50-70 year apartment ownership certificates 'good for the market'

By David Jackson*

Sat, June 11, 2022 | 7:00 am GTM+7

The Ministry of Construction’s proposal on granting apartment owners a certificate of property use with a definitive term of 50-70 years, instead of the current permanent ownership, is good for the market in the long run.

The idea is proposed for new apartment projects and does not touch on the existing freehold apartments that owners secure indefinitely.

If the proposal is approved and the amendment of the Law on Housing is made with a reasonable roadmap, adequate alternatives for homeowners when the lease expires, clear laws and regulations, plus proper communication, it would diversify the residential market and open more investment opportunities for homeowners, investors, and developers.

Market prices for leasehold apartments are generally lower than that of a freehold unit in the same areas, though this may not hold true in all cases. Those looking for freehold properties they can pass on to future generations may accept higher prices.

Young people, families with a limited financial budget, or investors interested in rental yields can opt for leasehold apartments at more affordable prices, then move elsewhere later when their needs change. So, offering diversified housing options should be good for the long-term health of the market.

It shall be noted that there are provisions that allow the government to reclaim the land (including land with apartment blocks built on it) for vital infrastructure or security purposes, and this is a fact not only in Vietnam but in other countries too. So, whether an apartment involves a freehold or leasehold would make little difference.

Culturally, for the majority of Vietnamese, house ownership is intrinsically linked to inheritance value. Therefore, a tactful approach in this aspect is key, together with a reasonable roadmap, clear laws and regulations as well as proper communication, as mentioned above.

For homeowners, it should be considered that perception changes over time. People tend to think of a long-term stay and hence prefer freeholds. However, family structures in Vietnam, especially in urban areas have changed in the past decades, and there are now more young people living in apartments.

Across the world, land is a limited resource, and the use of land should aim for not only economic development but also the improvement of people’s wellbeing. Having leasehold apartments means that there are opportunities for re-development or repurposing of the land when the lease expires, to better serve the social needs of the future.

In terms of property value, the perceived value of freehold apartments tends to be higher than leasehold apartments. Yet, value is not only about price but also counts other factors like amenities, accessibility to essential services (schools, hospitals, malls, F&B options, sports and recreational facilities, drainage, etc.), connectivity to fundamental infrastructure like roads, bus, metro line stations, etc., and proximity to the workplace. For example, if one looks at the annual rental yields, a leasehold unit with less than 20 years left on its lease, located close to central business districts (CBD) can be of higher value than a freehold one in the outlying areas with limited amenities and low accessibility to essential services.

When it comes to the expiry of the lease, leasehold apartment owners should have a variety of options to choose from. For example, they can pay a lease top-up premium to renew the lease or join a collective sale to a third-party developer for reasonable compensation. Of course, as the proposal is new to Vietnam, more thorough discussions are needed, keeping a long-term view in mind.

If the proposal is approved, it will not come into full effect in day one as there are always roadmaps and concrete timelines for implementation.

What I would see is a more stabilized, healthy, and diversified market with more affordable choices for homeowners who are end-users, not to mention more opportunities for investors and developers.

*David Jackson is CEO of Colliers Vietnam.