To Buy Or Not To Buy

Be knowledgeable of the pros and cons of investing in Vietnam

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 government introduced the Vietnamese Law on Residential Housing. The main question to ask is, “Do I wish to follow the rules that govern buying property here?”

Some of the basics to take into consideration are the idea of buying the structure but not the land it’s on. Currently, leasehold can only be obtained for 50 years in Vietnam. When you compare this to leasehold in the UK for about 120 years then it’s quite short. Most mortgage companies won’t lend on a property in the UK if the leasehold is less than 80 years and this is true in many countries.

There are other caveats, such as only 30 percent of flats in any one particular building are available to foreign investors and 250 landed houses in a particular ward. So restrictions apply and you will very likely be buying the property outright because 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 because 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 in 2017 and some would say it is a thing of the past but that’s 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. 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 non-refundable. 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 it does stop the seller from looking for a higher bid and screwing you. Get your documents notarized to remove all doubt. Move onto due diligence and then exchange of contracts.

Vietnam Versus Elsewhere
Vietnam is a frontier market now going through a period of economic growth in the high 6 percent range. Given the trade war between the US 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 underpriced asset values. Or at least currencies that are devalued.

The UK for example has lost 30 percent 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. It’s what is around the corner that deserves most scrutiny.
Me? I’ll stick with renting for now.

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