Six months after foreigners were first permitted to purchase homes in Vietnam, Simon Stanley looks at how the changes have been received. Photo by Vinh Dao.
At one minute past midnight on 1 July 2015, Haig Conolly, founder of Sydney-based marketing consultants Lloyds Property, and his wife Katrin signed a historic set of purchase papers and became the first foreigners to own a residential property in Vietnam. Purchased as a reinvestment, the couple chose a three-bed apartment in Binh Thanh District’s City Garden complex.
“The decision to buy here was an easy one,” explains Conolly. “The country is experiencing the early stages of a growth phase and the future for the property market in particular looks bright.”
Although the 2015 changes were welcomed by investors and developers alike, the doors weren’t exactly thrown back on their hinges. Rules on where foreigners can own property are the first distinction. “That’s been a big misperception in the market,” says Frederick Burke, partner at Saigon law firm Baker & McKenzie (Vietnam). “There are important limitations about the number of villas (in a ward) and the number of condos in a building that can be sold to foreigners.”
Currently, no more than 30 percent of the units in an apartment building can be offered to foreigners. For houses it varies ward by ward.
“(The policy makers) don’t want to have ghettos,” says Burke, “where it’s just Japanese people, for example, taking over an entire apartment complex with local people feeling frozen out.
“I think that the contrary consideration is that there is a lot of new supply coming onto the market, to the point where they actually need to stimulate demand somehow. A lot of developers are finding it hard to move all of the properties that are under construction. There’s one project alone in Ho Chi Minh City which has 10,000 units. It’s huge.”
Despite the limitations, and with District 1 largely out of bounds, Conolly easily found a suitable investment. “All of the property types I was looking at,” he says, “which were new, well located and high quality developments, had zoning that allowed me to purchase.”
Six months on, however, the 30 percent limit is proving to be too low in some cases, causing demand to overtake supply and units allocated to Vietnamese citizens to remain unsold. Neil MacGregor, managing director of real-estate firm Savills Vietnam, has been monitoring the process since the changes were first announced in 2014. “We’re now six months in,” he says, “and the reality is that some of the projects are reaching their limit. The question is whether the government will increase that to a higher level.”
Unlike Vietnamese citizens, foreigners are not yet permitted to own freehold titles. Instead, 50 year leases are being issued. “It’s pretty good,” says MacGregor, “and it’s renewable. From a regional perspective it compares very well.”
“(It) has all the appurtenances of ownership,” adds Burke, “insofar as you can sublease it, you can buy as many as you want, and you can put it in your will and leave it to your heirs.”
He admits that what will happen at the end of that initial 50 year period is not yet clear. “The message from the policy makers is that leases will be renewed if it’s a normal residential site, but if there is a plan for a certain area to be redeveloped, the government will try to let people know about that in advance. The master plans are there for people to check.”
Conolly hopes the renewal process will be clearly outlined in due course. “My primary rationale for buying in HCMC,” he says, “was the potential for growth, and, if the property is right, increasing rents and very low vacancy. The risks are essentially the same as in any investment market. There are (added) risks borne of uncertainty about property ownership laws and the fact that Vietnam is still a maturing economy, however there is a genuine sense here, and demonstrable activity, that points to ongoing growth and stability.”
“You can now buy a truly international-standard product,” says MacGregor, “with all of the facilities and property management that go with it, for a fraction of the price that you would spend elsewhere in the region.” MacGregor says Savills recently compared a development in Saigon with a similar complex in Singapore, adding “Singapore was 10 times the price per square metre.”
Unsurprisingly, buyers from the island city-state, and Hong Kong, have made up a significant proportion of Savills’s clients since the laws were relaxed, particularly within the holiday-home market. The company’s various beachfront projects, such as the stunning Mia Residences in Nha Trang, have quickly marked Vietnam out as a destination offering both world-class quality and luxury.
“I think a lot of foreigners are seriously considering buying here,” says MacGregor, “whether to live or to lease. The yields are very good – between six and eight percent depending on the project and the unit. That’s very attractive against regional standards. In Singapore and Hong Kong you’re getting between two and three percent if you’re lucky.”
The State Bank of Vietnam recently announced that property sales proceeds can be repatriated out of the country. Still, international banks based in Vietnam are unlikely to approve mortgage applications without title insurance.
Alternatively, local banks that offer such loans will require a work permit, proof of legal residency and an employment contract as proof of income. The reality, of course, is that these documents are often only valid for no more than a few years. Mortgages for foreigners are frequently being turned down as a result. “In the near-term at least, buyers are going to be cash-buyers,” says MacGregor. “So you have to be prepared to invest 100 percent of the purchase price at this point in time.”
For prospective landlords, Burke, who has worked extensively with Vietnamese legislators and law drafters, adds further words of advice. “There’s a tax on leasing that many don’t take into account,” he says. “It’s a 20 percent flat tax on leasehold income. Also, you’re still in Vietnam, where the landlord is responsible for registering tenants with the police, for example. So anybody who does want to buy property as an investment vehicle will have to take into account the fact that they will need a good manager to help with all of the local bureaucracy.”
Conolly did just that. “One of the benefits of City Garden is that it has world class management,” he says. As a result the whole process has been very easy – and profitable.”
For him, though, the legal barriers are still too high. “For the doors to be fully open to foreign investment,” he says, “foreigners will have to be able to buy property on the same terms as locals.”
To what extent the government allows this to happen remains to be seen – a lot has changed in the past six months already – but all indicators are pointing towards a bountiful future for those who have struck early.