low supply pushes property prices up
Lalaine C. Delmendo | January 20, 2022
“It broke the record for the lowest supply level since 2014,” said JLL Vietnam. “A series of new launching events were delayed due to social distancing regulations throughout Q3 2021. Developers strongly applied digital technology to reach out to customers in the state of lockdown.”
Yet demand is also weak. In Hanoi, apartment sales, as well as sales for villas and townhouses fell by 54% y-o-y in Q3 2021, based on figures from Savills. In HCMC, apartment sales plunged 94% in Q3 2021 from a year earlier, while villas and townhouses sales dropped 79%.
These contrary forces are, for the moment, pushing the market up:
In Ho Chi Minh City, apartment prices rose by 10.9% in Q3 2021 from a year earlier (8.2% inflation-adjusted), to an average of US$2,683 per square metre (sq. m.), according to JLL Vietnam. Quarter-on-quarter, apartment prices in the city increased 4.4% in Q3 (3.7% inflation-adjusted).
In Hanoi, property prices have been continuously rising, too. The average price of apartments in the capital rose by 9.3% y-o-y (6.6% inflation-adjusted) to US$1,650 per sq. m. in Q3 2021. On a quarterly basis, prices increased 5.8% during the latest quarter (5% inflation-adjusted).
The outlook for the property market remains bleak. “It remains uncertain with borders blocked, flights disrupted and immigration limited,” said Savills. “Full recovery might be expected from 2023 onwards, aligning with global vaccination progress.”
The IMF forecasts that Vietnam's economy will grow by a modest 3.8% this year, sharply down from its annual average growth of 6.5% in the past two decades. In Q3 2021, the Vietnamese economy contracted by 6.17% from a year earlier, in contrast to y-o-y growth of 6.57% in Q2 and 4.65% in Q1, amidst stricter measures due to the resurgence of infections, according to the General Statistics Office.
“The COVID-19 pandemic has seriously affected all aspects of the economy with many key production cities and provinces having to impose strict lockdowns,” said the GSO.
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.
Vietnam’s economy is now strugglingThe IMF forecasts that Vietnam’s economy will grow by a modest 3.8% this year, sharply down from its annual average growth of 6.5% in the past two decades.
Tourism is struggling. During 2020, there were 3.8 million international visitors, down 79% from the previous year’s 18 million visitors, according to the country’s GSO. Tourist arrivals grew by an annual average of 23% during 2016-19.
In Q3 2021, the Vietnamese economy contracted by 6.17% from a year earlier, in contrast to y-o-y growth of 6.57% in Q2 and 4.65% in Q1, amidst the recent reimposition of stricter measures due to the resurgence of infections, according to the General Statistics Office. It was the sharpest decline ever recorded.
- Services sector declined 9.28% in Q3 2021 from a year earlier
- Industrial and construction sector fell by 5.02% y-o-y in Q3 2021
- Agriculture sector expanded slightly by 1.04%
During 2020, the economy had managed to post decent growth of 2.91% in 2020 from a year earlier, and coming after 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
- 2011-2020 – average real GDP growth rate of 6.2% annually
The country’s unemployment stood at 3.72% in Q3 2021, up from 2.62% in the previous quarter and 2.5% a year earlier, according to GSO - the highest level in two decades. From 6.42% in 2000, Vietnam’s unemployment rate has continuously declined to reach 2.21% in 2019, according to the IMF, but increased slightly to 3.3% last year due to the pandemic.
Annual inflation slowed to 1.77% in October 2021, far below the government’s target of around 4%.
Vietnam, U.S. reached accord over alleged currency manipulation
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%.
In 2019, the US indicated that Vietnam was under scrutiny for possibly manipulating its currency. Then 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.” In December 2020, the Treasury officially labeled Vietnam a currency manipulator, claiming that it “conducted large-scale and protracted intervention, much more than in previous periods, to prevent appreciation of the dong”.
Finally in July 2021, Vietnam reached an agreement with the U.S., pledging “to avoid manipulating its exchange rate in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage and will refrain from any competitive devaluation of the Vietnamese dong.”