Vietnam's thriving property market
Lalaine C. Delmendo | June 20, 2019
As a result, there's been a surge of high-end real estate developments in recent years.
Local demand is also continuously rising. “We have more and more very rich Vietnamese, particularly entrepreneurs looking for places to put their money,” said Neil MacGregor of Savills Vietnam. The number of Vietnamese with net assets of US$30 million or more surged by 320% in the past decade, the fastest pace globally ahead of China and India.
“Most Asian businesses turn to real estate when they become successful in whatever core business they have,” said Andy Ho of VinaCapital Group Ltd. “When their country's wealth grows up, people buy real estate.”
Because of strong demand, residential property prices are rising strongly.
In Ho Chi Minh City, apartment prices surged 22.7% in Q1 2019 from a year earlier, to an average of US$2,028 per square metre (sq. m.), according to Jones Lang La Salle Vietnam. Likewise in Hanoi, the average price of apartments rose by 6.8% y-o-y to US$1,407 per sq. m. in Q1 2019.
Sales have been greatly assisted by the Housing Law and Law on Real Estate Business (effective July 1, 2015), by the law on Sell and Transfer of Real Properties (subsequently fleshed out by Decree No 99 (effective December 10, 2015) and by Circular 19 (effective August 2016). Moreover, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), officially came into force in January 14, 2019, is also expected to attract more foreign investors.
Vietnam's improving infrastructure is also a plus factor. “Vietnam focuses on investment in infrastructure including 2,000 km of new highways, subway systems in Hanoi and Ho Chi Minh City, and many airport expansion and construction projects,” said JLL.
In 2018, the Vietnamese economy grew by a robust 7.1%, after expansions of 6.8% in 2017 and 6.2% in 2016. Vietnam is expected to continue its stellar growth in the coming years, with projected annual GDP growth rate of 6.5% both this year and in 2020, according to the International Monetary Fund (IMF).
Foreigners are not allowed to own land. In fact, even citizens are not allowed to own land. In Vietnam, land is theoretically collectively owned by the people, but regulated by the State.
Foreign residents in Vietnam are permitted to purchase dwelling houses and can own the house but not the land on which it is built.
Outlook remains bullish
The outlook for the Vietnamese housing market remains bullish due to continued strong economic growth, rapid urbanization growth, and the construction of several mega projects in major cities.
“Overall, 2018 was a positive year for the real estate market, and we expect this performance to continue in 2019 in all segments,” said JLL.
“Vietnam's real estate race is becoming hotter than ever with the growing attention of many domestic and foreign investors, recording a record amount of investment in recent years,” JLL added.
The positive outlook is supported by Savills Vietnam. “There was increased interest from foreign purchasers in high-end projects, with the 30% foreign quota quickly filling up. This trend is expected to continue, with higher price points expected across all grades.”
Luxury condo prices are expected to rise to about 10% by early 2020 to US$6,000 per sq. m., based on CBRE forecasts.
Moderate to good rental yields in Hanoi and Ho Chi Minh city, Vietnam
Gross rental yields in Hanoi and Ho Chi Minh City - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - are quite attractive. We see that yields of roughly between 4% and 7% are available in Hanoi, depending on district. In HMC yields are slightly lower, at between 2.6% to 6.3%, again depending on district.
Round trip transaction costs are low in Vietnam. See our Property transaction costs analysis for Vietnam and Property transaction costs in Vietnam, compared to the rest of Asia.
Vietnam has a high flat rental income tax
Rental Income: Nonresidents are liable to pay tax on their Vietnamese-sourced income at a flat rate of 20%.
Capital Gains: Income earned by nonresidents from transfer of real estate is taxed at a flat rate of 0.10% on gross sale proceeds.
Inheritance: Inheritance exceeding VND10 million (US$439) is taxed at a flat rate of 10%.
Residents: Residents pay tax on their worldwide income at progressive rates, from 5% to 35%.
Buying costs are low in Vietnam
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.
Vietnam's strongly pro-landlord rental market
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.
Vietnamese economy to accelerate in 2018In 2018, the Vietnamese economy expanded by 7.1% from a year earlier – its fastest growth in 11 years. Then in Q1 2019, GDP grew by 6.79% y-o-y, slightly down from annual expansions of 7.31% in the previous quarter and 7.45% a year earlier, according to the country’s General Statistics Office (GSO).
Vietnam is expected to continue its stellar growth in the coming years, with projected annual GDP growth rate of 6.5% both this year and in 2020, according to the International Monetary Fund (IMF).
Vietnam has experienced almost four decades of uninterrupted growth.
- 1981-1990 - average real GDP growth of 5.9% per year
- 1991-2000 - average real GDP growth rate of 7.6% annually
- 2001-2010 - average real GDP growth rate of 6.8% annually
- 2011-2018 – average real GDP growth rate of 6.2% annually
The Vietnamese government continues to ease business regulations and is pursuing a long-running privatization drive, to boost growth further.
The tourism industry registered a record of 15.5 million international visitors and 80 million domestic tourists in 2018, according to JLL. The country aims to receive 20 million international visitors by 2020.
The country’s unemployment stood at 2.17% in Q1 2019, almost unchanged from the prior year’s 2.19%, based on figures from the GSO. From 6.42% in 2000, Vietnam’s unemployment rate has continuously declined to reach 2.21% in 2018, according to the IMF.
In May 2019, Vietnam’s annual inflation stood at 2.88%, far below the 3.9% inflation recorded during the same period last year, according to the GSO. Inflation is expected to average 3.5% this year, below the central bank’s target of 4%, according to the Asian Development Bank (ADB).
In January 2016, the central bank announced a move to a market-based exchange rate mechanism, setting daily reference exchange rates, to discourage hoarding of US dollars. The dong has been pegged to the US dollar for several decades, within a limited band of 1% to 2%. But because of sudden devaluations, many prefer to hold dollars.
However the new rate is not really "free". The central bank sets a reference rate daily, and local and foreign banks in Vietnam can trade within a band of plus or minus 3%. The rate depends on three factors: (i) the inter-bank rate, (ii) macroeconomic balances, (iii) currency movements in the country’s key trade and investment partner countries.
Over the past year, the dong lost about 1.5% of its value against the US dollar, reaching an average monthly exchange rate of VND 23,199 = USD 1 in April 2019.
In May 2019, the US indicated that Vietnam is under scrutiny for possibly manipulating its currency – artificially holding down the value of the dong.