Are those investors who go to Vietnam to buy houses still able to survive?

Whether to go to the harvest era, or to be harvested by the times.

April 27, 2023, Hanoi, Vietnam, pictured with Hanoi's urban architecture.

Wentong Ren Dehui Liu Shuqi

Editor|Yu Le

"The first few months of 2023 are going to be difficult," Wei Xiao, a Hainanese who has invested in buying a house in Vietnam, told us. "My rent, which was originally priced at $2,500 a month, dropped by more than $100 at first, and then a quarter of the rent was gone."

At the end of 2019, Wei Xiao bought three houses in Ho Chi Minh City, Vietnam. By the end of 2022, house prices had doubled and rental returns remained at around 6%, compared to an average return of around 2.4% in Hainan at the same time.

In the first half of 2023, the situation took a sharp turn. First, the Vietnamese government opened a series of anti-corruption storms, a number of real estate executives were arrested and investigated, new bonds issued by real estate enterprises were strictly restricted, and cash repatriation was difficult. A large number of projects were stopped, and a large number of housing companies and intermediary companies closed down and laid offs.

There are many more Chinese investors like Wei Xiao. According to CBRE, a real estate services and investment company, Chinese buyers accounted for 52% of all foreign buyers at the end of 2022, topping the list. Most of the Chinese buyers are from Chongqing, Fujian and Liangguang. Among them, 86% of buyers for investment purposes are buyers, and most Chinese people choose to invest in housing.

Most of these mature investors are engaged in finance, consumption and related industries. They are optimistic about Vietnam's development and see Vietnam as the next China.

However, the crisis in Vietnam's property market has cast a shadow over their investment prospects.

Looking for the next China

Vietnam began allowing foreigners to buy houses in 2015. Sarah, the founder of the Vietnamese agency Maxland, has been in the market since then, first investing in more than a dozen properties herself, and a few years later in the brokerage business.

In Sarah's view, Vietnam is a worthwhile investment in terms of culture, economy and population. "Compared with other Southeast Asian countries, Vietnam's security is more stable, and its food and culture are relatively similar to China. Moreover, Vietnam's population base is large, dividends are many, and the economy is in a period of take-off, which is a good time to invest. She said.

Many investors told us that they all thought that domestic housing prices were about to peak, and saw that many foreign-funded manufacturing industries had moved factories to Vietnam, and Vietnam's GDP growth rate has been quite high, so they started the idea of buying houses in Vietnam to invest.

"After experiencing house price increases in Beijing and Shanghai, Chinese investors are willing to believe their vision in Hanoi and Ho Chi Minh City." An agent at First Want Real Estate in Vietnam told us. A number of agents said that Chinese clients are used to seeing Ho Chi Minh City as the next Shanghai and Hanoi as the next Beijing.

Looking at the increase in house prices in Vietnam before the epidemic, there is indeed a shadow of China decades ago.

In 2003, Vietnam promulgated the third Land Law after revision and improvement, which made detailed provisions on land investment and management, and after that, the Vietnamese property market began to take off.

Although in 2013, Ho Chi Minh house prices were cut down from a peak of $4,000-6,000 per square meter to $1,500-2,500 due to the Fed's interest rate hike, the following decade has been smooth, and the epidemic has not been greatly affected. Housing prices in Vietnam have soared, especially in Ho Chi Minh City and Hanoi. Among them, Ho Chi Minh City has a higher base, and the increase in the past three years is not as good as that of Hanoi.

According to CBRE data, from 2019 to 2022, the average residential price in Hanoi increased by 21.2% to $1,934 per square meter, with luxury projects seeing the largest increase, rising from about $4,000 to around $5,500; The average residential price in Ho Chi Minh City rose 2.5% to $2,564 per square meter.

In April 2022, the news that Changjiang Group, led by Li Ka-shing, was about to cooperate with Vietnamese real estate developer VTP Group to jointly develop real estate projects, pushing housing prices and investor enthusiasm to the highest point.

Eco green Saigon Community, District 7, Ho Chi Minh City New District, photo courtesy of interviewee

Shen Kun, an investor from Guangdong, lamented to us that when he first bought a house, the Vietnamese real estate market was really a paradise for overnight riches.

In late 2021 and 2022, he purchased three homes in Hanoi. A week after the purchase, all three houses were successfully rented out. As of April 2023, house prices have risen by around 13% with a return of around 4.5%, compared to an average return of around 1.7% in Guangzhou from 2021 to 2022. As far as he knows, there are also people who have higher rental returns.

At that time, Shen Kun was concerned about which city could earn more by investing. After comparing different properties in Ho Chi Minh City and Hanoi, he believed that the housing prices in Ho Chi Minh City have almost doubled in Hanoi, which is not the best time to invest, so he chose Hanoi.

Many intermediaries also agreed with Shen Kun's statement. Hanoi Diamond House real estate agents told us that compared to Hanoi, Ho Chi Minh City has a smaller area, limited development space, and less sophisticated urban planning. Moreover, Ho Chi Minh City's industries are mostly low-end manufacturing and rely more on imports and exports, while Hanoi is surrounded by factories and R&D bases of companies such as Samsung and Apple, and industrial upgrading is faster.

"Buying a house in Vietnam looks at the location, the traffic, and the tendency of the locals. More locals are now willing to make Hanoi their home. The agent of Shouwang Real Estate said to us.

Sarah believes that Ho Chi Minh City is still the largest city in Vietnam, and its degree of development, internationalization and demand are unmatched by Hanoi for a while. "Our company has operations in both cities, and Hanoi's housing prices are low from a low base, which is the reason why it has increased more, but it does not mean that housing prices in Ho Chi Minh City have peaked." She said to us.

Buy a house in a bunch, rent it out quickly

To buy a house in Vietnam, you must first have plenty of cash. When buying a house, the developer only accepts two currencies, VND and US dollars, while the local loan interest rate in Vietnam is as high as 12%, so it is generally purchased in full.

Investors either have plenty of cash on hand or need to lend money where interest rates are lower. It is more common in Taiwan and Hong Kong, where lending rates are around 2%.

The number of foreigners buying houses in Vietnam is restricted. Vietnam's Housing Law stipulates that the maximum share of foreign purchases in a high-rise residential project is 30%, and the maximum purchase share of foreigners in a villa project is 10%. After buying a house, you will acquire a property title for 50 years, which can be renewed for another 50 years after expiration, and can be sold to foreigners or locals if you want to resell it.

He Ruilun, chief operating officer of LE MONT Investment Joint Stock Company, was impressed by the Chinese house flippers before the epidemic, who were not only large in number, but also quick and accurate. "From 2015 to around 2020, Hangzhou, Yiwu and other cities often have house speculation groups come to Vietnam to see houses. A group of more than a dozen of them can talk about some preferential discounts, and sometimes a group can buy 50 sets and then rent them out. He recalled.

Many investors and intermediaries mentioned that because of the greater focus on safety and comfort, whether it is Hanoi City or Ho Chi Minh City, the key investment areas of Chinese are new districts, and their usual life is not too far from the fixed area.

Since graduating from university in 2009, Zhan Xiangyu has lived in Ho Chi Minh City for nearly 15 years. In her view, life in Ho Chi Minh is clearly divided between different regions: the second and seventh districts are dominated by foreigners or wealthy locals, and they are also the focus of investment by Chinese house speculators.

It is well-equipped and safe, with plaques in various languages, and an international school for foreign children. The lush greenery of the street trees gave her a sense of intimacy at home.

A district in the center of the Old Town of Ho Chi Minh City, photo courtesy of interviewee

Chinese speculators often rent their homes to local young people looking for a better quality of life, new groups of citizens or foreigners sent to work here, and the rents here are relatively higher. A slightly better two-room room, furnished and renting for at least $1,500 a month. In the old city, a furnished two-room house costs about $400-$800 a month.

Relatively speaking, small and medium-sized apartments are better for rent, suitable for young people who have just come out to work, and the rental return can reach 5%-7%. Larger homes are generally sold to families with children. The agent of Vietnam Diamond House told us, "The house can basically be rented out within a month, and in some communities, each house can change hands two or three times." ”

Risks and opportunities

Since entering 2023, with the emergence of the Vietnamese property market crisis, many people who come to Vietnam to buy houses with the "dream of making a fortune" have lowered their expectations.

Wei Xiao had friends who invested in real estate in Ho Chi Minh at the same time as him. The friend did not survive this period of house price decline, and the two houses in his hand were sold at low prices, and half of the money was pasted. "I survived, but I don't have much hope for future house price increases, and I'll be ready to shoot when I'm almost back." Wei Xiao said.

The root cause of the property crisis lies in the excessive dependence of the Vietnamese economy on foreign investment and exports.

In 2022, Vietnam's total exports accounted for 91% of GDP. Today, the United States remains the number one destination for Vietnam's exports, accounting for about 26%.

With the sharp interest rate hike by the Federal Reserve that began on March 16, 2022, the US dollar reversed, and the exchange rate of Vietnamese dong against the US dollar fell by nearly 7%, and the Central Bank of Vietnam was also forced to announce a rate hike on September 22, 2022, raising the benchmark interest rate by 200 basis points within 3 months, and the mortgage interest rate rose to 16%.

Vietnam's exports fell 7.6% year-on-year in August 2023, the sixth consecutive month of decline, and the longest decline since 2009 was further lengthened, according to the General Statistics Office of Vietnam. Vietnam's GDP grew by 8% in 2022 and maintained an average growth rate of 6.8% in the 30 years before the pandemic. However, in the second quarter of 2023, Vietnam's GDP growth was only 4.14%

Residential market data is also bleak. Taking the Hanoi market as an example, according to CBRE data, the supply of residential apartments in Hanoi in the first half of 2023 was 3,926 units, down 53% year-on-year, and the sales volume was 4,280 units, down 60% year-on-year.

In addition, Vietnam's examination and approval procedures are complicated, with the approval time ranging from 2 years to 3-5 years. Previously, some developers had a fluke mentality and did not wait for the approval to be approved to work privately, or "painted pie" publicity to the vacant land before the approval stage. These developers have all been investigated and dealt with in this crisis and have become the main force in the end of the disaster.

Wei Xiao said that the Vietnamese government has indeed taken some measures, but they are all symptomatic but not the root cause.

"Vietnam's central bank and regulators have relaxed the standards for lending and financing real estate enterprises, but I, as an investor, still don't know where the money goes; The central bank began to cut interest rates, but the mortgage rate was still as high as 12%; Some developers also have promotional strategies, but they still have to pay in full within the stipulated time to enjoy the discount. He said.

Sarah also analyzed that it is still difficult for Vietnam's housing market to fully recover in a short period of time. "The first is that the epidemic has just ended, and travel is not particularly convenient; Second, in the context of the economic downturn, everyone's investment is also more cautious, and housing prices in Hanoi and Ho Chi Minh are no longer as cheap as they were a few years ago. Most of the investors who are now investing are experienced and mature investors who know Vietnam well. She said.

In the face of the cash cow of Chinese buyers, the Vietnamese real estate market appears ambiguous and wavering.

According to Vietnamese media reports, ordinary Vietnamese citizens have expressed dissatisfaction with foreigners' house speculation, and some citizens have petitioned the government to ban the sale of properties to Chinese, and the government also tends to give priority to local buyers.

The attitude of developers, on the other hand, is to enjoy the money and reputation brought by Chinese speculators while constantly controlling their quotas to prevent a large influx of Chinese buyers and crowding out all the places.

Vinhomes City, the property of Vinhomes, one of Vietnam's largest developers, stopped selling to Chinese in August 2022 after experiencing an influx of Chinese speculators. This is also the current operation of many developers, either simply do not accept foreign buyers, or stop selling to Chinese halfway, and there is no way to sign a sales contract.

Zhan Xiangyu explained to us that it is indeed very difficult to get the real estate certificate now, but as long as the purchase and sale contract is signed, it will not affect the normal transaction of the house, and the general formal agent will also emphasize this point with the customer.

Now she is no longer anxious about not having a title deed, "anyway, it is still far from 50 years of property rights, and no title deed does not affect the sale and purchase, and it is useless to worry." ”

In addition to the income from investment, most Chinese people are still worried about the problem of off-plan housing due to market chaos.

On June 1, media reported that Vietnam had suspended more than 1,200 real estate projects, involving a total investment of nearly 800 trillion dong (about 241.3 billion yuan). Vietnam's Youth Daily newspaper said 400 projects in the capital Hanoi were stranded, and Ho Chi Minh had more than 300 stalled projects. Some of these suspended projects are irregular, some procedures are incomplete, and some are losing money, and they need to wait for the government to evaluate before deciding to rectify, acquire or dismantle and rebuild.

A number of investors who invest and live in Vietnam say that the choice of region and developer is important. "It is indeed rare to see unfinished buildings in the new area, because it is generally planned and built by large developers. The unfinished buildings are mainly concentrated in remote areas of the city, mainly illegal projects and tourism real estate. Zhan Xiangyu said.

Sarah also said that some off-plan properties do run the risk of ending up halfway. "If the customer's funds are sufficient, we recommend that the customer buy an existing house, but there are not many existing housing projects on the market at present. If you want to buy off-plan housing, you must choose some international developers or strong local developers. She said.

Contrary to the worries of home buyers, agents generally remain cautiously optimistic. They agree that the real estate recession is actually the government's active brakes in the face of economic downturn. "Although the economic growth rate in the first half of the year is not as good as before, the economy will definitely warm up in the second half of the year, and now is the best time to get to the bottom." Shouwang Real Estate Agency said.

However, in Shen Kun's view, now come to Vietnam to buy a house, the possibility of the "harvest era" has become less and less. There are too few houses available for foreigners, and the price and risk are higher than before. If you buy a house in Vietnam now, it is not recommended to resell it within five years to earn money. At least five years later, Vietnam's real estate market will enter the stock era.

"If you want to invest for the long term, you have to accept the ups and downs of returns. Investing in Vietnam now requires rationality. He said.

Interns Zhang Yu and Yang Xiaoge are also helpful to this article. Shen Kun, Wei Xiao, Zhu Yue, and Sarah are pseudonyms.