Doing Business

5 precautions before investing in Vietnam real estate

Trường Lăng

December 18, 2019

Due to the impressive GDP growth rate and the preferential policies in real estate investment, especially that the Housing Law (Law on Housing No. 65/2014/QH13) became effective on July 1, 2015,more and more wealthy international businessmen are flocking in Vietnam to invest and purchase luxury properties. However, if foreign investors downplay the complicated real estate market of this country, they will encounter scores of difficulties and challenges. Below are 5 precautions before investing in Vietnam real estate market to assist you to overcome the first challenges.

Type of real estate

First of all, the type of real estate to invest in Vietnam is the first precaution that requires attention. This depends on some factors including your economic knowledge, financial ability, risk aversion, etc.  When investing in this field, you need to consider the types of real estate that are high liquidity, easy to buy and sell. To see more about the advantages of Vietnam real estate, you can consult our dedicated article here.

Houses and apartments

In recent years, investing in houses and apartments has been a growing sector in Vietnam. Notably, in the major cities such as Ho Chi Minh, Hanoi, Da Nang, the development of apartments for rent has dramatically sprung up. Moreover, this is also an effective solution for middle-class investors to manage their own finance. In Hanoi, monthly apartment rents ranged from VND 300,000 (US$13) to VND 750,000 (US$32) per sq. m. in Q4 2018, up 5% from a year earlier, according to Savills. The average occupancy rate in the capital city remained unchanged at 86% in Q4 2018. In HCMC, serviced apartment rents ranged from VND375,000 (US$16) to VND775,000 (US$34) per sq. m. per month in Q4 2018. The total stock of rental apartments in HCMC was over 5,700 units in 2018, up 20% from a year earlier. This is the highest growth in five years.

Tourism real estate

In 2019, Vietnam tourism real estate segment is sharply increasing. In fact, this is a highly lucrative type of real estate, but the supply is scarce. The tourism industry registered a record of 15.5 million international visitors and 80 million domestic tourists in 2018, according to Vietnam Briefing. The country aims to receive 20 million international visitors by 2020. That’s why colossal capital inflows of foreign investments are pouring into this segment.
However, investment in tourism real estate requires the investor to have a professional strategy with significant investment capital.

Legitimacy

It is truly important for foreign real estate investors to make lots of effort to be up-to-date with Vietnam Laws of land, house, construction, and investment. Although the Housing Law 2015 amended allows foreigners to buy houses in Vietnam, there are some downsides in the procedures for buying and selling. Vietnam real estate market still presents fairly high risks, which needs to be considered.
Therefore, the vital step you should take before pouring the capital into this market is seeking the assistance of legal consulting experts. With a team of experienced and professional lawyers and consultants in the field of real estate, they will provide the best real estate consultancy services to assist you to overcome the Vietnam legal challenges.

Location

Hanoi and Ho Chi Minh City are considered as the safest investment locations in Vietnam. In Ho Chi Minh City, apartment prices surged 22.7% in Q1 2019 from a year earlier, to an average of US$2,028 per square metre (sq. m.). Meanwhile in Hanoi, the average price of apartments rose by 6.8% y-o-y to US$1,407 per sq. m. in Q1 2019. (source)
However, investment opportunities are also present in smaller cities such as Da Nang, Nha Trang, and Binh Duong. In specific, the price of flats in November of Danang last year was 1.5-3 million VND per sq.m (~USD 150). Nevertheless, in just a few months later, it reaches 8-10 million VND  sq. m (~USD 450). Besides, there are tons of flat projects increasing the price for sales by 20-40% compared to the last price in 2018. To know more about Danang property market, we recommend this article from Lodyhelp.

Taxation

Vietnam current taxation is one importance of 5 precautions before investing in Vietnam real estate market. It includes 10% of value-added tax and 0.5% of registration tax.
In addition, investors have to pay the post-purchase tax which includes a 2% personal income tax based on the value of the property purchased. If the capital is invested for the purpose of renting, the investor will need to pay a 5% value-added tax and 5% personal income tax deducted from the total rental profit. Besides, if the owner of the luxury real estate earns over 100 million VND / year income, an additional 1,000,000 VND license tax must be paid.

Financial leverage

Despite the fact that foreign investors can encounter scores of obstacles, it doesn’t mean you can’t borrow capital from Vietnamese banks. A clear understanding of the legal process and procedures to complete the necessary documents is vital. Because it can help you to be quickly approved.
According to Circular 39/2016/TT-NHNN on lending transactions credit institutions foreign bank branches with customers has following provisions on borrowing conditions:

  • In cases where the borrowers are foreign individuals, this individual must have civil legal capacity, civil act capacity and civil responsibility as stipulated by law.
  • Lawful loan purposes. Borrowers must demonstrate the use of lawful loan capital.
  • It must have an investment project or plan for production, business, and services which is feasible and effective. Or it must have an investment project or a feasible plan to service living conditions that complies with the law.
  • It must comply with the regulations of the Government and the guidelines of the State Bank of Vietnam on security for loans.

For more information, please refer to Circular 39/2016/TT-NHNN.
If you have any questions, please feel free to contact us via email: info@viettonkin.com.vn or hotline: +84 918 866 858.
 

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