PropertyWire: Vietnam faces office property crisis

VietNamNet Bridge – Vietnam is facing office property crisis as supply outstrips demand, said PropertyWire of the UK on April 13.

According to the global property news service provider, office rents in Ho Chi Minh City have plunged by up to 50 percent and the trend is expected to continue.

PropertyWire also cited various international analysts as saying that this trend is attributed to belt tightening due to the global economic downturn.

Global real estate companies Cushman & Wakefield, Savills and CB Richard Ellis said top quality office space rents have fallen to 43 USD per square metre this year from a peak of 70 USD per square metre at the beginning of 2008; second-class space rents down from about 45 USD per square metre to between 28 USD-40 USD and third-class office space from 39 USD to between 14 USD-25 USD.

PropertyWire quoted CB Richard Ellis managing director Marc Townsend as saying that office demand is closely linked with employment and financial stability and firms were tightening their belts, cutting jobs and also cutting costs on office rents.

The deteriorating situation is compounded by an increase in vacancies and 1.25 million square metre of new office space predicted to come into the market this year, adding to the downward pressure on rents, according to CB Richard Ellis.


Vietnam to permit (some) foreigners to own property

25 May 2008

Martha Ann Overland writes from Hanoi:

Vietnam’s National Assembly has voted to allow foreigners to buy property but when it goes into effect next year there will be limits on who is affected and what they can buy.

The resolution passed May 22 limits ownership to foreigners who meet specific residence and professional criteria, according to the official Vietnam News Agency. And eligible buyers will be allowed to purchase only apartments, not houses or land.

Under the new rules, individuals who qualify include expatriates investing in the country, foreigners married to Vietnamese and those with university degrees working in specialized fields. A category was created for those who have been decorated by the president of Vietnam and named an honorary citizen.

When the law goes into effect, foreigners will be restricted to apartments in approved housing developments and after 50 years, apartments must be sold or given away. The properties must be occupied by the owners and cannot be used as investments.

While foreigners might find the restrictions less than attractive, the government hopes that it will signal that Vietnam is open for business. “This law, once it takes effect on Jan. 1, 2009, will further promote the development of the real estate market for foreigners in Vietnam,” said Ngo Duc Manh, vice chairman of the National Assembly’s External Committee. “It is a positive signal for foreigners working and living in Vietnam.”

According to the Ministry of Construction, 80,000 foreigners now live and work in Vietnam; about 20,000 of them would be eligible to buy under the new rules. Currently most expatriates prefer to live in villas and detached houses.

Despite the limitations, the change was welcomed by real estate developers who hope additional buyers will help buoy sales. Although apartment prices in urban areas had been rising, the market has softened in the past few months, with prices dropping 20 to 40 percent from their all-time highs.

International Herald Tribune – Vietnam to permit some foreigners to own property

Vietnam to allow foreigners to buy property

Hanoi – Vietnam has passed a law allowing certain categories of foreigners to buy apartments beginning in 2009, the first time the Communist country has allowed non-citizens to own real estate, the government website announced Friday.

The country’s National Assembly approved the new law Thursday, with 88 per cent of deputies voting for it.

Foreigners eligible under the law can only buy apartments in developments approved for foreign residency, not houses or land. Ownership will be for a term of 50 years, by which time the foreign owners must sell or transfer the property.

Real estate developers said the law was likely to give a much needed boost to Vietnam’s property markets, which have softened recently after explosive growth in 2007.

‘It could have a 20 to 30 per cent impact in terms of rising prices,’ said William Badger, a manager at Leonidas Management, a subsidiary of the Hong Kong-based real estate company Tung Shing Group. ‘You’re talking about people with money in hand, so we would imagine that a lot of people will want to buy.’

‘Similar laws have been passed in China, Thailand and Malaysia,’ said Misha Chellam, assistant to the chairman of Hanoi-based developer Vietnam Land. ‘Each time in those countries when a law like this was passed, it significantly boosted demand.’

Those eligible to buy apartments include foreign firms purchasing housing for staff, and four categories of individuals. These include foreigners working at Vietnamese firms, foreigners married to Vietnamese, foreigners with special skills needed by Vietnam’s economy, and foreigners who have been awarded medals or other honors by the government.

It was not immediately clear how much the new law would differ from current law allowing foreigners to obtain 50-year leases on property in Vietnam. Normally in Vietnam, new laws are followed by decrees and circulars clarifying how the law will be implemented, and developers expect that the move from lease to ownership will grant foreigners additional security.

World Bank urges Vietnam to cool property fervour

HANOI: Vietnam should cool its overheating economy, especially the hot property sector, by using more market mechanisms and keeping better track of capital flows to maintain economic stability, the World Bank said on Tuesday.

The Southeast Asian country’s emerging market economy is a favourite foreign investment destination, but it has been hit by double-digit inflation for five consecutive months and a tripling of its trade deficit. The Communist-run government was forced to shave its 2008 growth target by 1 percentage point to 7.5 percent amid the global slowdown On Tuesday, the World Bank forecast growth in the $70 billion economy at 7.5 percent to 8 percent.

“We do not anticipate a financial crisis in Vietnam or anything like that,” Martin Rama, the bank’s head economist in Hanoi said, as part of a World Bank report for East Asia and the Pacific. “Vietnam should have a well-prepared protocol in the event of a crisis on what to do, who can take capital out and in what circumstances,” Rama said.

World Bank economists, who met with the government in recent months as Hanoi weighed options to contain inflation, among the highest in Asia, suggested it announce features of a proposed property tax to help halt speculation on land.

“Property tax does not create major distortions and is progressive (recent fortunes have been made on land),” the report said.

A proposed law on property tax would come into effect in 2010 and a capital gains tax in 2009, government officials have said.

Prices for city luxury apartments tripled in 2007 and office rents in Ho Chi Minh City rose 40 percent, resembling prices of a developed economy, not Vietnam, which has an annual per capita of just $830.

Credit grew 50 percent, fueling prices, imports and the real estate bubble. Rama told reporters the current account of the balance of payments was an estimated deficit of 9.3 percent to 9.7 percent of the $70 billion GDP, but complete data was not available.

“Today the balance of payments account has $3 billion to $4 billion of errors and omissions,” Rama said. “Nobody can tell what kind of money is coming in.”

The government began gradual economic reforms in 1986, but a more market-oriented economy did not emerge until the last five years. A year ago, Vietnam joined the biggest free trade club, the World Trade Organisation. Vietnam’s growth reached 8.5 percent in 2007 and fears that WTO membership would adversely affect agriculture and retail trade did not materialise, the World Bank said. The dollarised economy is exposed to the US slowdown and had Vietnam chosen a trade basket of currencies for exchange rate policy in December 2006, the inflation rate would have been 4 points lower in 2007 than the 12 percent recorded, the bank said. reuters\story_2-4-2008_pg5_34

Vietnam Enters a New Era

Thanks to its spectacular coastline and rich culture, tourism to Vietnam is soaring—and so are the country’s property prices. But it’s still a difficult market for international property investors, according to James Gonzalez, market analyst for Obelisk, the property firm.

The Vietnamese government will have to remove hurdles to foreign ownership for the property market to truly take off, he says.

But there are clear signs of movement. In many areas prices have increased by more than 50 percent in the last year. And more than $5 billion flowed into property developments in 2007, primarily foreign investments into Ho Chi Minh City, where an apartment priced at $80,000 in 2006 might sell for $240,000 in 2007 (about €55,000 to €164,000), Gonzalez says.

New legislation may also open doors to international property buyers.

In an e-mail interview, Gonzalez discusses the quirks, challenges and opportunities in the Vietnam market.

Can foreigners buy property and build houses in Vietnam?

A foreigner cannot own land in Vietnam at all and can only ‘own’ property through funding a development.

Property agents have remarked that government plans to allow both Vietnamese living overseas and foreign investors to own freehold property has actually accelerated the Vietnamese rush to purchase property for future resale to the western world—thus affecting prices.

What is the market for second home and retiree buyers at this point?

Expatriate Vietnamese, retiring back to their country, will see many good changes to their country such as renewed infrastructure, resorts and luxury accommodation along with fewer restrictions on property and land ownership for them.

Unless a property buyer registers as a resident of Vietnam, they will not be able to purchase a property for personal use.

Legally, foreigners cannot buy buy-to-let properties in Vietnam. However, there are ways that foreigners can have ‘virtual ownership’ of properties, i.e. several contracts can state that if a change in law—to allow foreign ownership of properties—a ‘right to long-term lease’ contract could be converted to a ‘right of ownership’ contract (or title deed).

What do you mean “register as a Vietnam resident.”

A person of non-Vietnamese origin who relocates to Vietnam and obtains residency is able to purchase a property for personal use.

However, if the person leaves the country for reasons such as: returns to the country of his or her origin or relocates to another country and cancels his or her residency in Vietnam, the property must be sold within 90 days of his or her departure.

Any particular areas of the country attracting foreign investment?

Golfing is a big attraction for tourists visiting from neighboring countries.

Many tourists from Taiwan, Hong Kong and Malaysia for example holiday specifically for golf and spa leisure facilities and since the first golfing development, many new resorts have been springing up all over the coast from north to south.

In comparing Vietnam to other markets for investors and residential developers, what are the appealing factors?

If as a foreign investor, financing directly into a resort development, the opportunity presents a good solid long term income—in the form of continual rental yield—certainly as the country enjoys all year round average temperature of 22˚C.

Property investment funds are also developing rapidly as the big financial institutions pick up on the profitable market.

All sales in Vietnam are in cash?

This certainly is not the norm in overseas property investment but there have been many cases in Vietnam where the seller has been paid in gold!

When dealing with off-plan or pre off-plan, where the property is not complete for 1-3 years, the payments are generally very easy stage payments or deposit followed by full payment on completion, which in most cases can be covered by a local mortgage.

You mentioned in a press release that new laws were enacted in 2007 to curb soaring prices.

Policy makers and economists are now pushing for the new legislation in a bid to avoid a market bubble and sustain the country’s high growth rates, for years to come.

The draft proposal details measures to impose an annual tax on owners who have acquired more than one property, however, the law would not come into effect until 2010.

At present only transfer taxes are payable on the sale of a property, but most sales are paid in cash making it difficult for the government to gage volumes and collect on capital gains tax.

To sum up, how would you characterize the opportunity in Vietnam?

Now firmly out of its post-war status Vietnam has a booming travel market with the government encouraging foreign visitors, which has enabled Vietnam to gain a good investment market share in Asia.

Vietnam certainly offers a rare opportunity for visitors to see a country that blends both the traditional with the modern world.

Minor hurdles remain

Despite the laws and regulations passed recently to tackle problems in the Vietnamese residential market, some issues have yet to be sorted out.

Nguyen Van Hiep, deputy director of Department of Construction, said in Ho Chi Minh City that a broad map of the real-estate business in Vietnam was taking shape after property-related legal documents, instructions and guidelines had been laid down since last year.

In mid-2006, the government issued a housing law and announced a five-year plan for housing development starting from 2006-10 while the real-estate business law was passed in July this year.

Mr Hiep said the laws required that a low-rise housing project could launch a pre-sale only after the construction of the project’s infrastructure had been completed.

Similarly, a condominium developer cannot start sales activities until after the completion of the foundation.

But not all developers have complied with the new rules.

“Some projects launch pre-sales before they have progressed to the required stages of the construction,” he said.

“Some break the law by starting the construction earlier than they should have so they can sell the units sooner.”

Other problems include changes being made in the details of the plans without informing the authorities in advance or providing customers with substandard, even unlawful, warranties.

Some developers also do not use the materials they advertise. Others lack funds or fail to submit monthly progress reports as required.

But worst of all are attempts by real-estate brokers and speculators to distort the market by creating a virtual fever or false demand.

But Mr Hiep promised that the market would improve in the future, as more developers turned to the equity market for funds. More transparency can be expected and the interests of all stakeholders taken into consideration.

Along with better enforcement including fines for violations, the government is also being encouraged to set up a real-estate information centre and encourage property associations to help steer the market in the right direction.

Bumps on the road to prosperity

Vietnam faces surging demand for property but legal and financial shortcomings deter investors and consumers


The fast-growing economy of Vietnam has opened tremendous opportunities for real estate investment but there are some challenging factors that overseas investors need to consider before jumping on the bandwagon.

Mr Quang said that amid the property boom, some challenges awaited including legal matters, land title problems, speculation, planning and investment procedures.

He said the legal framework had some limitations such as the legacy of the Communist central-planning system, spontaneous and ad-hoc state intervention, dual ownership of land and housing units, and overlapping responsibilities for land use title supervision and planning.

“Access to land-use rights is complicated, such as long-term use and leases on land,” he said.

In Vietnam, people cannot own a land plot but the government can grant them land-use rights. Five types of rights are available: right to transfer, mortgage, inherit, rent and transform land.

Mr Quang said the land-title situation was especially chaotic in urban areas because of unclear administrative responsibilities. People also had limitations in terms of access to formal land and housing.

As well, land information and records are not adequate while land registration and formalisation procedures are complicated. The government’s planning system is also rigid and the cost of land transfers is quite high.

Another challenge involves differences in pricing that distort the property market. Land value is determined by administrative measures rather than based on the market while land allocation through bidding is limited.

“We lack a market-based and independent valuation organisation,” he said. “The booming real estate market has built a lot of real estate brokers but few of them are professional.”

Mr Quang said the planning system was inefficient and ineffective as there was a lack of priority-setting. Little co-ordination exists among mechanisms related to socioeconomic planning, spatial planning, land use and sector planning.

“The government should allow public consultation and participation in plan preparation and implementation,” he said.

Constraints exist as well on investment procedures and land allocation. They are unclear and complicated while some regulations overlap.

Project and programme assessment and monitoring also need more appropriate mechanisms.

Other challenges include weakness of business capacity and professionalism, limited capital investment, a lack of market research and strategies, constraints on mortgages and access to financial markets, limited savings mobilisation for the formal real estate market, widespread speculation, inefficient land use and corruption and mismanagement.