Not buying it

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Expats indifferent despite fall in property prices

 
Foreigners walk across a street in downtown Ho Chi Minh City. Only three foreigners have bought homes in Vietnam this year.

Malaysian IT expert Teo Jingwei has lived in Hanoi for six years. He is looking forward to spending many more years in the country, given that he married a Vietnamese woman two years ago.

But he is not thinking of buying a house here.

He finds that spending US$400 a month on renting a house in Nui Truc Street, just two kilometers away from his office, is a much better option than paying hundreds of thousands of dollars to own a flat in the city.

"Trying to buy a home in Vietnam is not a good choice to foreigners like me. Prices are too high and procedures are too complicated," he said. "Renting is much cheaper, and property for rent is available, from luxurious villas in wealthy foreigner communities to popular apartments in crowded local residential areas."

Jingwei said he does not intend to buy a property in Vietnam although he is eligible to do it.

Like Teo Jingwei, most expats are not interested in owning home in Vietnam. As of April 10, just 299 expats, mostly overseas Vietnamese, had registered as property owners in Vietnam, according to the Department of Land Registration and Land Use Statistics under the Ministry of Natural Resources and Environment.

Of these, 252 have bought homes in Ho Chi Minh City, 12 in Can Tho. Apartments in the provinces and cities of Ba Ria-Vung Tau, Binh Duong, Dong Thap, Hai Phong and Hanoi have had only one to six foreign customers despite a sharp reduction in property prices over the past few years.

Only three foreigners have bought homes in the country since early this year.

Vietnam has allowed expats to own homes in the country since 2009. The policy was expected to create a breakthrough in the domestic real estate market, but that has not happened.

Vice chairman of the Vietnam Construction Federation, Pham Sy Liem, explained why: "Expats eligible to own property in Vietnam are those working for a long time in the country. However, this number is not big. Most foreigners work here only for several years, so renting a home is better for them than purchasing it."

Meanwhile, many companies have to provide accommodations for foreign experts, so they are not interested in buying home in the country, he said.

Liem said another obstacle to foreigners in buying home in Vietnam was the high price. A villa in Hanoi would cost a million dollars, much higher than several hundred thousand for one in Paris.

Echoing Liem, Vu Tuan Duong, general director of construction firm Licogi 13, said: "Property prices, despite the downward trend since early last year, still stand quite high in Ho Chi Minh City or Hanoi. An apartment in the cities may be priced at $100,000, or even at $1 million. It exceeds the payment ability of many foreigners."

Complicated procedures

Duong said the regulations on foreigners buying or selling property were too strict now. They are allowed to own apartments but not houses, and each foreigner is only allowed to own one apartment, he said.

Meanwhile, many foreigners have said administrative procedures for buying or selling a house in Vietnam are too cumbersome. They find it very difficult to demonstrate that they meet all criteria to purchase property in the country, Duong said.

Under a resolution allowing foreigners to own apartments in Vietnam, which came into effect on January 1, 2009, five groups of foreign individuals and organizations are eligible to own houses in the country.

These include individuals who invest directly in Vietnam or who are hired for management positions by local or foreign-invested companies in the country; foreigners who receive certificates of merit or medals from the president or government for their contributions to the country; foreigners who work in socioeconomic fields, hold a bachelor's degree or higher and who possess special knowledge and skills that Vietnam needs; foreigners who are married to Vietnamese residents; and foreign-invested enterprises operating in Vietnam that need to buy houses for their employees.

Complicated procedures can lower the liquidity of apartments owned by foreigners, Duong said. The resolution regulates that foreign individuals can own an apartment for 50 years and extend ownership once for another 70 years. They must sell or gift their apartments within 12 months of expiry of ownership.

Meanwhile, some expats worry about policy changes that could affect their home ownership in Vietnam, as the resolution is implemented on trial basis for only five years.

Duong said his firm has sold over 300 apartments in three projects in Hanoi in the past few years, but none of their customers are foreigners.

Teo Jingwei said Vietnamese people typically buy homes paying cash or gold in full, but foreigners do it in installments. However, expats find it hard to access bank loans in Vietnam.

The general director of a commercial bank in Hanoi said foreigners often have big incomes, so they have high repayment capacity as well. However, banks have to carefully assess other criteria like how long they will work in Vietnam, he said.

Some people have expressed concern that complicated home ownership procedures and strict regulations for expats could affect Vietnam's ability to attract foreign investment.

However, Liem of the Vietnam Construction Federation said: "Regulation on selling homes to foreigners is strict in any country. It will not have an impact on foreign investment.

"Investors come here to seek profit. So, what they want is simplified investment procedures," he said. "A few obstacles in owning a home in Vietnam are too insignificant to affect their business decision. If they are unable to buy a home, they can live in rented houses or hotels. I don't think it is a big problem."

Loosening the regulations could increase demand in the property market, which has been gloomy for many months, Liem said. "However, our management capacity is still limited, so we should not loosen the regulations too fast now," he said.

Liem said the apartment-for-foreigners segment has big potential as more and more investors will come to Vietnam creating greater demand.

Many expats, in fact, have owned property in Vietnam, often via intermediaries such as Vietnamese relatives and friends. They have done this to avoid complicated procedures, he said.

Not renting, either

Far from being interested in buying a home in Vietnam, foreigners these days are also not very keen on renting them, said Pham Ngoc Huyen, customer service staff of real estate company Megaland.

She said the number of foreign customers renting houses in Vietnam has dropped sharply during the economic recession as many international firms have halted expansion and investment in Vietnam.

"The number of foreign customers looking to rent houses and apartments with our company is 30 percent less than the same period last year, although many owners have reduced their rents," she said. "It is difficult to have even 10 new foreign clients a month. Many others are those who have already rented houses in Vietnam, and are seeking new ones."

Villas in Hanoi's Tay Ho District, which used to be attractive to foreign customers because of its convenient location and reputation for safety, have now become unmarketable, she said.

Villas in Tay Ho, Ba Dinh and Hoan Kiem districts are leased mostly by European and American families with monthly rents of $1,500 or more. Meanwhile, tenants from Japan, South Korea and other countries in Southeast Asia rent apartments in new buildings in the areas of Trung Hoa Nhan Chinh, My Dinh, and Lang Ha for $700-800 each month.

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