Insight

Vietnam second home market

How is the second-home segment of Vietnam attractive to international visitors? Why Vietnam should be chosen for expats to live in?

Vietnam has been one of the top performing inbound tourism markets over the last few years rising from 7.6 million in 2013 and rising to 18.5 million in 2019 with a forecast 20.5 million in 2020 (prior to COVID 19). I In January 2020 we received just under 2 million foreign visitors in one month alone. Much of this raid increase in inbound tourists has come from China, South Korea and Japan who together have contributed more than 50% of the inbound market.

Tourism is a major contributor to GDP (over10%) and has contributed to Vietnam becoming one of fastest growing economies in the world with GDP growth at over 7% in the last 2 years.

Foreign Direct Investment has also been tracking record highs and China has increased the an=mount of FDI to take it to the number 5 spot in 2019 behind South Korea, Hong Kong, Singapore and Japan. The stream of foreign investment from these Asian countries has also led to a significant increase in interest from property buyers from those countries.

As we have seen from the example of Thailand foreign home ownership (even if Leasehold) is a great way to ensure returning visitors and this is one of the major reasons Thailand has a return visitor rate of close to or above 70% and currently Vietnam is only a small percentage.

Vietnam has a huge advantage over Thailand in terms of price attractiveness and the huge number of potential locations to buy particularly because of its coast line of over 1900 kilometers and pristine beaches.

Although in principle Foreigners have been able to buy property in Vietnam since 2015 the regulations have not been 100% clear and the projects that are authorized to sell to foreigners have yet to be clearly nominated in most locations. Also foreign ownership is limited to 30% of each development. However, this does not seem to have deterred Chinese and other Asian buyers who have been prepared to invest in property through long term lease contracts rather than requiring actual title deeds.

One of the key drivers is affordability and accessibility, particularly in the coastal resort areas such as Ha Long Bay, Haiphong, Danang, Camranh, Phu Quoc all of which have international airports and a growing number of regional flights plus casinos, in the north and in Danang and Phu Quoc. Danang as an example had over 100 flights a week from China (prior to the COVID outbreak). Home prices in Vietnam starting in the region of US$ 2500 per sq meter for high end apartments to US$ 6-10,000 per sq meter for luxury property in Ho Chi Minh City are still relatively cheap for Chinese, Japanese, Koreans, Singaporeans and affluent Vietnamese. We can also expect to see a rise in the number of branded residences as the interest from more affluent buyers increases. Vietnam currently has the 3rd highest projects in the pipeline (8 with approx. 2500 keys) 6 of which are resort projects.

Rental yields on city properties remain good at 6-8% in the better developments and many developers in the coastal resort areas have attracted buyers with high guaranteed returns of 8-10% for 10 years, although for sure we will see many of these defaulting over the coming months not only because of the impact of Covid 19.

Rental yields are also significantly higher than say Bangkok and other parts of Thailand and Singapore.

The growing demand from the rapidly growing Vietnamese middle class (expected to grow from under20% to 40% in the next 7 to 10 years) will ensure a high level of local demand as well as increasing foreign demand to ensure rising prices and returns on investment.

Another key driver in the attraction for foreign investors has been the significant improvements in infrastructure particularly around Ho Chi Minh City and links to the coast and also Hanoi and links to places like Ha Long Bay. The metro systems in both major cities will be operational from 2021 (maybe 2020 in Hanoi) and this will open up some of the outlying city areas to further investment and opportunity.

According to Baker Mckenzie the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which came into force in January 2019, is expected to benefit the real estate market in Vietnam. Foreign investors will be protected through the Investor State Dispute Settlement (ISDS) mechanism, which applies to cross border investments in property development and the CPTPP also enlarges the real estate services in which foreign investors can participate in, including real estate brokerage services, real estate exchange floors, real estate consulting services and real estate management services, with respect to both residential and commercial properties.

Vietnam because of its’ affordability is also a potential market for retirement homes and a program similar to Malaysia’s second home program would be very attractive to a lot of retirees in the Asia Pacific region and some from Europe and Norther America.

 

Kenneth M Atkinson

Founder and Senior Board Adviser

Grant Thornton Vietnam

Founder and Senior Board Adviser
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