Vietnam's real estate is now firmly in recovery mode based on firm foundations.
Both GDP and credit growth have recovered as Vietnam becomes a favoured regional manufacturing hub which will help to drive sustained real income growth. In fact economic growth is expected to sustain +6% GDP in the short term and income and credit growth should both average +10%pa. Furthermore, policy initiatives, including relaxing of foreign ownership regulations as well as subsidised credit markets are also helping expand real estate ownership.
Despite this, property prices are still only at 67% of peak 2008 levels. Affordability is improving. Rental yields are currently 6-8% pa. When we consider that only 30% of the population is urbanised, and expected to grow by 3 percentage points per annum, then it makes sense to concentrate on the main cities.
My favoured city for property investment in Vietnam is Ho Chi Minh City, which is currently experiencing a boom in Infrastructure including major urban infrastructure projects (New mass transit rail system, as well as a new system of express ways and ring roads). Therefore the outlook for the next three years is very bright indeed.
Ho Chi Minh is expected to offer a cyclical recovery with structural catalysts and I predict property price appreciation of 15% pa over the next 3yrs, along with 6-8% pa rental yield. Therefore, one could expect +20% annualised return per annum. This return is a base case scenario, and would only bring prices back to previous peaks and and would arguably represent a more sustainable level given the improving economic activity and outlook.
Preference for Commercial Property
We like commercial property as it is expected to be a key beneficiary of the various economic improvements and increased infrastructure spend as well as urbanisation thematics. Once again, my preference is for HCMC and especially commercial and residential projects in Districts 2 and 9 as well as looking at the Thu Duc area in the east of the city, to take advantage of the new infrastructure, accessibility and decentralisation of the CBD. Preference is for Retail and Industrial over Office, as we see better yields and less supply in these sub markets. Ground floor retail looks most promising, given the significant trend of rising domestic consumption. Logistics Industrial also looks interesting, especially near the growing port areas. And we believe both these sub markets can deliver almost double digit rental yields, in the right locations.
Prices are quoted in USD and VND, but are physically transacted in VND. The VND is a managed currency and not yet freely floating. So, one must consider the currency risks when purchasing property in places like Vietnam. However, the currency, while steadily depreciating against the USD, is being managed with allot less volatility than in previous years, highlighting the Government’s successful efforts to support the economic stability and growth of the country.
Inflation Under Control
With inflation down to only around 1% and lending rates down to 8% from double digit levels reached in 2011-12, Vietnam is on a much stronger footing. This has supported a recovery in banks lending activity and improved affordability generally.
A Future Second Home or Retirement Alternative?
HCMC is a very liveable city with a rising demographic of young upwardly mobile forward thinking population. While there are always traffic issues associated with large fast growing population cities in Asia, the new Mass Transit train network, freeways and ring roads will all alleviate the strong traffic growth expected into the city in the coming years. HCMC has a really “buzz” about it. Given its combination of great weather, low cost of living, and an exotic and rich culture, I expect Vietnam to become the next big Asian location for travel and retirement. Note that at this stage there are no retirement visa scheme is available, and retirees living in Vietnam are required to make use of either long term tourist visas, which are available for a maximum of 3months at a time, or a 5yr long term visa, which needs to be “checked up” and renewed at immigration offices every 3months.
If you would like to know more about how to get invested in Vietnam, please email me at [email protected]