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Last Updated: May 18, 2014




However after several years of falling house prices, Vietnam’s housing market seems to be gradually improving. House price declines significantly decelerated in Q1 2014. Residential construction activity is recovering. Demand is picking up.

However Vietnam's situation is fragile.  The economy is slowing, and its banks are riddled with bad debt.  Foreign investors were worried even before the recent riots. Foreign direct investment (FDI) fell 22% y-o-y to January 2014, to US$397 million.

To aggravate the situation, the recent anti-Chinese riots further threaten foreign investment. The violent protests, which initially targeted Chinese factories, then spilled over to facilities of other global manufacturers. More than 400 factories were reportedly damaged and there were about 21 people killed in the riots.

Nevertheless, after 4 years of house price falls, there have been signs that the downward trend may be stabilising, especially in Ho Chi Minh City.  During the year to end-Q1 2014:
  • In Hanoi residential property prices fell by 7.7% (-7.91% inflation-adjusted), the tenth consecutive quarter of annual price falls, based on latest figures released by Savills Vietnam.
  • In Ho Chi Minh City, the country’s largest city, residential property prices dropped only 0.11% (-0.38% inflation-adjusted), the 16th quarter of annual price declines.

Clearly, recovery has not yet arrived.  Signs of an economic slowdown emerged in 2013 when GDP growth fell to 5.4%, down 6.7% between 2000 and 2012, according to the International Monetary Fund (IMF).   During the first quarter of 2014, the country’s economic growth again slowed to 4.96% y-o-y, according to the General Statistics Office (GSO).

Vietnam has the highest bad debt burden among Southeast Asia’s bigger economies.   Much money lent during the credit boom (2009-2010) went bad, much owed by big state enterprises.  Moody’s Investors Service estimates bad debts at about 15% of total loans. However, this is disputed by the State Bank of Vietnam, the country’s central bank, claiming that bad debt accounts for just 9% of total loans.

The good news is that the government is actively bolstering demand:
  • The State Bank of Vietnam (SBV) discount rate was cut to 4.5% from 5%, the refinancing rate to 6.5% from 7%, and the repurchase rate to 5% from 5.5%.
  • The Ho Chi Minh City government has proposed opening the property market to overseas Vietnamese.
  • An exemption of about 10% of the value added tax (VAT) for home buyers is being proposed by the Housing and Real Estate Market Department.
  • Homebuyers were given a  VND5 trillion (US$240 million) credit package by the Vietnam Bank for Industry and Trade (Vietinbank).
  • Effective January 5, 2014, Decree 11/2013/ND-CP and Joint Circular No.20/2013/TTLT-BXD-BNV allows property investors to sell land plots with fully completed infrastructure and without a raw building.

Residential construction has been gradually improving. In Ho Chi Minh City, there were about 15,500 apartment units in the primary market in Q1 2014, up 1.5% q-o-q, but down by 1.8% from a year earlier, according to Savills. In the first quarter of 2014, the total number of newly launched apartments in HCMC was about 2,800 units, the highest level since Q2 2011. On the other hand, in Hanoi, the total number of newly launched apartments increased 5% q-o-q in Q1 2014, putting the total supply of apartments to 95,400 units.

In Ho Chi Minh City, the total number of apartments sold fell by 4% q-o-q to 1,600 units in the first quarter of 2014, but was significantly up by 39% from a year earlier. Grade C projects accounted for about 70% of the volume of transactions. On the other hand, apartment sales in Hanoi dropped by 6% q-o-q over the same period.

In Hanoi, the average apartment price in the primary market stood at about VND24.5 million (US$1,174) per square metres (sq. m.) in Q1 2014, according to Savills. Cau Giay had the highest average asking price for both villas and townhouses at about VND133 million (US$6,373) per sq. m., followed by Tu Liem and Tay Ho with asking prices between VND 91 million (US$4,361) and VND 104 million (US$4,983) per sq. m.

Vietnam house prices“In an attempt to promote sales, developers are now applying unprecedented payment terms," ,” according to CBRE Vietnam. "For instance, buyers in the first phase of Gamuda Gardens (part of Gamuda City) can now move in upon the first 20% payment; the remaining 80% can be made over four years at 0% interest. In the context of abundant supply and increasing competition from mid-to-low-priced condominiums, such flexible payment terms is one of smarter ways that developers can use to stimulate sales."

So while a turnaround is unlikely in 2014, house price falls are projected to continue to decelerate, according to local real estate experts.

Analysis of Vietnam Residential Property Market »


RENTAL YIELDS
Last Updated: Apr 25, 2014



We find it extremely difficult to get buying data in Vietnam rich enough for a representative sample of buying prices. Due to restrictions on non-resident foreigners buying property in Vietnam, ‘for-sale’ properties tend to be infrequently posted on English-language property sites (for consistency of data quality, our property data comes from English-language property portals, as switching between English and local-language property sites produces an uneven sample quality).

Gross rental yields figures for apartments in Hanoi and Ho Chi Minh are therefore unavailable, due to insufficient data.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Jan 06, 2014



Rental Income: Nonresidents are liable to pay tax on their Vietnamese-sourced income at a flat rate of 20%.

Capital Gains: Income from transfer of real estate is taxed at a flat rate of 25%. Taxable capital gains are computed by deducting the acquisition costs and incidental expenses from the gross sales proceeds.

Inheritance: Inheritance exceeding VND10 million (US$475) is taxed at a flat rate of 10%.

Residents: Residents pay tax on their worldwide income at progressive rates, from 5% to 35%.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Jan 07, 2014



Buying property is technically a transfer of leasing rights on the land. The total roundtrip cost of buying a real property is around 5.57% of the property value.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Jun 28, 2006



Vietnamese rental practice is strongly pro-landlord.

Rent: The rent can be freely negotiated by both parties. It is usually fixed for the duration of the lease term, typically 1 to 2 years. Rents are paid well in advance and interest is charged on late payments.

Tenant Security: If payment is delayed by 15 days, the landlord has the right to terminate the tenancy agreement by sending a 3-day written notice to the tenant. The landlord is entitled not to return the security deposit and to charge the tenant one month's rent penalty.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: May 18, 2014


Vietnam: economy slows amidst record bad debt

vietnam GDP inflation economic performanceVietnam (pop. 89.7 million) is one of south-east Asia’s fastest growing economies. The country’s average economic growth was 6.7% from 2000 to 2012, according to the International Monetary Fund (IMF). In 2013, GDP growth slightly slowed to 5.4%.  During the first quarter of 2014, the country’s economic growth slowed to 4.96% y-o-y according to the General Statistics Office (GSO).

While the economy has been growing, consumer prices have been a problem in recent years. Inflation stood at an average of 11% from 2004 to 2012, with inflation spiking in 2008 and 2011 at 23.1% and 18.7%, respectively.

To combat inflation, the government imposed price controls on key commodities such as electricity, coal, cement, fertilizer and other goods - to no avail. In addition, the State Bank of Vietnam (SBV), the country’s central bank, repeatedly hiked interest rates. In 2013, consumer prices rose by just 6.6% from a year earlier, the lowest increase in the last 10 years.  In February 2014, inflation fell to 4.65%, the lowest rate since November 2009.

Prime Minister Nguyen Tan Dung, who has been in power since 2006, has relied on state-owned companies to spark economic growth. State-owned Vinashin, originally a shipbuilder, expanded to a wide array of industries including tourism and animal feeds. However, it almost collapsed in 2012, with its total debt reaching US$4.5 billion, roughly 4.5% of Vietnam’s GDP. The government first said that it would not bail out the company - then provided zero-interest loans to pay employees' salaries.

Much of the money lent during the credit boom (2009-2010) is now considered bad debt, much owed by the huge state enterprises. Vietnam has the highest debt levels among Southeast Asia’s bigger economies.   In the first quarter of 2014, the amount of non-performing loans held by Vietinbank, the country’s largest commercial bank, skyrocketed by 67% to reach VND6.3 trillion (US$300 million) from the end of 2013.

The State Bank of Vietnam, the country’s central bank is now stepping up efforts to resolve soured loans and create favourable environment for foreign investors as it draws up regulation to auction bad-debt assets of lenders.

“The economy is still very sluggish and facing challenges including weak domestic demand and slow bank lending,” said Nguyen Tri Hieu of Ocean Commercial Joint-Stock Bank. “It’s hard for banks to accelerate credit growth now due to the burden of bad debt,” he added.

The central bank recently cut its discount rate to 4.5% from 5%, the refinancing rate to 6.5% from 7%, and the repurchase rate to 5% from 5.5%.

“The government and the central bank encourage and want to create favourable conditions for foreign investors to participate in the sale and purchase of bad debt,” said central bank governor Nguyen Van Binh.







  • Pro-landlord rental market
  • Low transaction costs
  • Record of high GDP growth
  • Inflation very high
  • No official land ownership
  • Non-resident foreign owners cannot sublet
RESIDENTIAL PROPERTY FACTS
Price (sq.m): n.a. For a 120 sq. m. property, usually an apartment.
Rental Yield: n.a. For a 120 sq. m. property, usually an apartment.
Rent/month: $1,286 For a 120 sq. m. property.
Income Tax: 20.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 5.57% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 25.00% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Strongly Pro-Landlord Rating is based on a detailed study of each country’s law and practice.

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