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Since the issuance of the Land Law 2003 and other guidance decrees, Vietnam real estate market has become stagnant. Transactions in real estate trading centres declined remarkably. The current freezing situation in the market threatens to move numerous of real estate traders to bankruptcy.
Professional foreign-invested real estate consultant and services companies like CB Richard Ellis Vietnam (CBRE), Vina Capital, Phu My Hung…, however, are still performing well. Many foreign investors maintain expectant about the market.
So, what lies behind this contradiction?
Advantages of foreign investors
Transactions in the real estate market today are divided into 3 categories: for real demand for accommodation, for long-term accommodation planning and for trading. Small enterprises, middlemen and individuals rushed to invest in real estates. Due to low financial capacity, however, they could only target houses for low- and mid-income earners.
Property speculators have pushed up the land and house prices over their actual values, and provided their customers with dishonest information, making those who were in real demand distrust the market. This, then, leads to virtual demand and freezes the low- and mid-priced land and house market.
The two biggest real estate markets of Hanoi and Ho Chi Minh City each has dozens of projects on high-grade apartments, villas and offices for rent being implemented at different stages. Statistics show that the high-grade real estate market is still boiling over despite current inflated price.
Surveys by CBRE Vietnam indicate that the market will be fuelled with about 12,000 high-grade apartments by 2010. Real demand for accommodation remains high. But consumers need honest information to decide whether to pay for such big properties. They need to be assured that their would-be properties are safe and under professional management of investors. This, however, is not strength of smaller-scale and unprofessional traders.
Real estate market needs strong financial support to develop. This again is not strength of Vietnamese investors. When Vietnam becomes an official member of the World Trade Organization (WTO), the financial services market will open up for foreign banks. Potential sectors then will see increased influx of foreign capital.
Foreign banks will provide customers with a wide range of services relating to real estate, forcing Vietnamese banks to make changes to meet international standards.
Legal corridor supporting professional trading
Performance of the real estate market depends on several objective factors including governmental policies, legislation…
In 2005 and 2006, National Assembly and the Government issued a number of legal texts to set legal background for the property market, such as Housing Law, Real Estate Trading Law, Investment Law…and the forthcoming guidelines. These texts will put effects on the market, as well as investors.
Real Estate Trading Law allows Vietnamese people living abroad, foreign organizations and individuals to join the market. Despite their certain disadvantages over local ones, trading rights of participants in the real estate market will be expended.
Under the new housing law, those abroad residing Vietnamese people who make long-term investment in Vietnam; those who have rendered great contributions to the country; those culture workers or scientists who want to operate permanently in Vietnam; and those people who are allowed to make stable living in Vietnam all have the right to own houses in Vietnam.
Those overseas Vietnamese who are not subject to the above-mentioned stipulations but have lived in their home country from six months upwards are entitled to owning a house or a flat.
Statistics show that around 100,000 of about 3 million overseas Vietnamese want to buy and own houses in Vietnam. With higher income than of local residents, those abroad residing Vietnamese people also demand higher for housing.
If all these 100,000 overseas Vietnamese return their homeland to buy houses, this will create incentives for investment in the real estate market.
The Housing Law already took effect on July 1, 2006, but details on beneficiaries of it will be stipulated in the would-be-issued guidance decrees. Under the policy of Vietnam’s Communist Party and Government toward property ownership in civil transactions, overseas Vietnamese are given equal rights to local citizens.
The new housing law allows enterprises to accept up to 70 per cent of the value of the house lease or house purchase contract from a potential purchaser or lessee, provided that the foundations for the house have been completed. In addition, Regulations on Urban Management newly issued by the Government pursuant to Decree No.02/CP of January 5, 2006 forbids the use of not-being-implemented housing projects to mobilize and appropriate capital from house buyers under any forms. Under new regulations, investor is required to hold at least 20% of total investment for the housing project.
These new regulations remark a new period when incapable investors will be swept out of the market, as well as create momentum for an open and clear investment and business environment.
Vietnam real estate market is still stagnant resulting from difficulties in implementing legal texts issued in 2003. The issuance of Housing Law, Real Estate Trading Law and Investment Law in accordance with the WTO’s regulations, however, will set background for a healthy and stable development of Vietnam's property market.
A wave of foreign investment is to come. |
