Vietnam’s booming real estate market

This past year saw a mad explosion of property fever in Vietnam, pushed partly by laws passed last year liberalizing the entry of foreign developers, who can now compete on equal terms with Vietnamese. Then in April this year, after a stock market crash, followed by a tightening of bank credit for real estate transactions,.the number of successful transactions suddenly dropped by 30-40% compared to late 2007, with speculators trying to unload whatever they could.

Vietnam is witnessing the blossoming of Western-style suburbs and apartment blocks, driven by more than 8% annual economic growth and a stock market that has given investors ready cash to spend. At one point last year investors were queuing overnight to buy condominium units, with prices of good-quality projects hitting $3,500 per square metre - around the same price as an average grade-A condominium project in Bangkok. Prices doubled in 12 months, nearly tripled in some cases in 18 months.

No freehold

In theory, freehold land does not exist in Vietnam. Land can only be leased, even by Vietnamese; though in reality many leases seem to be for indefinite terms. “Buying” land is technically a transfer of leasing rights.

Till last year, foreigners investor were in a disadvantageous position. But under Decree 94 (May 2007) foreign investors can now lease land for 70 years, extendable without additional payment, i.e., a perpetual lease – which means that overseas developers are effectively treated the same as Vietnamese developers.

The creation of a perpetually renewable lease means that Vietnam now has one of the most open property markets in Asia. China only offers 70-year leases, not renewable, to foreign investors. Thailand offers foreigners 30-year leases, with the possibility of one or maybe two 30-year extensions at the owner's discretion.

The effect has been an explosion of foreign interest in investing in Vietnam. Developers from Hong Kong, Singapore, Korea, Japan and Thailand have rushed in to take advantage of the opportunities.

This is just one aspect of the surge of liberalization in the Vietnamese economy. On January 1, 2009, Vietnam will open its retail markets to international investors, in compliance with its WTO commitments.

A foreign investor may invest in Vietnamese real property by forming a joint venture company with a local partner, or a wholly foreign-owned company, or by forming a Build, Operate and Transfer (BOT) company or one of its variants.

Under a draft bill, individual foreigners also will soon be allowed to buy apartments. They will be able to buy one apartment only, which they can sell after a year.

Seven types of foreigners seem likely to be permitted to buy apartments:

• Chiefs of foreign representative agencies and international organisations in Vietnam; foreign investors;
• Foreigners who receive medals from the Vietnamese government;
• Cultural experts and scientists who are working in Vietnam;
• Foreigners who marry Vietnamese citizens and live in Vietnam;
• Foreigners who are recognised as honoured Vietnamese citizens by the Vietnamese President; and
• Foreign-owned companies that don’t operate in real estate.

Foreign individuals may not buy land or houses.