5 Reasons to Invest in Vietnam’s Real Estate Market
Investments in Vietnam in the field of real estate market continue to show strong upside, as a result of good economic performance, rapid urbanization, and support from governmental policies. Here are 5 reasons why foreign investors should consider investing in the real estate sector of Vietnam.
1. Economic Growth
Vietnam’s economic growth has been at an average rate of 6.2% in the 2000-2017 period, and is projected to maintain the same rate in the near future, with an important structural shift from agriculture to the industrial and service sectors. With rising costs of labor and operating costs in China, many global business activities are being shifted to Vietnam, especially in manufacturing and industrial sectors.
Factor in the 15th largest population in the world that is in a growth phase and a growing middle class predicted to reach 40 million by 2020, domestic demand for residential property in Vietnam would increase at a remarkable rate as younger generations seek independence from the traditional multi-generation family model.
Office space is also expected to grow in demand in correlation with the number of new businesses, as the government continues to welcome foreign investors and provide support for domestic startup ecosystems. Statistics from IMA Asia have shown that office take up and employment in business services have risen at the rate of 10% annually over the last 10 years.
An important side effect of economic growth is rapid urbanization, with the urban population showing an increase of 2% per annum since 2011. World Bank figures also show that Vietnam sports the highest urban growth rate in Southeast Asia during 2015-20. The two major cities of Vietnam, Ho Chi Minh City and Hanoi, have been experiencing expansion rates of 4% and 3.8%, respectively. As most business activities, including foreign direct investment, are concentrated in these areas, a large proportion of the workforce is flooding into these two cities, which sparks high demand for urban housing. According to VinaCapital, by 2025 it is estimated that half the total population will reside in cities, which translates to a need for 5.1 million housing units.
The macro infrastructure plans in urban areas, such as the metro lines in Ho Chi Minh City or elevated railroad in Hanoi, are expected to fuel real estate development and increase land prices in suburban areas surrounding cities as well.
3. Exponential Foreign Direct Investment (FDI) Inflows
In the first six months of 2017, according to a UK-based real estate service provider, disbursed Foreign Direct Investment (FDI) in Vietnam was $7.72 billion, which is 6.5% more compared to the same period last year, while registered capital was reported to be $19.22 billion, a significant increase of 54.8%. With the majority of investments concentrated in manufacturing, this brings a multitude of opportunities in the industrial infrastructure development sector. In addition, FDI also results in an increasing flow of expatriates and foreign entrepreneurs into the country, which results in a steady stream of rental income for real estate owners in the hotel, office, and residential property areas. As the government continues to commit to liberalizing the economy and easing the barriers for FDI inflows, foreign investments in Vietnam should anticipate strong growth in the upcoming years.
Furthermore, direct Foreign Direct Investment (FDI) into real estate market is also an emerging trend, usually in the form of Merger & Acquisitions (M&A). Interest in the retail sector is high, with major projects such as the new Aeon Shopping Mall in Hanoi with an area of nearly 17ha and estimated capital of $200 million. International retail giants such as H&M, Zara and Marks and Spencer’s are rapidly entering the market and expanding their presence. According to a report by Savills, the average gross rent has shown an increase of 4% in the third quarter of 2016 compared to the same period of the previous year. As the middle class continues to grow in size and income (average income is now double that of five years ago) and consumer confidence is at a historic high, discretionary income will continue to be spent on retail consumption.
4. Increased Access to Foreign Ownership
The revised Law on Housing, in effect from July 1st, 2015, has since dramatically changed the real estate market in Vietnam following a difficult period by allowing foreign ownership of property for the first time. Following the legislation, all foreigners with a visa into the country are granted the right to own 30% of a condo or up to 250 houses in an administrative area equivalent to a ward with a renewable 50-year lease.
Participation in real estate business activities by non-residents was also liberalized, with increased protection mechanisms and reduced restrictions on transfers and minimum required construction area. Neil MacGregor, managing director of Savills, has reportedly expressed confidence that the government would continue its efforts to improve the Land Law and the Real Estate Law, based on their track record of continuous enhancement in the past.
5. The Rise of Tourism
According to VietnamTourism.com, “from 2010-2016, the number of foreign visitors to Vietnam doubled to 10 million people. Domestic tourists also increased from 28 million to 62 million people.” This upward trend creates enormous potential for the tourism property market, especially in tourist destinations such as Nha Trang, Da Nang, Phu Quoc Island, and many other niche areas. The Savills Hotel Consultation reports a 29% increase in value of hotels and resorts in Nha Trang and Cam Ranh, while the same figure for Da Nang and Phu Quoc are 30% and 27%, respectively.
As infrastructure in Vietnam continues to develop to accommodate international travel, with 9 international airports compared to just 5 in 2010, the nation is making strides in its effort to compete on an international level with Thailand or Singapore. Tourist visa regulations have also been eased and visa fees reduced, and in Phu Quoc Island, there is a visa exemption regime in place to boost international arrivals.
Overall, it can be said that despite its challenges such as legal hurdles, mediocre (but improving) market transparency, and requirements for large capital investment, Vietnam is presenting itself as an attractive real estate investment opportunity for foreign investors if they perform careful due diligence, develop a thorough understanding of the market, and find the right local partner or agency.