Boom time in Vietnam
 Property development in Vietnam has entered a new phase, with large international players entering the field and high-quality projects offering wise investors value for money and good rental yields.
By Libby Peacock
Published in Square Foot Magazine on December 15 2006
The Vietnamese residential real-estate sector has seen substantial growth over the past three to four years. CB Richard Ellis (Vietnam) managing director Marc Townsend explains, "After 1997 there was no real construction in Vietnam until 2002-03, when the condominium market emerged. At first, the main developers were Vietnamese locals coming from construction, furniture or trading backgrounds. Projects consisted of eight to 12 storeys."
Buildings are now getting bigger and more attractive, and "of considerably better quality", says Mr Townsend. The influx of white-collar expatriates from countries such as Singapore, Japan, India, Thailand, and Hong Kong and mainly working in manufacturing, logistics, IT and construction, has fueled a demand for 20- to 30-storey buildings in Ho Chi Minh City, the country's largest city, and Hanoi, its capital. These include developments like the Lancaster, The Manor and Saigon Pearl in Ho Chi Minh City's prime downtown districts. Villa Riviera, on the Saigon River, is a gated waterfront development with a host of resort-style facilities.
"Foreign developers have now come to Vietnam in a big way. Koreans, Singaporeans and Malaysians are the most aggressive in the development market at the moment," he says. Examples include the Korean conglomerate Kumho and Singaporean group Capital Land. Another Korean company, POSCO, is involved with major projects in both Hanoi and Ho Chi Minh City. Several large, new projects announced over the past year will attract "a great number of foreign and local buyers".
Big international financial funds have also entered Vietnam and are getting involved with new real-estate developments.
Foreigners are not legally allowed to own land in Vietnam. But non-local investors are able to invest in property on a 50-year lease basis. Mr Townsend is, however, optimistic that the length of tenure will be extended in future. "Most investors will look at off-plan condos. Because all the serviced apartments are full, the early movers are buying condominiums and leasing them out."
Where should you invest?
Currently, about 90 condominium projects are under construction around Ho Chi Mihn City and about 75 in Hanoi.
Facilities play a big role for expatriate families in Vietnam's major cities - they want to be near schools, swimming pools and gyms. For this reason, there is a strong rental market for apartments in high-quality projects offering these extras. Buyers of apartments in The Manor, for example, can expect a 15 per cent yield.
With very little public transport on offer, expatriates in Ho Chi Minh City mostly use cars to get around, so unlike other major cities, it's not important to live near underground train stations or bus terminus. Mr Townsend says the "very simple dynamics" of it is that most people prefer river views. High-quality riverfront apartments are therefore sought after - not only for expatriate investors, but also increasingly for affluent locals who are moving out of traditional shophouses into apartments.
In Hanoi, new apartment prices reach US$1,900 to US$2,600 per sq m. Gross rental yields before tax are around 12 to 15 per cent per year. "We are still seeing very high rental growth on a quarterly basis and expect that to continue."
Outside the main cities, the central area of the city of Da Nang is growing. While Ho Chi Minh City and Hanoi both have over five million people, Da Nang has only a million, and real-estate prices there are 50 to 60 per cent of what they are in Ho Chi Minh City, but interest is picking up, says Mr Townsend. One international-standard development in Da Nang is Indochina Riverside Towers,
Other projects to watch are "second-home, resort-type developments" such as Aquaba, a development of low-rise apartments, townhouses and luxury villas, in Mui Ne in Vietnam's Binh Thuan southern coastal province. Aquaba is set to open early next year. Mui Ne is about three hours' drive from Ho Chi Minh City, on a popular strip of beaches with a flourishing restaurant and nightlife scene.
China Beach, between Hoi An and Da Nang, is also attracting investors. Among the developers active on the strip is Indochina Land, which is currently putting the finishing touches to the upmarket The Nam Hai resort that is opening at the end of this year. The Nam Hai is to be managed by GHM Hotels. Indochina has also developed the Ho Chi Minh City riverside River Garden apartment project.
Developments such as The Nam Hai resort are attracting "the very high-end investors that, to date, bought in Phuket and Bali", says Mr Townsend. Units at The Nam Hai have been selling for between US$800,000 to US$1.5 million.
What are the risks?
Vietnam is a politically stable country that has shown remarkable economic growth over the past 20 years. Its GDP growth last year was a record 8.4 per cent.
 However, quality control is still in "its early days" and "in Vietnam it is often the case that as a building gets closer to completion, the price increases", says Mr Townsend. This is because at this stage the project becomes "reality".
It is extremely important to know who the developers are if you are planning to invest. Find out how reliable they are and which other projects they have worked on. Also, make sure that you are prepared for the management-fee costs. Find out what the tax rate is.
Consider whether it would be easy to find a buyer if you ever plan to sell, and whether any developments are planned near the project and what they will entail. Don't rush into a contract.
Finally, says Mr Townsend, "Start off by having a good lawyer and understanding the local accounting and tax system. Make sure you are comfortable with the documentation. The pricing in Vietnam is often much cheaper than buying anywhere else of similar location and quality. But there's a risk involved."
Contacts
CB Richard Ellis (Vietnam)
Colliers |
