Vietnam's property market remains resilient
Lalaine C. Delmendo | September 29, 2020
In Ho Chi Minh City, apartment prices surged 27.5% in Q2 2020 from a year earlier (23.6% inflation-adjusted), to an average of US$2,582 per square metre (sq. m.), according to JLL Vietnam. Quarter-on-quarter, apartment prices in the city increased 5.3% in Q2 (6.3% inflation-adjusted).
The price increases “showed that developers' [were able to] insist on their prices, given the scarcity of supply and the healthy demand from owner-occupiers,” said JLL. The entrance of Phase 1 Galleria of Metropoles Thu Thiem, a luxury project in District 2, and the price increase in some projects such as One Verandah, and Giai Viet Central Premium have together raised the average market price in HCMC, added JLL.
Likewise in Hanoi, property prices have been continuously rising, albeit at a slower pace. The average price of apartments in the capital rose by 4.9% y-o-y (1.7% inflation-adjusted) to US$1,493 per sq. m. in Q2 2020. On a quarterly basis, prices increased 1.3% during the latest quarter (2.2% inflation-adjusted).
Vietnam is now widely seen as the next luxury property market hotspot, with a booming economy, coupled with laws that recently have made it easier for foreigners to purchase property. As a result, wealthy international investors have been flocking into the country in recent years.
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.
The Vietnamese economy grew by a meagre 0.36% in Q2 2020 from a year earlier, a sharp deceleration from the prior year's 6.73% growth, as economic activity has been hampered by the coronavirus outbreak, according to the country's statistics department. It was the slowest y-o-y expansion since the series began in 2000. Recently, the IMF has forecast that Vietnam's economic growth will slow to 2.7% this year, down from 2019's robust growth of 7%. However, Prime Minister Nguyen XuanPhucis still targeting growth above 5% this year.
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.
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.
Economic growth slows amidst the pandemicIn 2019, the Vietnamese economy expanded by a robust 7% from a year earlier, at par from the previous year’s growth. However in Q2 2020, the economy grew by a meagre 0.36% compared to the same quarter last year, a sharp deceleration.
The IMF forecasts that Vietnam’s economic growth will slow to 2.7% this year, but the Vietnamese economy is expected to bounce back quickly in 2021 with a 7% growth.
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
- 2011-2019 – average real GDP growth rate of 6.5% annually
Vietnam’s strong economic performance was partly due to the Vietnamese government’s long-running privatization drive and continuous efforts to ease business regulations.
The tourism industry registered a record of 18 million international visitors last year, up by 16.2% from a year earlier, according to the country’s General Statistics Office (GSO). However during the first half of 2020, international tourist arrivals to Vietnam plunged 55.8% to about 3.74 million people, mainly due to the government’s imposition of COVID-19 related travel restriction measures.
The country’s unemployment stood at 2.73% in Q2 2020, up from 2.16% a year earlier and the highest level in almost a decade. From 6.42% in 2000, Vietnam’s unemployment rate has continuously declined to reach 2.21% in 2019, according to the IMF.
Consumer prices in the first eight months of 2020 increased 3.96% year-on-year, still under the government’s target of around 4%.
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.
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%. Since the implementation of the central bank’s decision, the dong has lost about 3.5% of its value against the US dollar, reaching an exchange rate of VND 23,200 = USD 1 by the end of August 2020.
Last year the US indicated that Vietnam is under scrutiny for possibly manipulating its currency. Finally in August 2020 the US Treasury confirmed that the dong was undervalued by about 4.7% against the dollar in 2019 due in part to “government action on the exchange rate.” According to the Treasury, Vietnam made US$22 billion state foreign exchange purchases last year, including through the central bank, which pushed down the country’s real effective exchange rate by 3.5% to 4.8%.