Now, over 18 months on, this single piece of legislation has (supported by favourable market conditions) helped to drive the Vietnam real estate market from what was considered oblivion pre-2015 to becoming one of the more attractive markets in the region. You want to know the best thing about it? Now foreigners have a slice of the pie — well, perhaps more of a bite than a slice, but nonetheless the dessert is being shared with the guests, which is delightfully refreshing.
The Vietnam residential market had seen very sluggish growth leading up to 2015, due to a number of factors including the previous restrictions on foreign ownership; the lack of quality developments; a speculative bubble from 2006 to 2008; the small size of the leasing market, and more attractive and transparent investment opportunities elsewhere in the region. However, the new legislation played a major role in addressing many of these issues and even removed some of those cumbersome conditions that foreigners previously faced making the Vietnam market somewhat ‘sexy’ again.
So how does the foreign ownership law impact expats living in Vietnam and foreign investors?
Who can buy? Individuals — all foreigners who are granted a visa to Vietnam are allowed to buy residential properties in the country. Entities — all foreign investment funds, banks, Vietnamese branches and representative offices of overseas companies are eligible to buy.
Types of Property. All types of residential sector properties including condominiums and landed property such as villas and townhouses within a development project (previously only applicable to condominiums)
Volume. There is no limit on the number of units a foreigner can buy, but the total number of dwelling units owned by foreigners must not exceed 30% of the total units in one condominium complex, or not exceed 10% of landed property within a development project.
Purpose of Purchase. The properties owned by foreigners can be sub-leased, inherited and collateralised (previously only for owner-occupying purpose and not to be rented out).
Tenure. The tenure allowed to foreign individuals buying homes is a 50-year leasehold with renewal possibility upon expiration, which remains unchanged. Foreign individuals married to Vietnamese citizens are entitled to freehold tenure.
Opening the gates of the local property market wider to foreigners proved to be a very positive step in the right direction, and certainly did not come too soon.
However, with the gate swung open, affordability now reigns as the major issue impacting investors, as property prices in Hanoi and Ho Chi Minh City have hit record highs. For example, a villa in Tay Ho, Hanoi, starts from US$1 million at the lowest entry level, higher than in a city like Paris. Even new mid-range condominium developments in gentrified District 4, Ho Chi Minh City now start at US$2,500 per square metre.
So are we entering a housing bubble similar to bubbles seen in cities like London and New York? Or is this a flash in the real estate pan?
I think it’s a little too early to tell. But seeing the strong interest monitored at recent launch events for residential projects in Ho Chi Minh City, for the foreseeable future prices will continue to rise, which bodes well for investors. However, when it comes to first time buyers, the rising cost of real estate is making getting into the housing market prohibitive.