Southeast Asia’s Rising Star

Vietnam fast-growing property market looks poised to become the next hotspot for investors.
Looking at the half-finished skeletons of Landmark 81 and Empire City Tower in Ho Chi Minh City, which will be the world’s two tallest skyscrapers upon completion, it’s hard to believe that just four years ago, Vietnam’s property bubble had burst and the market was at its lowest. Even just two years ago, in 2013, the nation was in the throes of the downturn, with the value of unsold inventory at USD 6 billion. But the country has managed to bounce back from the crisis in record time; it has been said that Vietnam’s property cycles seem shorter than the norm at approximately five years compared to the UK’s 10 and Australia’s seven. Today, property transactions in Vietnam have doubled, and the value of unsold inventory, halved.
The crisis that just passed was partly fuelled by the large number of real estate buyers and developers who had defaulted on their loans, leaving banks crippled by massive debts and in turn, unable to provide credit to businesses. In a joint effort to turn things around, the state asset management firm bought USD 8 billion dollars’ worth of non-performing loans, most of which was related to real estate, while the government injected USD 1.4 billion into the industry and placed more stringent financial checks on developers. Real estate firms are now required to prove that they have just under USD 1 million in capital and to deposit with the state 1 to 3% the value of new projects. Today’s better-performing market is a sign that these measures are finally taking effect.
Propelling the recovery is an overwhelming level of interest from foreign investors in Vietnamese properties. Since the government relaxed restrictions on foreign firms, foreign buyers and Viet Kieu (Vietnamese citizens who now live overseas after their families fled the country during the Communist occupation in 1975) in July this year, several developers have launched properties targeted at these buyers. With this relaxation in restrictions, 30% of any development may be sold, on a 50-year lease, to foreign investors holding valid residency visas when previously, only those with a Vietnamese spouse or were deemed by the government to be contributing to national development could qualify for property ownership. Real estate now takes up 13% of foreign direct investments.
With an economy that grew at 6.28% during the first half of this year, Vietnam has one of Asia’s fastest expanding middle class. The country is also many MNCs’ location of choice for their Asian divisions – global companies that have set up shop there include Intel and Samsung – and is host to some 30,000 expat workers. All these factors, on top of the 4.2 million overseas Vietnamese who may potentially want to own properties in their home country, spell big money and big potential for the realtors.
During the first half of this year, the number of units launched in Ho Chi Minh City was a 174% increase compared to the same period last year. In capital city Hanoi, it was 91% up and industry insiders are expecting 19,000 units to be online by the end of this year with 60% of these located in the west and south west regions of the city. Part of this supply comes from five large condominium projects launched in the capital in the second quarter of this year – Hoa Binh Green City, Trang An Complex, Imperia Garden, The Manor Central Park, and FLC Garden City. In total, these developments supplied 3000 new units to the market, up by 3% compared to the preceding quarter. As the market grows, mid to low-end developments will continue to dominate, constituting up to 60% of total supply. Luxury properties are likely to remain mostly confined to the CBD.
The average per-square-metre price for high-end apartments in Hanoi is now USD 1600, compared to $1450 in 2014. The current price is comparable to pre-crisis figures. Perhaps most appealing investors would be the fact that Vietnamese properties tend to give a yield on rent of 6 to 7%, which is higher than properties in the neighbouring countries. And although the country’s market was valued at just USD 21 billion in 2014, a figure significantly lower than that of Thailand’s at USD 89 billion and Singapore’s at USD 241 billion, it only goes shows that Vietnam has much potential for growth.