Conditions are ripe in Vietnam for foreign participation in its real estate market which is currently experiencing unprecedented demand. Photography by Jan Yong
The revision in the Law on Housing makes property buying more liberal for foreigners, aligning Vietnam with other regional markets such as Thailand, Cambodia and the Philippines that have long pursued foreign inbound investments in property purchase. Despite being late into the competition for foreign buyers of residential property, Vietnam has sound fundamentals within its social, economic and demographic structure to be attractive to foreign property buyers and investors, as it continues to compete with its peers. This article will take a look at these said fundamental factors and their positive contribution to attracting residential property purchases cum investment in Vietnam for living and investments.
Safety and Security: Vietnam’s socialist government one party system and intolerance for dissent have kept Vietnam politically stable. Strike and riots are relatively unheard of, apart from the anti-China riots in mid-2014, which was swiftly dealt with by the government. There is no widespread political dissent in Vietnam and discontentment is kept well in check by the government (you just need to compare with Thailand and Malaysia over a same period of time to feel the difference). Moreover, Vietnam’s strict enforcement of serious crime using capital punishment has made the country relatively safe. Street crimes are limited to those that are petty in nature. Generally, foreigners feel welcomed and stay trouble-free most of the time.
Cost of Living: The low living costs in Vietnam is well documented by expatriates and tourists on the Internet. Its cost in comparison with developed countries is definitely a foregone conclusion and yet still lower when ranked with countries on the same development curve. Statistic website Numbeo.com crunches the numbers and ranks Ho Chi Minh City at “57” and Hanoi at “64” in Asia on its “Cost of Living Index”, with both cities having a lower cost as compared to Bangkok (Thailand), Yangon (Myanmar), Phnom Penh (Cambodia), Makati (Philippines), Colombo (Sri Lanka) and Jakarta (Indonesia).
Travel and Leisure: With a long coast line from North to South with plenty of beaches, highlands with unexplored caves in central Vietnam, large natural reserves, ancient ruins of old civilizations, historical monuments and world heritage sites, there are many sights and sounds that will attract you. In the cities, traces of international influence can be found; from French architecture, bustling Chinatowns, Japanese enclaves, Korean communities and Western residential areas to restaurants serving all sorts of international cuisines. As the biggest economy of Vietnam, Ho Chi Minh City packs leisure activities all round the clock; be pampered at a spa, eat like a glutton, drink and party away all night, play sports or laze the time away cafe hopping. There is always a leisure activity to keep one from being bored.
Retirement: With a low cost of living, plenty of travel and leisure activities to keep one occupied, Vietnam is a retirement destination that is slowly winning the hearts of many. Added with quality housing, international standard hospitals, a young dynamic population and an international touch (foreign communities and international cuisines), surely Vietnam is transitioning into the preferred destination for many retirees looking to stretch their retirement dollar and have a comfortable, enjoyable and stress free life.
Gross Domestic Product: Vietnam’s economic growth is expected to continue its upward growth trend since 2012 when Gross Domestic Product (GDP) at 5.2% was at its lowest in the last 10 years (2005 through 1H2015). In 2013, GDP was 5.4% increasing to 6% in 2014. 2015 is also expected to be a good year with the government targeting a 6.2% GDP.
Foreign Trade Agreements (FTA) boosting exports and attracting Foreign Direct Investments (FDI) played a huge role in boosting GDP. Vietnam is aggressively competing for FDI in the region. Since 2000, Vietnam is ranked only behind China in economic growth in Asia. Vietnam is ranked 8th most competitive economy globally by the World Economic Forum in 2015.
Currency, Inflation and Bank Interest Rates: Year on year (y-o-y) from 1Q 2014 to 1Q 2015, US Dollar (USD) has strengthened against Vietnam Dong (VND) by 1.3% as Vietnam devalues its VND to encourage inbound Foreign Direct Investments (FDI). It is forecasted that in the next 3 years leading to 2017, VND will continue to depreciate further against the USD. Moreover, the price of gold saw a bigger decrease at 5.4% y-o-y. This bodes well for the real estate market as property will be seen as a good hedge against the weakening VND and gold price.
Vietnam has reigned in its interest rate from a high of 18% in 2012 to under 1% in 1H2015. Lower inflation makes investing in real estate more lucrative as investment values are realised and prices in real estate products are not inflated.
The first 6 months of 2015 witnessed a general decrease across the board for bank interest rates and more significantly a decrease in mortgage interest rate from the major banks. Specifically, this means that there will be an increase in liquidity in making property purchases, as more money will be moved out of banks to generate a higher Return on Investment (ROI) on alternative products as compared to collecting bank interest.
Vietnam has the fastest-growing middle class in Southeast Asia. By 2020, the country is expected to have 30 million middle class and rich consumers.
Economy and Demography: As of 1H2015, Vietnam is a country of no less than 94 million people with a small surface area at 331,210 square kilometers suggesting a densely populated landscape. With rapid urbanization (2.95% annual rate of change), Vietnam currently has an urban population of 33.6% of its total population concentrated in the 5 major cities of Ho Chi Minh, Hanoi, Danang, Hai Phong and Can Tho. Other standout statistics boding well for Vietnam’s economy include a staggering 94.5% literacy rate in 2015, a mere 2.5% unemployment rate in 2014 (down 1.1% from 2013), an approximate 60% population of working age (21 to 65 years) and a median age of 29.2 years. (Figures extracted from CIA.gov website)
A recent survey by the Boston Consulting Group (BCG), found Vietnam to have the fastest growing middle class in Southeast Asia. By 2020, the country is expected to have 30 million middle class and rich consumers. This also implies a huge consumer market that has since attracted the likes of Samsung, Canon, Intel and Nestle, to set up factories within Vietnam. We have still yet to mention a whole portfolio of global consumer and food & beverage brands, looking to make inroads in Vietnam.
The above economic and demographic fundamentals show that investing in properties in Vietnam is lucrative in the long term if short to mid-term gains are not forthcoming. Large international developers such as CapitaLand, Keppel Land, Setia and Daewon have already studied this opportunity and are committed to the long haul with multiple property projects across Vietnam.
At the end of the day, demand for property will be driven by the huge growing middle class in need of housing as they set up family nucleus and the influx of expatriates employed by multinational corporations setting up shop in Vietnam. The increasing rate of urbanisation also means heightened demand for properties in the land-scarce city centres – thus, creating a lucrative investment market for foreigners.
With a favourable balance between property demand and supply combined with being well informed about property cycles, specific market knowledge and a little bit of luck, a foreign individual buying Vietnamese residential property stands to make gains in the mid to long-term investment time frame.