Tactics for US to get ahead in real estate

Tran Thai Binh, partner at LNT & Partners

Since a bilateral trade agreement was executed in 2000, trade ties between Vietnam and the United States have been tightened more and are on the right track. This can be seen from the revenue trade between both countries increasing year by year, resulting in a rise from $1.5 billion in 2001 to $111.56 billion in 2021. Vietnam and the US have still been trying to boost this trade relationship through various attempts, discussions of free trade agreements, and so on.

It is evident that Vietnamese businesses are now emerging into the US market for business expansion. For example, VinFast invested around $400 million in electric car manufacturing in North Carolina, Hoa Binh Corporation has plans to expand in the US also, and Vietnam Airlines has recently opened direct flights to the US as well. So, there are surely more and more business opportunities for American and Vietnamese businesses in trade and investment areas.

Yet, in terms of real estate, US investors seem to be slower than those from other countries. While US investment in Vietnam was ranked 11th in 2021, it is much lower-ranked in real estate. In the eyes of American real estate, the market is still small with low-income players, which is not so attractive to them.

Current market situation

However, the market situation in Vietnam is now very different from its shape 10-15 years ago. The housing market is vibrant in welcoming a significant number of investors from Hong Kong, Singapore, South Korea, and even Japan, who have set foot in the market, and indeed gained good profits in return.

Further, after over two decades of continuous development, there is a greater part of the population who has more payment capabilities, especially in housing and property. This can be proved by the fast absorption of housing units launched by real estate developers in the last three years.

The market is always in high demand. This is partially thanks to the investment by the young population of Vietnam who always dreams of owning their first home. According to many real estate observers such as Savills, CBRE, and Knight Frank, this trend will be a long-term one.

Besides that, in the wave of moving or splitting supply chains by international manufacturers from China to other southern countries, Vietnam is one of the most notable and considerable destinations due to its political stability, young population, affordable labour costs, improved infrastructure, and other potential economic factors.

Therefore, demands on industrial properties, factories and warehouses, offices and serviced apartments for expatriates are high.

The trade dispute between the US and China, plus tensions in Ukraine, are also pushing international manufacturers on the move as well. This has been so in the last three years and is still going to be the trend in the coming years.

With the current growing and promising market, maybe it is time for American investors to rethink before becoming the latecomer in this market.

Time to rethink

The high level of transactions in the Vietnamese real estate market has created a force for the Vietnamese government to thrive on reshaping the legal systems on land and property. With various attempts by Vietnam’s political system and government over a long period, loopholes and shortcomings in relevant laws have been materially improved, pushing the market to develop in a more transparent way.

These reforms have administered a solid legal frame for real estate development and business in Vietnam, and hence reshaping the market.

In fact, residential housing is a high-potential market for foreigners, partly because the prevailing Law on Residential Housing is open for individual or foreign-invested entities to own residential units with easier conditions. Therefore, American investors can consider this channel.

Another area to look at is tourism properties. Many professionals forecast that tourism in Vietnam no doubt will see a boom in the next few years for its long and attractive coasts, lower living costs, and tourism safety, regardless of neighbouring tourist destinations. In fact, the Vietnamese government does not consider such countries as competitors but as partners.

With the confirmation of the government last year that tourism properties like condotels or villas will be issued with ownership title to owners, the segment is also attracting a lot of investment. American financiers may think about investments in the sector or providing hotel operation services.

Prices of tourism properties lowered in the past couple of years, but will eventually go up in the near future and will create a good profit margin in this segment. Therefore, this can be viewed as the golden period for foreign investors to dive in if they want to gain.

Chinese investors are keen on real estate funding, which can be seen now in many countries. But while American investors seem slower in making decisions, China is still restricted amid the pandemic and so Americans may make use of the advantages to replace them in the market.

With knowledge and technologies in property development and operation, American investors may dive into the market by way of acquisition of current projects and properties or partnering with local developers who usually have available land banks for real estate project development. The market still has room for wise and prompt investors.

There are legal corridors to go for acquisition and such cooperation as well. With assistance from good advisors in getting through deals, investors will surely complete them and gain just as others have up and down Vietnam.