Indochina Riverside Towers project nearly complete (photo: CBRE).

VietNamNet Bridge – Since the 2003 Land Law and the government’s documents guiding the implementation of the law took effect, the real estate market has become quiet.

The quantity of transactions of land and houses at real estate centres has fallen remarkably. The real estate market has frozen, menacing the existence of many real estate trading companies.

However, some foreign-invested real estate consulting and service companies, such as CB Richard Ellis Vietnam (CBRE), Vina Capital Fund, and Phu My Hung Company, are operating smoothly. Many foreign investors are still surveying, researching and investing in this market. What is happening?

Advantages of foreign investors

There are three types of transactions in the real estate market: purchasing land and houses to serve real need, purchasing such for long-term demand and purchasing for business purposes.

Many individuals and small firms invest in real estate to earn profit but with limited capital: they can only invest in housing for low and medium income earners.

Moreover, as their main goal is speculation, their transactions contribute to driving prices for real estate to higher levels than the real values. They also provide customers with inaccurate information, which make those who really need land and houses distrustful of the market. They have brought about a ‘virtual fever’ for real estate and frozen the market for real estate of low and average values.

In the two largest real estate markets in Vietnam, Hanoi and HCM City, there are tens of high-grade apartment, villa and office for lease projects underway at varying states of completion, proving that the high-grade real estate market is still bustling.

The real need for land and houses for accommodation is great. A survey by CB Richard Ellis Vietnam shows that between now and 2010 around 12,000 high-grade apartments will be built. The issue is, as the value of assets is high, the buyer needs more accurate information about the assets. They need to know that the assets that they buy have clear origin and are managed by professional investors. This is not the advantage of small and unprofessional investors.

The real estate market is a market that requires huge financial resources, which is surely not the advantage of Vietnamese investors. The development of this market highly depends on the ability to source out big and stable financial supplies. Once Vietnam becomes a member of the WTO, the financial service market will be expanded, foreign banks will deeply penetrate into the Vietnamese financial market and foreign capital flows will run into fields showing potential.

Foreign banks often offer various real estate services to serve various social classes. Accordingly, Vietnamese banks will have to change quickly to meet international standards.

The participation of foreign investors who are rich in capital and experienced in management in the new and promising real estate market of Vietnam is inevitable.

Legal corridor for professional business

On the other hand, the move of the real estate market depends on other more objective factors such as state policies, and the legal corridor in business.

Since 2005, the National Assembly and the government have issued some legal documents that serve as the foundation for the operation of this market, for example, the Housing Law, the Law on Real Estate Trading and the Investment Law. Additionally, there are some documents guiding the implementation of the above laws which are to be issued in the near future.

Once those legal documents take effect, they will affect the real estate market as well as investors in this field.

The Law on Real Estate Trading allows overseas Vietnamese and foreign individuals and organisations to trade in real estate and real estate services in Vietnam. Though the business scope in this field of the above subjects is narrower than that of domestic individuals and organisations, the business rights of the above subjects in the real estate sector will be surely expanded. This means that the system of real estate policies must ensure the equality of all economic sectors and be suitable to the economic and social conditions in each period and the international economic integration itinerary.

The government has expanded the range of overseas Vietnamese who are allowed to own houses in Vietnam. Apart from overseas Vietnamese who invest in Vietnam for the long term, experts working in Vietnam regularly and those permitted to repatriate (under Decree 81 dated November 5, 2001), the Housing Law stipulates that overseas Vietnamese residing in Vietnam more than six months can also own an apartment or a house in Vietnam.

There are around 3 million overseas Vietnamese and around 100,000 want to buy houses in Vietnam. Their income is higher than that of Vietnamese people so they target villas and high-grade apartments.

If around 100,000 overseas Vietnamese buy houses in Vietnam, the Vietnamese real estate market will become hot.

The Housing Law took effect on July 1, 2006 but overseas Vietnamese are still waiting for a government decree guiding the implementation of the law to be able to buy houses in Vietnam. However, the policy of the party and the state is to attract resources from overseas Vietnamese, so it is necessary that they quickly be given the right of full ownership of property to overseas Vietnamese.

The Housing Law permits businesses to raise capital for housing projects up to 70% of the total investment capital. According to the Regulations on New Residential Areas issued this January, trading of on-paper houses is banned.

These are regulations that mark a new period for the real estate market. Accordingly, weak investors will be driven out.

The real estate market is still quiet because of certain difficulties in the process of implementing legal documents on real estate issued in 2003. However, the existence of the Housing Law, the Law on Real Estate Trading, and the Investment Law, all of which are suitable to WTO regulations, will be firm foundations for the healthy and stable development of this market. There is sure to be a wave of foreign investment in the Vietnamese real estate market.

(Source: Dau Tu)

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