VIETNAM: An Introduction to Real Estate
VIETNAM: REAL ESTATE OVERVIEW 2021
Contributor: LNT & Partners
Author: Tran Thai Binh – Partner
Like others, Vietnam’s economy has been experiencing a downturn due to the COVID-19 pandemic. The GDP growth in 2020 is calculated at 2.5% - 3%, still a remarkable rate in the global context. Surprisingly, the real estate market is still growing and foreign investment in this industry is still an attractive proposition.
Increased Demands in Industrial Properties
The trend of real estate development in Vietnam has gradually moved to industrial parks. This is largely in response to multinationals building up their supply bases in Vietnam, in part due to its increasingly skilful labour market and foreign investors viewing it as a safe investment environment. Another factor has been the relocation of supply chains from China to South East Asia, which has subsequently increased demand for industrial property in the country.
These investment trends have led to foreign investors undertaking several high value mergers and acquisitions relating to industrial parks in the country. This includes the construction of warehouses and other assets on acquired land to subsequently lease or even re-sell to investors. In addition, there has also been a surge in the activity of logistics businesses operating out of industrial parks as a result of the growth of e-commerce, which requires companies to have a significant number of storage facilities and warehouses.
In response to this increased demand, local administrators at provincial level have increased the allocation of lands towards the development of industrial parks. Similarly, the State has facilitated the development of public utilities and infrastructure in order to maximise growth in this area and support this investment. Following the enactment of the Law on Investment in 2020, the areas eligible for investment incentives include industrial parks, export-processing zones, hi-tech zones and economic zones. Industrial parks developed in low-economic-growth areas will also enjoy special incentives granted by the State.
The Law on Investment 2020 treats foreign investors in a similar way to local investors, with few differences. In addition, Vietnam has signed investment protection agreements with 65 countries, including almost all of the major economies in the world, including the remarkable free trade agreement signed with Europe (EVFTA) recently. Foreign investment is thus well-protected under the legal mechanisms in the country.
Increase in Housing Demands
Experts predict increasing demand in the residential property sector, with increased development in infrastructure and new urban areas expected to follow. This is due to the increasing size of the middle class and the large numbers of young people in the country.
The laws and regulations which govern real estate in the country have also been subject to several amendments, including most recently in 2020. The amendment, which is set to become effective in 2021, provides more openness to investors and developers who are active in the sector. The new Law on Investment 2020 has removed regulations requiring permitted legal capital as a condition to operate in the business of real estate trading, making doing business in the sector easier.
Foreign-investor developers can now develop residential housing projects in order to sell to local and foreign buyers like local developers. Notably, since 2015 the Residential Housing Law has allowed foreign buyers to own apartments in Vietnam with only minimal requirements such as lawfully entering the country. This policy is expected to be further relaxed in future amendments to this law.
Notes to Foreign Investors
Despite recent political efforts by the country's top leaders to remove obstacles and hindrances to business, further work is required to move Vietnam to a "market economy" with no differences or discrimination between economic sectors. Grey areas remain where lower-level authorities may interpret laws in different ways or create obstacles, including for foreign businesses investing in projects in the country.
As a result, foreign investors may experience delays in procedures and difficulties in obtaining the approvals for green-field real estate project investments from the State authorities. Similarly, the real estate market in the country is unique, with laws relating to land differing significantly in terms of concepts from those foreign investors may be used to. It is important therefore for foreign investors to be aware of these obstacles and have appropriate preparations in place.