New housing law triggers market stir

Real estate developers are actively preparing to sell housing to foreigners from this July when the revised law on housing comes into force. Developers are obviously ready now as the products will initially be the same as offered to domestic buyers. Depending on the level of interest from foreigners, there may be changes to cater for offshore investors. An example of this may be to offer terms that suit investors more than occupiers, such as guaranteed returns.

Foreign developers, however, already have their sales channels in place and can move to the market quickly. Local developers will need to have a good sales strategy and either align with good marketers or go direct themselves to these foreign markets. This is all contingent on the amendments allowing foreign investment as contemplated.

In conjunction with our regional offices, Savills is already planning to host several events. One of the key issues now is having sufficient quality stock to provide investors with a good choice.

Regarding the type of products which would be most attractive to foreigners, I think it will be the broader-based investment product.

Many of our neighbouring countries have record low deposit rates, so if Vietnam offers a product that has reasonable yields then this will be very attractive.

There will be variations around this theme as some areas will also provide capital growth, thereby enhancing total returns in Vietnam. Other regional markets have had restrictions in policy as well as soft economic conditions weakening their residential markets. This together with low performance by cash and other asset classes should see a flight to Vietnamese property with good total returns.

While welcoming the decree on increased foreign ownership rights, Troy Griffiths argues the devil is in the details
Photo: Le Toan

The key markets will be those that have mature trading as well as access to the larger populations with investment potential. We see these markets as primarily Singapore and Hong Kong. Recently there have been very successful project sales in Cambodia and Myanmar that have marketed investment products. Generally these are smaller more affordable apartments with some sort of guaranteed return. Historically, developers have aimed for the end-user market, catering to the ultimate occupants. However, for investors they will care more about the potential to rent and receive a yield. This may change the focus to better locations, higher density districts and those with emerging capital growth potential.

Recently, we have seen some agencies from abroad coming to Vietnam to introduce their products. I think this could be a good option. Provided Vietnam’s amended laws support purchasers’ rights, then this will certainly work. It has worked extremely well in other locations. This is why the flight of investment capital has continued from Asia into Australia and the UK. Fundamentally it’s the transparency and enforceability of title and rights that purchasers are seeking.

For example, in 2014 a single residential agent in our Savills Taiwan office brought over 80 residential investment sales into Australia.

However, this is a competitive market with purchasers having a number of good choices available within the region, so the product will need to be priced and delivered against this backdrop.

On the attractiveness of the revised law for foreigners to buy houses in Vietnam, let us see how the decrees and circulars guide the amendments. It would be premature to comment prior to these being circulated. We are very happy that the government continues to provide policies that assist property development.

If the guiding decrees effectively limit the foreigner purchasers to those that are working in Vietnam then the impact would be very limited.

However if the amendment permitted ‘golden visas’ or investment then there would be strong demand. The next step to be contemplated is the ‘exit’. If there is potential for foreign investment then competing countries would also offer depreciation allowances to be offset against income for tax. There would also need to be a solid capital gains taxation regime and a clear pathway for repatriation of dividends.

In the coming time, if we look to mature markets with relaxed foreign ownership then usually no greater than 5 per cent annually of all transactions are to foreigners.

I expect the government to offer a support policy to assist the residential sector; however there will be strong parallel guidance through visas, tax and dividend remittances etc.

Amongst our regional peers, the Malaysia My Second Home programme is hugely successful and has been running for over 15 years, however there has not been a massive influx of any single foreign nation, nor have there been adverse effects. To the contrary, the scheme has worked very well, actively attracting foreign capital to Malaysia.