Vietnam is flooded with new construction, and its real estate market is sizzling hot. Boosted by recovery from the housing bust of 2009-2013, by a booming economy, and by the Housing Law and the Law on Real Estate Business (effective July 1, 2015), which allows foreigners and overseas Vietnamese to legally own, sell and transfer real properties (subsequently fleshed out by Decree No 99 (effective December 10, 2015) and by Circular 19 (effective August 15, 2016)), real estate prices in Vietnam have been rising rapidly.
The law – and the subsequent liberal decrees – are hugely important. And the result has been a boom.
Southeast Asia remains a bright spot amid a subdued global economic outlook, as ASEAN economies continue to grow at 5 percent per year compared to a global growth rate of 3.5 percent per year.According to data released by real estate consultant JLL, Vietnam is a rising star in terms of real estate investment with strong opportunities in the office, residential and retail sectors. Occupancy of Grade A office space in Ho Chi Minh City exceeded 95 percent in Q4 2016, while retail occupancy in the city’s CBD was over 92 percent for the same period. In the residential sector, the number of new apartments launched increased 46 percent from 2015 to 2016.
“The real estate sector in Vietnam has been hitting its stride since 2015, spurred in part by recent government reforms, such as stronger financial requirements for property developers and the relaxation of rules on foreign investment,” says Chris Fossick, Managing Director, Singapore and Southeast Asia, JLL.
“With the rapid expansion of Vietnam’s consumer market and the economy transitioning towards higher value activities, there have been significant levels of foreign direct investment and the construction of office, retail and hotel stock to meet growing demand. As a result, we’re seeing strong demand for office space, particularly in the financial services, law, manufacturing, consumer goods and technology sectors.”
Disbursed foreign direct investment (FDI) into Vietnam hit a record US$15.8 billion in 2016, while FDI into the real estate sector reached nearly US$1.7 billion at the end of 2016.
Improving outlook in other Southeast Asian markets
Elsewhere in the region, Indonesia’s economy is expected to lift off, with the logistics sector garnering investor interest, according to a new report on Jakarta published by JLL. The sector has historically been held back by infrastructure and regulatory challenges. However, the Jokowi administration is making headway in improving infrastructure, easing bureaucracy and encouraging investment.
“The potential has been there for some time as Indonesia offers the scale in terms of demographics and population that is required for logistics to grow,” says Mr Fossick. “With increased political and economic stability alongside a growth in demand for consumer products, e-commerce is on a growth trajectory meaning that demand for logistics space will follow.”
Meanwhile, Singapore’s attractiveness as a core market has become more compelling following a correction in capital values. Gross domestic product (GDP) is expected to grow 2.3 percent in 2017, recovering slightly from 1.8 percent in 2016.
“While demand for office, retail and food & beverage real estate slowed between 2012 and 2015, we believe this bottomed out in 2016 and we expect a modest recovery in the next couple of years. In particular, the prices of prime residential properties remain attractive to investors as compared to other global cities.”
Download our report ‘Jakarta until 2024: offices and industrial may outperform’ here.
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JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. JLL is a Fortune 500 company with, as of December 31, 2015, revenue of $6.0 billion and fee revenue of $5.2 billion, more than 280 corporate offices, operations in over 80 countries and a global workforce of more than 70,000. On behalf of its clients, the company provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. As of September 30, 2016, its investment management business, LaSalle Investment Management, has $59.7 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.
JLL has over 50 years of experience in Asia Pacific, with 34,000 employees operating in 92 offices in 16 countries across the region. The firm won 15 awards at the International Property Awards Asia Pacific in 2016 and was named number one real estate advisor in Asia at the 2015 Euromoney Real Estate Awards. www.ap.jll.com.
Property prices and rental yields: alas, data unavailable in VietnamWe find it extremely difficult to get buying data in Vietnam rich enough for a representative sample of buying prices. Due to restrictions on non-resident foreigners buying property in Vietnam, ‘for-sale’ properties tend to be infrequently posted on English-language property sites (for consistency of data quality, our property data comes from English-language property portals, as switching between English and local-language property sites produces an uneven sample quality).
Gross rental yields figures for apartments in Hanoi and Ho Chi Minh are therefore unavailable, due to insufficient data.
Round trip transaction costs are low in Vietnam. See our Property transaction costs analysis for Vietnam and Property transaction costs in Vietnam, compared to the rest of Asia.
Vietnam has a high flat rental income tax
Rental Income: Nonresidents are liable to pay tax on their Vietnamese-sourced income at a flat rate of 20%.
Capital Gains: Income earned by nonresidents from transfer of real estate is taxed at a flat rate of 0.10% on gross sale proceeds.
Inheritance: Inheritance exceeding VND10 million (US$445) is taxed at a flat rate of 10%.
Residents: Residents pay tax on their worldwide income at progressive rates, from 5% to 35%.
Rent: The rent can be freely negotiated by both parties. It is usually fixed for the duration of the lease term, typically 1 to 2 years. Rents are paid well in advance and interest is charged on late payments.
Tenant Security: If payment is delayed by 15 days, the landlord has the right to terminate the tenancy agreement by sending a 3-day written notice to the tenant. The landlord is entitled not to return the security deposit and to charge the tenant one month’s rent penalty.
Robust economic growth in Vietnam
vietnam GDP inflationVietnam’s economy has continued its robust growth in Q3 2016, expanding by 6.4% from the same quarter last year, according to the country’s General Statistics Office (GSO).
“The jump comes from a rebound of the agriculture sector after a drought suppressed growth,” according to Natixis SA’s senior economist Trinh Nguyen. Nguyen added that industrial sector continues to be a “key bright spot”, while the construction, manufacturing, and electricity sectors are recovering.
Vietnam has experienced three decades of uninterrupted growth, according to the International Monetary Fund (IMF).
1981-1990 – average real GDP growth of 5.9% per year
1991-2000 – average real GDP growth rate of 7.6% annually
2001-2010 – average real GDP growth rate of 6.8% annually
The Vietnamese government is now in the process of easing business regulations and pursuing a long-running privatization drive, to boost growth further.
Unemployment remains low. In Q2 2016, the unemployment rate was 2.3%, down from 6.42% in 2000, according to the International Monetary Fund (IMF).
vietnam exchange rateThe country’s annual inflation rate was 4.52% in November 2016. Inflation is predicted to be 2% in 2016, lower than the government’s initial target of 5%.
In January 2016, the central bank announced a move to a market-based exchange rate mechanism, setting a daily reference exchange rates, to discourage hoarding of US dollars. The dong has been pegged to the US dollar for several decades, within a limited band of 1% to 2%. But because of sudden devaluations, many prefer to hold dollars. The State Bank of Vietnam (SBV), the country’s central bank, has devalued the dong five times since 2014, three times in 2015, to buoy slowing exports. The latest devaluation happened in January 2016.
However the new rate is not “free”. The central bank will set a reference rate daily, and local and foreign banks in Vietnam can trade within a band of plus or minus 3%. The rate will depend on three factors: (i) the inter-bank rate, (ii) macroeconomic balances, (iii) currency movements in the country’s key trade and investment partner countries.