Vietnam quickly becoming Asia’s latest property hotspot

Vietnam is fast becoming the region’s hottest property market for Hong Kong and mainland Chinese investors, as prices at home continue to go through the roof.

Alex Shen, a Hong Kong-based finance industry worker, agreed to buy a luxury three-bedroom apartment in a new district in Ho Chi Minh City last month for HK$3 million (US$385,000), and hopes to see his new asset appreciate quickly in value.

He has paid an initial deposit of HK$30,000, and will fly to Vietnam shortly to visit the project for the first time, and decide then if he plans to pay the rest.

“Home prices in Vietnam are still very cheap compared with Hong Kong or mainland China,” said Shen. “And with the local government keen on attracting buyers, through various stimulus measures, this looks like a big chance to win.”

Shen already owns a flat in Hong Kong but says the prices there are now too high, pushing he and many of his friends to look overseas.

A member of Asean, Vietnam only opened up its property market to foreign investors in 2015, later than Thailand and Malaysia. Developers are allowed to sell 30 per cent of units in each building to foreigners. Encouraged by fast economic growth, supportive government policies and low entry costs, home prices in the country’s two largest cities, Ho Chi Minh City and Hanoi, have already seen considerable growth in recent years.

A series of major infrastructure improvements are also under way.

The first line of Ho Chi Minh City’s metro is scheduled for completion by 2020, while Hanoi’s first of six metro lines is scheduled for completion in 2018.

The Ho Chi Minh City Real Estate Association estimates 700 foreigners bought property in the city from July 2015 to the end of the first quarter of last year, and the market has heated up considerably.

More than 300 potential individual investors attended a two-day Vietnam Property investment seminar in Hong Kong late last month.

Kingston Lai, the founder and chief executive of Asia Bankers Club, one of the organisers, said smart money poured into Vietnam last year, but more ordinary investors were now setting their sights on the fast-developing Southeast Asian economy this year.

“It’s like where China was 10 years ago,” he said, describing the country as the world’s next factory, a title enjoyed by China for decades, making Vietnam a strong investment destination.

One of the most impressive industrial expansions in Hanoi recently was by Samsung, which already employs 45,000 workers there, Lai said, adding to the growing number of Korean expatriates living in city.

Even in central Ho Chi Minh City, top-end properties are priced US$3,000 to US$5,000 per square metre, well below Bangkok where equivalent properties can cost up to US$7,000 to US$9,000 per square metre, and 5 per cent the price of Hong Kong.

Annual rental yield for some high-end apartments in major cities at currently at 7 to 8 per cent, which is 1.5 to 2.5 per cent higher than those in Hong Kong, Bangkok and Singapore, according to Vina Capital.

But prices are picking up quickly.

In Ho Chi Minh City, new apartment prices grew 6.9 per cent in the first quarter of 2017, and 7.3 per cent in Hanoi, Jones Lang LaSalle data shows.

It now forecasts 8 to 10 per cent annual growth in residential values in the country’s major cities this year.

“On the back of its economic improvement and with a GDP target of 6.7 per cent in 2017, market sentiment is very positive,” said Stephen Wyatt, the country head of JLL Vietnam.

“Foreign buyers typically like the new urban districts such as Ho Chi Minh City’s district 2 and district 7,” he said. “And many investors from mainland China are hoping to see these cities replicate the same growth as Beijing and Shanghai.”

There is also a trend to buy second homes in coastal areas such as Danang, he added.

Still, analysts said investors needed to be fully aware of the risks and perform complete due diligence before entering an emerging market.

All land in Vietnam is collectively owned and managed by the state. Lease periods for homes built on the land allowed for foreigners is just 50 years. And the Vietnamese dong has also depreciated 4 per cent in the past two years.

“The property market cycle is slightly shorter in Vietnam now, as there is a lot of new supply coming,” Wyatt said.