By Lawrence Young
One of the burning topics I am asked about frequently and I hear discussed with heated debate is the subject of property investment in Vietnam. So what’s it all about? Is it fraught with danger?
The answer isn’t simple. In July 2015, the Vietnamese Government introduced the Vietnamese Law on Residential Housing. So the main question to ask yourself is “do I wish to follow the rules that govern buying property here?”
Some of the basics to take into consideration is the idea of buying the structure but not the land it’s on. Currently a leasehold can only be obtained for 50 years in Vietnam. When you compare this to leasehold in the UK for circa 120 its quite short. Most mortgage companies won’t lend on a property in the UK if leasehold is less than 80 years and this is true in many countries.
There are other caveats such as only 30% of flats in any one particular build are available to foreign investors and 250 landed houses in one particular ward. So restrictions apply and you will very likely be buying the property outright as sourcing a mortgage in Vietnam is almost impossible. It can be done but you will be chasing your own tail. However, if you happen to have a Vietnamese spouse the rules do change rather dramatically.
Having a mortgage and leveraging on property will keep cashflow free as it is not all tied up in a tangible item that is not a liquid asset. This gives you more access to liquid cash to place in more investment opportunities. You can purchase property without the need for putting large amounts of cash up-front and mortgage backed property should become self-funding if the rental income is higher than the repayments. A major target for the savvy investor to make the numbers crunch.
One of the biggest frustrations appears to be the ongoing saga of obtaining the ownership certificate from any developer. This problem started kicking in during 2017 and some would say it is a thing of the past. Debatable.
The law states that foreigners cannot own properties in areas that are reserved to protect the national defense and security. And this is where the problem seems to have surfaced from. It is for the Ministry of National Defense of Public Security (“MNDPS”) to decide on what construes as property that would be affected under this law.
The MNDPS decides whether a property is in an area that is reserved to protect the national security which technically could be every square inch of Vietnam. It’s advisable to ascertain whether an ownership certificate is available and open to interpretation in the future.
If investment in Vietnam is still for you then some of the usual rules will apply. Start with a reservation agreement. If a deposit is involved check the agreement. If you pull out as a buyer that deposit will be kissed goodbye. If the seller pulls out, the agreement should have a clause that they pay double the deposit back. Not what you are looking for but does stop the seller from looking for a higher bid and gazumping you. Get your docs notarized to remove all doubt. Move onto due diligence and then exchange of contracts.
But how does Vietnam compare to property investment elsewhere?
Vietnam is a frontier market now going through a period of economic growth in the high-6% range. Given the trade war between USA and China, Vietnam is well-positioned to attract multinational firms which are increasingly worried about China’s stability amid tariffs.
The best places to invest are those with favorable demographics, and fair asset prices. Other well established jurisdictions already have good existing infrastructures, great demographics and under priced asset values. Or at least currencies that are devalued.
The UK for example has lost 30% of its currency value in recent years so using a cross currency deal exchanging USD (Or a suitable currency) for a UK property might seem like a good idea right now. You should receive good property appreciation values and a future FX win if we believe that GBP will strengthen again in the future.
We all wish to be the “king of our own castle,” and for some that may be unobtainable with global prices. Getting on the property ladder for many of the world’s population will never happen. But for those with liquidity, Vietnam may well be an attractive place to invest. Its what is around the corner that deserves most scrutiny.
Me? I’ll stick with renting for now.
About Lawrence Young
Originally from the United Kingdom, Lawrence went on to further his career where he spent 14 years in Luxembourg working for financial institutions such as JP Morgan. During that period in Luxembourg he worked as an interbank money broker trading multiple currencies for large banking institutions including interest rate swaps. He also traded Eurobonds in both the primary and secondary markets and stock broking. More recently Lawrence spent 8 years working in Jersey, the Channel Islands for Lloyds TSB where he accounted for £1.2 billion of funds under management across 7 of Lloyds TSB’s retail funds. He is a Fellow of the Securities and Investment Institute, FSI (Chartered) and has qualifications under the Association for Certified Chartered Accountants (ACCA). Lawrence has also gained qualifications under the Malaysian Insurance Institute and continues to complete annually, continuous progressive development quotas in the UK due to his membership in the institutes and associations mentioned above.
He is also regulated by the regulatory authorities of all of the jurisdictions that Holborn conduct business in globally. Since leaving the Channel Islands, Lawrence joined the Holborn Group and is now based in our Vietnam office with a portfolio of clients that truly spans the globe and which has been built up over the last three decades. His areas of expertise lie in personal, lump sum or regular monthly premium tax free savings structures, global investment property, higher education fee planning, inheritance tax issues, frozen and open pension planning through ROPS or SIPP’s, life and general insurance, will writing services and offshore company formation and banking.