ground, and for the completion dates and staged deadlines to be completely ignored along the way. The Decree has now set up a framework for this type of development, meaning that developers can only take initial payments for projects once work has begun. In the case of residential developments, the first payments can only be taken when work has been completed on the foundations.
In addition, the rest of the funding for the project must be transparent, and available for investors to examine when requested. The details of commercial loans must be specified in the contract for the purpose of pursuing compensation should the contract be breached by the developer during the build.
Perhaps the most important of the clauses concerns the late delivery of projects to the investors. It was previously common practice for developers to finish projects up to 18 months or two years behind schedule, with no financial penalty structure in place. This meant that private investors have lost out on the potential rental income they would have budgeted for, with no recourse to reclaim those monies. The Decree has instituted a series of late delivery penalties that are levied on the basis of the total monies invested, designed to protect the growing number of international investors in Vietnamese property.
The law allowing foreigner investors to buy their own property in Vietnam is known as Circular 13. While it is a significant step in allowing the purchase of property by foreigners, the law goes further in setting down a legal framework for the buying and selling of property across the country. For example, the law states that the burden of due diligence is on the developer and service provider, rather than leaving it to the client to carry out their own research individually. This is designed to ensure that dubious developers and projects do not trap investors, and makes sure the right conditions are in place for the development to succeed.
However, the most important point of the legislation is that which allows foreign individuals to buy property in Vietnam for the first time. In order to qualify, buyers have to fall into one of five categories:
• Individuals who already invest directly into Vietnam, through some business or other concern
• Individuals who have contributed to Vietnam and have received an award from the State President or Prime Minister
• Individuals with a university degree who are working in certain defined sectors
• Individuals who are married to a Vietnamese person
• Non real estate businesses can buy property for their employees
In addition to these conditions, there are a couple of other constraining factors – the maximum length of lease foreign individuals can buy is 50 years, and the property can only be resold after 12 months of ownership. Freehold property for foreigners is not available, and is unlikely to ever be so in the future.
The overall effect on the property market in Vietnam is unlikely to be huge as it is estimated this change in legislation will only affect 10,000 to 20,000 people. However, it does signal the desire and willingness of the Vietnamese authorities to open the property market up to outside influences. Circular 13 is due to come into effect on 1st January 2009.
The process of buying property in Vietnam
Buying property in Vietnam is a tricky, if not completely onerous process. Freehold property is not available, even for Vietnamese nationals – theoretically, land is owned by the people under the Communist system, but is managed and regulated by the State. Until the introduction of Circular 13, the only way to buy as a foreigner in Vietnam is to form a joint-venture with a Vietnamese company and own and manage property in that way.
Foreigners who are now resident in the country can own dwellings on a leasehold basis, but are not allowed to sub-lease these.
The other major difference in the buying process in Vietnam is that all transactions are carried out in pure gold. While this seems like a quirky and antiquated system, it means that any buyer in Vietnam needs to keep a very close eye on the cost of metals for the best time to buy, as the fluctuating markets could make your property suddenly much more expensive.
The process of buying the property itself and registering the documents is relatively straightforward, and takes around nine to ten weeks.
Finance
The mortgage market in Vietnam is relatively young, so there is plenty of development left in the country. Borrowing to finance buying a property in Vietnam is still quite rare, but with the opening of the market to foreign buyers, and with the increase regulation in the domestic market, there are beginning to be more products and different terms on the market. Typically, any lending that does take place is for no more than 50 per cent of the value of the property and over a term of up to 15 years, although some lenders are now allowing up to 60 per cent of the value of the property to be borrowed, and terms are beginning to stretch towards 30 years. The fact that no property is available freehold in the country has previously limited the borrowing capacity of the market, but with further openness in property transactions this is beginning to be reconciled with a fledgling mortgage market.
Like many other countries, there is a limit on the proportion of an individual’s income that can be taken up in mortgage payments, and typically the total loan repayments are not allowed to be more than 75 per cent of the income. Further protection for borrowers is provided by a ceiling on interest rates of 10.2 per cent p.a. – a fact that is particularly relevant in the current climate of government efforts to reduce inflation by increasing interest rates.
Vietnam Property: Fees and taxes
The associated costs of buying property in Vietnam are very low, and account for only around 6.5 per cent of the cost of the property – and the vast majority of this is paid in VAT and registration fees.
The larger costs in owning a property in Vietnam come from the ongoing taxes that are charged, particularly on rental income. Foreign nationals who are present in Vietnam for no more than 183 days in any 12 month period are taxed on their income at a flat rate of 25 per cent. Business income is also taxed at a rate of 25 per cent, as is Capital Gains Tax, although interest payments are deductible from the total gain.
There is also a transfer tax that has to be paid upon the sale of a property, which amounts to ten per cent of the total profit made from the sale.
Visas and residency
All visitors from overseas to Vietnam need to have a visa, and unlike many other neighbouring countries, it is now the norm for visas to allow entry from any point outside the country, instead of having to specify the border crossing in advance. There are also multiple entry visas available for a higher fee.
Applying for residency in Vietnam is long and drawn-out process, and not one which is particularly easy to navigate. Anyone wishing to remain in the country for more than the usual 3 months of the tourist visa duration is considered as a resident for the purposes of taxation, and will pay income tax on their worldwide income (there is no double taxation agreement in place with the UK). Taking up residency also allows buyers to purchase a 50-year lease on their own dwelling.
Property in Vietnam: Investment potential
Vietnam has developed its economy hugely in the past few years and as a result, current levels of inflation are high. Any country in the world would have an issue with 25 per cent inflation, but the government is taking the right steps to combat this in raising interest rates. However, as an emerging market, there are bound to be some bumpier periods in the economic development. The current expert predictions for the economy in Vietnam are for a brief period of consolidation preceding further, steadier growth in the future.
Vietnam has many of the attributes to make it an interesting investment opportunity. The cities are investing heavily in improved infrastructure, with bridges, tunnels, metro systems and improved airport access; the opening of many markets to foreign investment has led to huge interest in the retail, banking, leisure, hotel and real estate industries; and the changes in employment legislation mean that multinational companies can employ as many expat workers as they need to.
The cities are not just attracting business interest. Young Vietnamese people are attracted by the higher wages and career opportunities, and with some 65 per cent of the country’s population under the age of 35 there is huge scope and earning potential in the population. The lack of new condo units coming on to the market in the next few years is going to lead to high rental yields and high demand for leaseholds in coming years.
Away from the cities, golf in Vietnam is currently attracting as much tourist attention as the beaches. Hotel resorts are now combining the beach, golf and spa facilities they can offer. Since the successful first experiment in this field in the country, many more of these combined resorts have opened.
Healthcare
While there are a number of fine and well-respected medical institutions in Vietnam, primarily in Hanoi and Ho Chi Minh City, healthcare is one of the areas in which Vietnam lags behind the rest of the modern world. This is doubtless going to improve as economic development continues, but for the time being, visitors and residents are advised to have some kind of private health cover organised. This does not have to be an expensive solution, and many health insurers offer packages that will cover you anywhere in the world.
That said, the general standard of care in Vietnam’s hospitals and clinics is high, even if it is not available to the whole population. Unless major treatment is required, sticking with healthcare professionals in the major cities is fine.
Transport
Roads are still developing in Vietnam, and in cities the traffic congestion can sometimes be unbearable. As yet, there has been little effort to separate out road users into more appropriate groups and segregations. The concept of expressways or motorways is yet to make much impact. Many of the problems come from the fact that roads are funded and managed on different levels – national roads are run by the government, regional roads by the individual provinces and local roads are paid for by the individual towns and communes.
The main rail line is a single line north-south route along the length of the country, though only the brave tackle the 30-40 hour journey from Hanoi to Ho Chi Minh City. Like the road system, rail is an area that will require some huge funding and organizational changes in order to bring it up to the standards required by a modern economy.
And finally...
Vietnam is one of the more challenging of the emerging property markets in the world – there are no astronomical price rises going on at the moment, and the economy is in a phase of reassessment with inflation and interest rate pressures. At the same time, there is a huge amount of potential in the country. The population is young and keen to work, foreign investment is being welcomed and beginning to have a real impact, and there will be a shortage of properties both for rental and to buy in years to come.
The market is also not open to everyone, so if you are in one of the groups of people who qualify to buy property in Vietnam when the law changes on 1st January 2009, you could be in a strong position to take advantage of the market and economic development.
source from : www.buyassociation.co.uk
