Surging Demand (Vietnam)

Vietnam faces surging demand for property but also legal shortcomings

The fast-growing economy of Vietnam has opened tremendous opportunities for real estate investment but there are some challenging factors that overseas investors need to consider before jumping on the bandwagon.


Vietnam's high gross domestic product (GDP) growth rate has been fuelled mainly by its two largest cities -- Ho Chi Minh City and Hanoi -- where GDP growth rates last year were 12.2 percent and 11.5 percent respectively, according to Nguyen Quang, habitat programme manager for the UN-Habitat office in Vietnam.

He said opportunities had arisen due to Vietnam's membership in the Asia Pacific Economic Co-operation (Apec) group, the booming stock market and the entry into the World Trade Organisation. More retailers, distributors and investors have entered the market while more local and foreign companies have set up businesses. As a result, demand for office space has surged.

At the same time, housing demand has risen in line with increased job opportunities, higher incomes and consumer-oriented demand from young workers who make up 60 percent of Vietnam's population.

Mr Quang also pointed to the phenomenon of "repatriates" -- workers who have discovered that they no longer need to be in the big cities to make a good living.

"More repatriates have come back to live in their hometowns as the government has opened more opportunities for them to come back, do business and own a residential unit," he said during a seminar entitled "Asia's Real Estate Cycles: the Vietnam Situation".

As a result, demand is growing while supply in all sectors is very limited. Office and retail vacancies are was low and the upward trend will continue due to growing demand and delays in new supply. Demand for good-quality residential projects is also growing.

Sopon Pornchokchai, president of the Thai Appraisal Foundation, told seminar participants that the Ho Chi Minh City real estate market had a lot of potential to grow as the country's GDP was still relatively low -- about half Thailand's figure -- despite a population of 85 million.

"In Vietnam, the land area is about two-thirds of Thailand's. Land prices in Ho Chi Minh City are very high. Of a unit price in Ho Chi Minh City, the land price is four times the housing price while in Bangkok, the land price is only two times the housing price," said Mr Sopon.

Mr Quang said that amid the property boom, some challenges awaited including legal matters, land title problems, speculation, planning and investment procedures.

He said the legal framework had some limitations such as the legacy of the Communist central-planning system, spontaneous and ad-hoc state intervention, dual ownership of land and housing units, and overlapping responsibilities for land use title supervision and planning.

"Access to land-use rights is complicated, such as long-term use and leases on land," he said.

In Vietnam, people cannot own a land plot but the government can grant them land-use rights. Five types of rights are available: right to transfer, mortgage, inherit, rent and transform land.

Mr Quang said the land-title situation was especially chaotic in urban areas because of unclear administrative responsibilities. People also had limitations in terms of access to formal land and housing.

As well, land information and records are not adequate while land registration and formalisation procedures are complicated. The government's planning system is also rigid and the cost of land transfers is quite high.

Another challenge involves differences in pricing that distort the property market. Land value is determined by administrative measures rather than based on the market while land allocation through bidding is limited.

"We lack a market-based and independent valuation organisation," he said. "The booming real estate market has built a lot of real estate brokers but few of them are professional."

Mr Quang said the planning system was inefficient and ineffective as there was a lack of priority-setting. Little co-ordination exists among mechanisms related to socioeconomic planning, spatial planning, land use and sector planning.

"The government should allow public consultation and participation in plan preparation and implementation," he said.

Constraints exist as well on investment procedures and land allocation. They are unclear and complicated while some regulations overlap.

Project and programme assessment and monitoring also need more appropriate mechanisms.

Other challenges include weakness of business capacity and professionalism, limited capital investment, a lack of market research and strategies, constraints on mortgages and access to financial markets, limited savings mobilisation for the formal real estate market, widespread speculation, inefficient land use and corruption and mismanagement.

Copyright (c) 2007, Bangkok Post, Thailand
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