Is Vietnam Becoming The Next China? Real Estate Developers Think So
The local market is witnessing sustained rent growth and occupancy levels.
According to Forbes, Vietnam is fast becoming the new China—in terms of real estate, that is. And with China taking center stage as the region’s reigning real estate monolith, that can’t be bad news for Vietnam.
With a similar demographic, growing middle class, and young population driving strong economic growth, Vietnam might just become a real estate powerhouse. And as the country emerges from a fiercely prohibitive Communist administration, the door is slowly opening for foreign investment. In fact, the real estate market has seen a 12 percent increase in investment in 2016 compared with 2015. Furthermore, the country’s shift from an agrarian economy into a post-industrial, service-driven economy over the last few decades has driven high demand for urban property, with both residential and luxury hotel space commanding particular interest. The market is currently flooded with new construction.
It’s noteworthy because it’s new. Historically, Vietnam’s real estate market has been chronically underdeveloped, as the political and economic climate limited any serious advancement. But now, as supply begins to meet the demands of the country’s population of 95 million people and the country’s macroeconomic environment experiences an upward trend, the market is witnessing sustained rent growth and occupancy levels. So why now, and why Vietnam?
The relocation of industry from China due to rising operating costs has seen Vietnam’s economy go from strength to strength. As a result, the country’s economic growth has increased by a sturdy 6.4 percent (compared to China’s 6.7%). Vietnam also poses a strong industrial draw. As factories bring people into the cities, the need for urban housing has grown. And as the industrial landscape strengthens, other previously fruitful sectors such as farming have dwindled. In fact, farming shrank from 25 percent of Vietnam’s economy in 2000 to just 18 percent in 2004. However, it’s the region’s burgeoning tourist trade that is really changing the fortunes of this beautiful country.
With 3,260 km of scenic coastline, Vietnam is offering both residential and hospitality developers a fail-safe investment option. In fact, Vietnam gets 13.9 percent of its economic output from tourism. This number is ahead of super-developed tourist countries like Britain (11.2 percent) and America (8.2 percent.) This sector is providing 2.25 million jobs, over 4 percent of the country’s entire workforce, and accounting for 44 percent of the economy.
But the new resorts popping up along the coast don’t just mean big bucks for the tourism sector. When developers build resorts, they often include private villas in the same development, with residents and hotel customers sharing the same facilities. Prices for these highly sought-after villas range from $400,000 to $5 million. They are so popular that developers are now beginning to offer investors guaranteed returns of between 6 and 10 percent each year.
However, this does not mean the country and its economy doesn’t face challenges. Neither residents nor non-residents are able to purchase land, as it all, nominally at least, still belongs to the Communist state. Homebuyers can own the house built on a piece of land, and foreigners can secure a lease of up to 50 years on a property. This still poses a financial threat to potential investors. As an incentive, developers have begun incorporating into their contracts that should foreign ownership becomes legal during this lease, the property will be transferred to the foreign owner.