The opening up of the property market to foreigners may precede a real estate boom
In Vietnam, there’s a lot of excitement leading up to 1st July. For the initial period though following the announcement of new laws to liberalise the real estate sector, the property offerings will not be that different for locals and foreigners. This is because these properties had already been designed and built or were under construction at the time the old laws were still in place.
In late November 2014, the National Assembly of Vietnam passed sweeping changes to its housing and real estate laws (“Residential Housing Law No. 65/2014/ QH13”) to replace the regulations of 2006. This move has long been anticipated and is seen as a step towards opening Vietnam to the global flow of wealth and to make it more attractive to foreign investments.
In the coming months and the next few years, expect to see more real estate catered for foreign investors, with well-structured property management services and guaranteed returns. The local developers will need to align themselves with international sales agents or go on their own to foreign markets, while the foreign developers are ready to play the new game.
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Already, I have been asked by big Chinese developers to look for investment grade land for development in Hanoi, Ho Chi Minh City and Danang. Their interest is understandable because Vietnam’s middle class is expected to swell in the near future. More than half of Vietnam’s
population is below 35, it has high literacy levels, there are increasing FDI’s, and the country has a long period of social and political stability – all these point to the fact that the emerging nation will have a huge middle class soon in the near future. That’s where the wealth and spending power will be. This could be ASEAN’s next pot of gold.
Previously, the purchase of real estate in Vietnam by foreigners comes with onerous conditions, such as the purchaser having resided in Vietnam for at least one year prior to the purchase, or being a direct investor in a business or employed by Vietnamese enterprises, etc.
With effect from 1st July, 2015, the right to own houses by foreign organisations and individuals are as follows:-
Entities eligible to own houses in Vietnam:
For foreign organisations: not only foreign-invested enterprises, but also foreign organisations investing in housing projects in Vietnam, branches/representative offices of foreign enterprises, foreign investment funds and branches of foreign banks operating in Vietnam.
For foreign individuals: every individual who is allowed to enter Vietnam (instead of individuals allowed to reside in Vietnam for at least 1 year as previously regulated), and some conditions are removed, such as: directly investing in Vietnam, working for Vietnamese enterprises, special contribution to Vietnam, getting married to Vietnamese citizen, etc.
Scope of ownership:
- Time limitation: Individuals married to Vietnamese citizens may own houses for unlimited time, and individuals owning houses under contracts may own houses for 50 years (extendable). Foreign organisations will own houses in compliance with their investment certificates or operating licenses;
- Types of houses: not only apartments, but also separate houses (detached and link houses) in housing projects;
- Quantity: not only one or a small number of houses; now foreign entities may own up to 30% of apartments in each apartment building or 250 houses (detached or link houses) in an area with a population size equal to a ward-level administrative unit;
- Rights and obligations: organisations and individuals investing in housing projects in Vietnam will have rights and obligations according to their investment certificates with the following restrictions:
- Foreign individuals must notify communal housing management authorities before leasing their houses and must pay regulatory taxes;
- Foreign organisations must not use their houses for lease, use as an office, or any other purpose other than a residence;
- Apart from paying cash, both individuals and incorporated entities, either foreign-owned or foreign-invested local entities can pay for the house purchase through credit institutions operating in Vietnam. There is no issue with qualified foreign buyers getting mortgages from local financial institutions.
Mortgages from local financial institutions are now also available for house purchase by qualified foreign buyers.
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Matthew Yeoh is a partner of Yeoh Mazlina & Partners, a member of ASEAN Legal Alliance, a group of legal firms across ASEAN