With a new law to allow foreigners 70-plus years of leases, Vietnam has become one of the most openmarkets in Asia
POST REPORTERS, AFP
As Thai real-estate companies such as Preuksa Real Estate Plc are looking to bid for land plots in Vietnam for development, the surging demand in the country has taken a new turn after the government issued new laws that allow the lease of land for 70 years and then extensions without any payments.
The move by the Hanoi government to issue Decree 84 earlier this year brought the communist country one step closer to opening up its real-estate market to foreign ownership and in effect putting treatment on par for both local and international developers.
Decree 84, issued in May, stated that foreign investors can now lease land for 70 years, extendable without additional payment. This effectively creates a perpetual lease and means that overseas developers are effectively treated the same as Vietnamese developers, say executives of CB Richard Ellis, the world's largest commercial real estate services firm.
Previously the longest lease available to a foreign purchaser or investor was 50 years. The creation of what in effect a perpetually renewable lease means that Vietnam now has one of the most open property markets in Asia. China only offers a maximum 70-year lease to foreign investors.
"The effect of this has been a massive increase in interest from foreign developers," Marc Townsend, managing director of CB Richard Ellis in Vietnam, said in a statement. "We are meeting developers from Hong Kong, Singapore, Korea, Japan and Thailand on a daily basis."
Thailand, by contrast, offers foreigners 30-year leases with the possibility of one or maybe two 30-year extensions at the owner's discretion.
Among the Thai companies that have announced their intentions to invest in the booming Vietnamese real-estate market has been Preuksa, which said it would invest close to two billion baht in various projects in Vietnam, India and other parts of the region.
Preuksa, the country's second-largest residential developer, said it planned to bid for land in Ho Chi Minh City in mid-December to develop medium-priced housing units in which it specialises.
The move by the government to open up the markets has made the entry of companies such as Preuksa easier.
Apart from the opening up of the residential property sector, Vietnam has also made significant moves in other sectors. On Jan 1, 2009, Vietnam will open up its retail markets to international retailers in compliance with its commitment to the World Trade Organisation, a move that is likely to help companies such as Central Pattana Plc, which has already announced its intentions to set up a venture there, much easier.
"We are seeing international retail brands looking at setting up their first outlets in Asia in Vietnam because they are allowed to own and control their operation," added Mr Townsend.
The boom in the property sector comes amid the growth of the Vietnamese economy, which is among the fastest-growing in the region, and this has prompted a sharp increase in prices of both rental and sales.
Vietnam today is enjoying a property boom, with grade-A office rents now at US$40-45 per square metre (excluding service charge) in Ho Chi Minh City, approximately three times more than Bangkok's office rentals.
In terms of purchasing of properties, investors are queuing overnight to purchase condominium units, with prices of good-quality projects now hitting $3,500 per square metre, around the same price as an average grade-A condominium project in Bangkok.
This is an indication of a real-estate boom happening, where prices are soaring on properties yet to be built and investors are camping in the streets to get first chance to buy.
Vietnam is witnessing a sprouting up of western-style suburbs and apartment blocks, driven by more than 8% annual economic growth and a stock market that has given investors ready cash to spend.
Realtors say the pace is so hot that supply cannot match demand, which is sending prices zooming off the charts - no mean feat in a country where per-capita GDP is under $1,000.
"Prices have doubled in 12 months, nearly tripled in some cases over the past 18 months," said Brett Ashton, managing director of Savills Vietnam, a property services firm.
It will take two years in the country's commercial centre of Ho Chi Minh City and surrounding areas to match demand and cool down prices, Mr Ashton said.
In another sign of the boom, hundreds of people in the city queued all night several weeks ago to try to buy flats on a site where the developer had not even broken ground yet.
"A lot of local Vietnamese people have made a lot of money in the stock market in the last two years or so," said David Blackhall, a deputy managing director at VinaCapital Real Estate.
"Now they see real estate as another opportunity to invest and make very quick returns."
In just one year, some Ho Chi Minh City neighbourhoods have seen apartment prices jump as much as 100%, he said, adding that more than 80% of those investing in property are paying in cash.
"Today, to spend $1,500 or $2,000 a square metre is not unusual," Mr Blackhall said. He said he could see the price rising to $4,500.
Though 70% of the country's 84 million people still live in rural areas, more and more of them are heading to cities, armed with increased buying power.
Mr Townsend says that despite all this CBRE is very positive about the prospects for the Vietnamese property market and with the change of law and the higher participation by international developers will result in the construction of world-class developments and will bring in modern construction management and building technology.
The fact that there is liberalisation being undertaken in the retail segment also means that Vietnam will be able to leapfrog over other countries by offering a wide range of international brands. Brand owners will be willing to invest in their brands in Vietnam because they can own and control their operations, he said.
The boom is also affecting the commercial property market. The amount of "international quality" office space in Ho Chi Minh City, the former Saigon, should increase from 320,000 to 800,000 sq m in three to five years, said Mr Townsend.
The inflow of direct foreign investment and growing interest in the real-estate market by overseas Vietnamese are also helping to push prices up.
"The present rise in real estate prices essentially results from across-the-board speculation and many weaknesses in fiscal policy," said Hoang Xuan Bac, architect and deputy director of a Hanoi real estate project.
To cool the fever, a former environmental vice-minister, Dang Hung Vo, has proposed legislation to limit speculation. But his proposal has not been taken up for years.
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