Vietnam real estate market offers competitive yields: Knight Frank

By Tuong Thuy
Wed, August 24, 2022 | 3:19 pm GMT+7

House prices in Vietnam are much more affordable, and real estate sectors in the country provide competitive yields compared to other Southeast Asian countries, says Kevin Coppel, managing director of property consulting firm Knight Frank Asia-Pacific.

Do you think Vietnam’s real estate market is in danger of blowing up like the property market in China?

The fundamentals in China and Vietnam are vastly different. The Chinese property sector crisis was provoked by the ‘three red lines’ regulations introduced in 2020, which placed debt limits on real estate companies to curb rapidly rising housing prices. Before these regulations, Chinese developers used debt extensively and often borrowed more than what was needed for a particular project to fund other investments. They were confident of repaying these debts since demand had always outpaced supply.

In contrast, Vietnamese banks have limited capabilities to lend - 15% of bank capital to a single borrower and 25% to a group borrower (Law on Credit 2010, Amended 2018) - and investor equity must account for at least 20% of the total investment capital in a real estate project with a land usage area under 20 hectares. This reduces to at least 15% if a real estate project uses 20 hectares of land or more (Government Decree No.02/2022).

Furthermore, Vietnam is tightening credit right now as a cooling measure, with the State Bank of Vietnam in January 2022 seeking with its Directive No.01/CT-NHNN to compel direct lender capital away from sectors perceived as risky- like real estate - into production and manufacturing. The intent is for a draft amendment to Circular 39 to be ratified this year, which will further build on existing regulations, codifying further debt related ratios like loan to collateral and total debt ratios.

Major banks are also reporting that they are near State Bank of Vietnam mandated credit limits for commercial lending, which makes it difficult for real estate businesses to continue to borrow. This is a different approach compared to China, which allowed developers to borrow heavily.

Although Vietnam is currently experiencing rapid urbanization, similar to the socioeconomic trends seen in China in recent decades, the danger of a real estate bubble developing to the same extent in Vietnam is limited as long as policies that limit the potential for the market to “overheat” are implemented.

It helps that Vietnam adopted an inclusive growth model, where the growing need for affordable housing is being satisfied by proactive planning regulations that require a proportion of some developments to be allocated to both affordable and social housing. The prices of which are controlled in order to keep them accessible to much of the population.

What is your assessment of investment inflows into Vietnam's real estate sector compared to other Southeast Asian countries?

Real estate sectors in Vietnam generally command competitive yields compared to counterparts in Southeast Asia. Industrial and office spaces are still highly sought-after due to their solid growth trajectory, while residential, retail, and hospitality sectors are steadily recovering post-pandemic.

The positive growth trajectory relies on continued, strong economic growth, continued urbanization, a rising middle class and the development of mega projects in both major cities like Ho Chi Minh City and Hanoi and the surrounding key provinces.

What do you think about Vietnam’s current rules on foreign ownership in the housing sector, and how do they compare to those in other ASEAN countries?

In line with other countries in Southeast Asia, the most popular way to access the Vietnamese residential sector is through the condominium market. Like most of the region’s emerging markets, aggregate foreigner ownership limits are capped - at 30% in Vietnam (Government Decree No.99/2015), compared to 40% in the Philippines and 49% in Thailand (although at higher thresholds).

However, the main aspect in which Vietnamese regulations are tighter is in the tenure for foreign ownership, which is currently capped at 50 years; any extension will require a renewal payment to be made in an upfront sum, or annually.

The mechanism to calculate the payment for a renewal is not known yet. This can cause buyers to think twice as longer-term options are generally available in other markets (e.g., Singapore and Malaysia permit 99-year leasehold interests). While foreign ownership rules in Vietnam can still be considered reasonably restrictive, they have come a long way since the government took steps to liberalize the market in 2014. As in most countries, property ownership is politically sensitive and can have a broad socioeconomic impact. While the Vietnamese government will remain cautious, it has been proactive with reforms, and we expect it will continue gradually to liberalize the market as the economy develops.

 Source: Knight Frank

Source: Knight Frank

Compared to other ASEAN countries, house prices in Vietnam are much more affordable. With borders reopening, the gradual resumption of regional travel will boost residential sales, especially from South Korea (the biggest expatriate community in Vietnam), Singapore, and the Chinese mainland.

How does and will the UK-Vietnam Free Trade Agreement (UKVFTA) support the two countries’ economic, investment, and trade ties from your perspective as a UK consulting company?

According to Vietnam Customs, bilateral trade between Vietnam and the U.K. reached $6.6 billion in 2021, up 17.2% compared to 2020, while British exports reached $849 million, up 23.6%.

In the first five months of 2022, despite the ongoing impact of the COVID-19 pandemic and geopolitical tensions leading to disruptions in global production and supply chains, bilateral trade remained stable at $2.68 billion.

 A slice of the property market in Hanoi. Photo by The Investor / Trung Hieu.

A slice of the property market in Hanoi. Photo by The Investor / Trung Hieu.

As of May 2022, the sectors with the strongest investments in Vietnam are:

- Manufacturing and processing (120 projects and registered investment capital of nearly $1.6 billion, accounting for nearly 40% of total investment capital).

- Real estate (23 projects and total investment capital of $1.04 billion, accounting for 26% of total investments).

- Mining (seven projects with a total registered capital of $701.44 million, accounting for 18% of total investments)

Valid registered investment capital from the UK totaled $4.15 billion with 462 investment projects in Vietnam.

We have also seen some major investments in renewable energy, including:

- Shire Oak International Group with many solar power projects in Vietnam

- Enterprise Energy Group is investing in the Thang Long wind project off Ke Ga cape - Binh Thuan

- Mainstream Group is investing in the Phu Cuong wind power project Soc Trang

The collaboration with UK.firms will see mutual benefits for both countries through:

- Commitment to service and investment: Vietnam is committed to providing higher incentives for U.K. service providers and investors under the UKVFTA than the standards currently applied to other service providers and foreign investors under WTO commitments.

- Commitment to intellectual property: U.K. IP owners have access to a range of tools to strengthen their IP protection in Vietnam. For example:

+ IP owners can request the Vietnamese court to apply temporary, urgent measures to promptly prevent infringement at any time.

+ Customs authorities must actively participate in preventing IP infringement and must cooperate with IP owners to enforce IP rights.

+ Proportional monetary remedies may be provided as an alternative to other sanctions if the breach was caused by negligence.

- Commitment to taxation: The two sides agreed to immediately cut 65% of the number of tariff lines when the UKVFTA takes effect. This means an increase of up to 99% of tax lines to be cut after six to nine years.

Not only will the UKVFTA boost GDP growth, but also help diversify Vietnam’s sources of foreign direct investment, which has so far been dependent on countries within the Asia Pacific region and largely focused on electronics and real estate.

With a number of U.K. companies known for their expertise in pharmaceuticals, aerospace as well as renewable energy, Vietnamese firms will benefit from technology transfers and learn to create a more vibrant industrial base that will lead to more opportunities globally.

Comments (0)
  • Read More
Vietnam high-speed railway should run beyond Hanoi, HCMC on either side: lawmakers

Vietnam high-speed railway should run beyond Hanoi, HCMC on either side: lawmakers

Vietnam’s mega North-South high-speed railway project should be redesigned and extended beyond Hanoi and Ho Chi Minh City as currently planned, several lawmakers have suggested.

Infrastructure - Thu, November 21, 2024 | 6:11 pm GMT+7

Vietnam-Malaysia relationship upgraded to comprehensive strategic partnership

Vietnam-Malaysia relationship upgraded to comprehensive strategic partnership

Vietnam and Malaysia have upgraded their relationship to a comprehensive strategic partnership, the highest level in the former’s diplomatic hierarchy.

Politics - Thu, November 21, 2024 | 5:21 pm GMT+7

Petrovietnam units sign LNG supply deal for trial run of Vietnam’s first LNG power plants

Petrovietnam units sign LNG supply deal for trial run of Vietnam’s first LNG power plants

PV Power and PV Gas, two units of state-owned Petrovietnam, have signed an LNG supply deal for trial operation of Nhon Trach 3 and Nhon Trach 4, Vietnam’s first LNG-to-power plants.

Energy - Thu, November 21, 2024 | 4:40 pm GMT+7

Sufficient first phase funds ensured for Vietnam’s new mega airport: transport minister

Sufficient first phase funds ensured for Vietnam’s new mega airport: transport minister

Minister of Transport Nguyen Van Thang affirmed Wednesday that funding would be secured for building the Long Thanh International Airport, set to become Vietnam’s biggest.

Infrastructure - Thu, November 21, 2024 | 3:53 pm GMT+7

VAFIE to organize workshop on amendments to horse racing, football betting rules

VAFIE to organize workshop on amendments to horse racing, football betting rules

The Vietnam’s Association of Foreign Invested Enterprises (VAFIE) and The Investor will organize a workshop on suggestions to amend the government’s Decree 06 on horse racing, greyhound racing and international football betting services.

Economy - Thu, November 21, 2024 | 2:38 pm GMT+7

Vietnam Politburo okays international, regional financial centers in HCMC, Danang

Vietnam Politburo okays international, regional financial centers in HCMC, Danang

Vietnam’s highest decision-making body, the Politburo, has greenlighted the establishment of an international financial center in Ho Chi Minh City and a regional financial center in the central city of Danang.

Economy - Thu, November 21, 2024 | 1:50 pm GMT+7

Singapore's Platinum Victory seeks to gain veto at Vietnam’s REE

Singapore's Platinum Victory seeks to gain veto at Vietnam’s REE

Singaporean fund Platinum Victory Pte. Ltd. has registered to buy more shares of Ho Chi Minh City-based utility firm Refrigeration Electrical Engineering Corporation (REE) to achieve the vetoing power in the latter.

Finance - Thu, November 21, 2024 | 11:29 am GMT+7

Posco keen on investing in Vietnam's $2.2 bln LNG power project

Posco keen on investing in Vietnam's $2.2 bln LNG power project

South Korea’s steelmaker Posco is eyeing to invest in the $2.2 billion Quynh Lap LNG-fired power plant project in Vietnam’s central province of Nghe An.

Energy - Thu, November 21, 2024 | 10:42 am GMT+7

Vietnam firm Hoa Lam to build $212 mln Aeon Mall in Mekong Delta

Vietnam firm Hoa Lam to build $212 mln Aeon Mall in Mekong Delta

The Mekong Delta city of Can Tho has accepted a subsidiary of private multi-sector Hoa Lam Group as the investor of the Aeon Mall Can Tho commerce and service center.

Industries - Thu, November 21, 2024 | 10:31 am GMT+7

Vietnam startup expert closes Monkey in Black coffee shop

Vietnam startup expert closes Monkey in Black coffee shop

Tung BT (Tran Thanh Tung), a popular startup expert and social media influencer, is closing his final coffee shop in Ho Chi Minh City, ending a 10-year journey of the "Monkey in Black" brand.

Companies - Thu, November 21, 2024 | 8:16 am GMT+7

Vietnam-Singapore ties set for elevation to comprehensive strategic partnership

Vietnam-Singapore ties set for elevation to comprehensive strategic partnership

Vietnam and Singapore will elevate bilateral ties to a comprehensive strategic partnership and Singaporean Prime Minister Lawrence Wong will visit Vietnam next year.

Politics - Wed, November 20, 2024 | 8:16 pm GMT+7

Vietnam’s Vingroup establishes robotics firms, with co-founder’s 2 sons as major shareholders

Vietnam’s Vingroup establishes robotics firms, with co-founder’s 2 sons as major shareholders

Vingroup, Vietnam’s largest private conglomerate by ecosystem, has set up a robotics unit as it moves to ramp up its industrial-high technology ecosystem.

Companies - Wed, November 20, 2024 | 6:17 pm GMT+7

E-commerce, digital platforms likely to pay taxes on behalf of their sellers in Vietnam

E-commerce, digital platforms likely to pay taxes on behalf of their sellers in Vietnam

E-commerce and digital platforms will have to declare and pay taxes on behalf of their sellers starting January 1, 2025, according to a draft amendment to the Law on Tax Administration.

Finance - Wed, November 20, 2024 | 5:37 pm GMT+7

Flexibility, adaptability key to effective leadership: PepsiCo Vietnam exec

Flexibility, adaptability key to effective leadership: PepsiCo Vietnam exec

In a rapidly changing world, leaders need to develop the skill of being “as flexible as seaweed,” says Nguyen Viet Ha, general director of PepsiCo Foods Vietnam.

Companies - Wed, November 20, 2024 | 3:52 pm GMT+7

Central Vietnam province okays $88 mln automobile part project

Central Vietnam province okays $88 mln automobile part project

Binh Thuan province's industrial zone authority on Tuesday granted an investment registration certificate to a $88 million project invested by Taiwan’s NeoSCM Limited.

Industries - Wed, November 20, 2024 | 3:44 pm GMT+7

Thai packaging firm Thantawan Industry makes inroad into Vietnam

Thai packaging firm Thantawan Industry makes inroad into Vietnam

Thantawan Industry Public Company Limited, a leading Thai manufacturer of premium plastic packaging, has inked a deal for a 30-year factory lease, marking its inaugural investment in Vietnam.

Industries - Wed, November 20, 2024 | 3:34 pm GMT+7