The Vietnamese property market is enticing more and more investors since its liberalisation in July. We zero in on several aspects that the foreigner needs to know.
It has been over a month since the revised Law on Housing took effect on 1st July 2015. A lot of eyes were on the opening of Vietnam residential property market to foreigners. According to CBRE Vietnam, hundreds of apartments had been sold since. In a large property project in Ho Chi Minh City developed by Vingroup, 112 apartments were purchased by foreigners.
However, it must be noted that information flow regarding property purchases in Vietnam is not as forthcoming as foreigners would hope for; coupled with the lack of quality investment advice, these have prevented many foreigners from openly buying residential property in Vietnam. Take-up rate of Vietnam properties albeit promising has been rather suppressed in comparison to other regional markets such as Malaysia, Thailand and the Philippines.
This article serves to enlighten interested foreign investors still hesitant to take the leap of faith into Vietnam’s residential property market. I have personally dealt with an increasing number of enquiries from foreigners pertaining to Vietnam’s property market and will shed light on some of the more common queries as well as identify certain pitfalls in investing.
What are the types of residential property a foreigner can buy?
Vietnam is similar to other countries such as Singapore in that there are restrictions on the type of residential property available to foreigners. Foreigners are eligible to buy apartments and landed housing that is part of a residential project development, provided that the properties are not located in restricted zones to foreigners.
After making a purchase, when and to whom can I sell my property to?
It is common understanding that an exit strategy is more important than making an investment. Foreigners are able to sell their Vietnam residential property at any point in time after signing the Sale and Purchase Agreement; and the property can be sold to another foreigner who will take over the remaining term of leasehold from the date of grant of the Ownership Certificate to the original buyer; or the property can be sold to a local Vietnamese who will enjoy freehold on the property (the ownership tenure of the property will be converted to freehold).
Should I decide to hold my property, what are my rights to the property?
Legally, a foreigner can now enjoy same ownership rights over a legitimate property as a local Vietnamese. This means during the tenure of ownership over the property, the foreign homeowner is entitled to reside or lease out the property to others. However, before the time limit of the homeownership (50 years from the date of grant of Ownership Certificate for foreigners) prescribed in the current law expires, the foreign homeowner is entitled to gift or sell their property to entities eligible for the homeownership in Vietnam; failure to do so will result in their property being confiscated by the State.
What are the fees I should be aware of when buying a property?
Apart from the purchase price of the property itself, a potential investor should take note of the following fees:
Administration Fee – A minimal Admin Fee is to be paid upon being granted an ownership certificate as per the current regulations.
Property Management Fee – Charged per square meter and usually less than USD1 per square metre, depending on class of property.
Maintenance Fee (Sink fund) – 2% of property purchase value, excluding value added tax.
The above mentioned fees are on top and over the transaction price quantum of the property and should be taken into account when calculating your profitability in investing.
Taxes are equally important and need to be taken into account prior to buying, what taxes am I subject to?
I usually advise investors to be aware of the following taxes and to factor that into their financial calculations:
Value Added Tax (VAT) – 10% Value Added Tax is levied on any sale of property by locals and foreigners.
Registration Tax for Ownership – 0.5% Registration Tax for obtaining the house ownership certificate on the apartment value.
Personal Income Tax (PIT) – If personal income is earned through the assignment or resale of property (apartment or house), a 2% Personal Income Tax has to be paid on the transacted value. This is also Vietnam’s equivalent of Capital Gains Tax.
Failure to take into account the above especially the PIT can erode any profits made by the appreciating value of the property.
If I need financing, as a foreigner am I able to secure an onshore bank mortgage loan to fund my property purchase?
Yes, foreigners can now enjoy the same mortgage loan package as local Vietnamese. The rates currently vary from 6.5% to 8% depending on banks and specific promotional tie-ups between property developer and bank. Borrowers have to mortgage their property and submit the necessary documents such as the Sale and Purchase Agreement (SPA), proof of personal income from the country of origin and proof of identity, etc. All documents have to be notarised before submission.
I do not read a word of Vietnamese, how do I execute the Sale and Purchase Agreement?
The Sale and Purchase Agreement (SPA) will be signed in Vietnamese and subject to Vietnam’s law, however most developers now have an English version of the SPA translated by their own lawyers; and signing will be on both language copies that hold equal validity.
I am still worried about my investments and would like to minimize the risks, should I appoint a lawyer to protect my interests?
No, it is not necessary in Vietnam to engage a conveyancing lawyer to effect a transfer of property between 2 parties. In the primary market, the developer will handle all documentation works up to the submission of documents to the Municipal People’s Committee to apply for Ownership Certificate on behalf of the homeowners. However, you might want to engage a lawyer for your ease of mind.
What are the warranties and safeguards that I can rely on in my investment?
The current Law on Real Estate Business specifies that all developers are bound by law to take up a bankers guarantee with approved local banks. Should the property not be completed and handed over on time, the bank is liable to pay back the buyer. The onus is now on banks to conduct due diligence on the developer’s financial capabilities.
With regards to the physical construction of property, a 1-year warranty for defects, fixtures and fittings within the property and 5 years contractor warranty for external and structural issues will be given to buyers.
I have decided to make an investment and would like to know the purchase procedure of Vietnam residential property.
A brief summary of the purchase procedure (specifically for new launch properties) and the time frame will look something like the following flowchart: