A tale of two cities
After a lengthy period in the doldrums, the residential property market in Vietnam is gradually picking up, boosted by new government regulations and a slew of developments in key cities and premier tourist resorts.
The capital Hanoi and the southern commercial entrepot of Ho Chi Minh City are the primary focus for new apartments and condominiums, but there is also a healthy amount of smart property rising along the coast and in the interior.
Foreign investors continue to be barred from owning buildings or land outright but, since January, new regulations have permitted them to take out a 50-year lease on property, which may be extended for 70 years. Only one apartment may be owned at a time and buyers must prove that they have stayed in Vietnam for at least 12 months or intend to do so.
Certain other slightly esoteric categories of overseas investor are also permitted to buy in Vietnam: individuals who invest directly in the country or who are hired for managerial positions by local or foreign-invested companies; foreigners who receive certificates of merit or medals from the president or government for their contribution to Vietnam; foreigners who work in socio-economic fields, hold a bachelor's degree or higher and who possess special knowledge and skills that Vietnam needs; and foreigners married to Vietnamese residents.
'Although the new government regulations are a step forward to giving equal rights to foreigners, concerning apartment ownership, they still fall short of giving rights equal to those that Vietnamese citizens enjoy,' says James Graham, associate director for marketing and business development for Colliers International.
'So far this year, very few foreigners have purchased an apartment under their name. It is possible that this is the case simply because the resolution is so new and, therefore, many potential buyers are unclear. It simply could be due to the fact the property is bought on a leasehold, not freehold, basis, or perhaps the demand from this segment of the population is not yet there. Only time will tell.
'The issuing of other property-related laws, such as Circular Number 14, by the Ministry of Construction in June 2008 - which graded apartments into categories A, B or C, based on a variety of attributes - is a clear sign that the real estate market in Vietnam is maturing, which will help protect buyers of property in Vietnam.'
Apart from negotiating a certain amount of red tape, routine caution and engaging a trustworthy lawyer are part of the step-by-step approach to investing in Vietnamese property, according to Barry Israel, who is overseeing a villa development in Dalat with his Vietnamese wife.
'Usually, a developer requires a nominal deposit on signing the contract to hold the property,' Mr Israel says.
'Within a time specified in the contract - often between 30 and 60 days - a 'first progress' payment is required, which can be anywhere from 10 to 30 per cent. Further progress payments are then required as construction moves forward. Traditionally, properties in Vietnam are sold before, or very early in, the construction stage. The government requires at least the foundations to be in place before selling can begin. Progress payments usually coincide with construction stages, such as walls going up, the roof being put on, and so forth, while the final payment will fall due at the handover.'
Unlike in some other Asian countries, there are few hidden costs. Vietnam imposes 10 per cent VAT, so buyers need to be aware that the price being quoted will be increased by this amount. Most projects also carry a 'condominium' fee to cover common area costs. Both VAT and the fees should be covered in the contract and investors need to make sure the contract addresses these issues clearly.
Mr Israel adds: 'To me right now, a major issue in investing in property in Vietnam is to ensure that the developer is sound financially and will maintain the property. Most developments now seem to be high-rise apartment projects selling for between US$2,000 and US$4,000 per square metre. A buyer will want to make sure that over the long term such a property will be maintained.
'As for getting a visa, it's fairly straightforward. Most foreign buyers are those already living here with investment visas. But for those who want a second home or a retirement home, the projects are being structured so that a buyer will qualify for a visa as a project investor.'
In general, the prospects for property investment look good in Vietnam. In Hanoi, some 400 off-plan apartments in Keangnam Tower were sold shortly after construction crews broke ground. Lots in the Van Phu urban area and five-star apartment projects in Hanoi's up-and-coming Ha Dong city have also lured scores of investors, and prices have gone up by as much as 20 per cent since Lunar New Year.
In Ho Chi Minh City, apartments near the city centre are now selling for 20 million dong (HK$8,870) per square metre.
Another positive factor is that the prices of construction materials, such as steel, cement and brick, have been steadily declining.
Given the low interest rates at domestic banks, plus healthy investment opportunities in other sectors, real estate in Vietnam should be an attractive investment-grade asset and a safe saving vehicle for individuals in the coming months.