Hanoi’s housing market is drawing a buzz, a decade after the bust

The Vietnamese capital Hanoi has emerged as a favoured destination for foreign investors looking to the property market, as prices remain among the best value in Indochina, even as a gradual recovery has been underway since a disastrous slump rocked the housing market in 2007.

Kingston Lai, founder and chief executive of Asia Banker’s Club said luxury flat prices in the city have been trending upwards since 2015 but have yet to catch-up other vibrant economic hubs in Southeast Asia.

Lai cited CBRE figures showing luxury flat prices in Hanoi were up 50 per cent in the 10 year period to 2016, while mid-market flats were up 80 per cent during the same period.

“Today, quality residences in Hanoi’s city centre, on average, are sold at only around HK$1,500 (US$191.32) per square foot, half of Bangkok’s level,” said Lai. “Prices of high-quality housing will catch up with neighbouring cities amid the gradual completion of infrastructure such as railways and airport expansion, and as more foreign corporations bring investments to the market.”

Hanoi’s regional gross domestic product is expected to grow 7.3 per cent this year, fuelled in part by surging growth in manufacturing, according to the World Bank.

Foreign investment in the first two months of the year reached HK$850.2 million.

“Apple, Samsung and Microsoft have set up major plants near Hanoi, with Samsung contributing 22.7 per cent to the country’s exports in 2016,” Lai said. “Their employees are target renters for overseas investors.”

“Potential rental gross yield can amount to 7 per cent a year, according to research by CBRE and VinaCapital.”

The investment story has caught the eye of major foreign developers, including Gamuda Land, a Kuala Lumpur-listed developer based in Malaysia.

“Our company has invested a large sum to develop Gamuda City, the first mega integrated development in Hanoi,” said Dennis Ng, deputy general director of Gamuda. “Like Hong Kong’s Taikoo Shing, it will satisfy lifestyle needs of the local expanding middle class.”

One investor, an executive director of an international investment bank who gave his surname as Chan, says he has bought more than one property in the city.

“Hanoi is the capital city so there will always be room for future development. Hanoi itself feels like Beijing in the old days, with lots of development going on and there’s a gap that we see will be narrowing down soon,” he said. “Vietnam is our favourite emerging market, as it is only a short flight from Hong Kong.”

Chan said potential buyers should read up on guidelines related to home purchases before committing.

“Because of foreign exchange controls, we had to open a bank account with our names in Vietnam to make sure the money we earn from the property will be able to remit out of the country in the future. It wasn’t very difficult since we did that along with the sales and purchase agreement signing in Hanoi. Unlike Thai property investment, we had to fly to Vietnam to sign the agreement in person.”

Banks in Vietnam will not offer mortgages to foreign buyers, according to Lai.

Flat buyers are expected to pay 10 per cent of the flat’s value as a deposit within a few days of purchase. When the development completes, buyers need to pay about 85 per cent of the total value and get government approval for ownership and transfer of the homes.

“Never pay the balance before receiving the title deed, or what is called the Pink Book,” Lai said.

However, heavy buyer activity has raised concerns of a another potential asset price bubble emerging in Hanoi.

Rising land and construction costs are the main drivers of housing inflation, amid ultra loose credit conditions, according to Parikshat Chawla, director of Asia-Pacific business development at agency Leading Real Estate Companies of the World.

The nation’s money supply rose 5.9 per cent last year, compared to 2.2 per cent growth in the previous year, according to the State Bank of Vietnam.

Vietnam’s property market crashed in 2011 under soaring inflation, rising interest rates and lending curbs.

Between 2011 and the end of the first quarter of 2012, nationwide prices for luxury flats slumped 40 per cent, while mid-bracket flats fell 30 per cent, according to research institute Global Property Guide, citing data from Colliers International.

Prices have been recovering since late 2015 following changes in the law which allowed foreigners and overseas Vietnamese to legally own, sell and transfer properties, according to the Global Property Guide.