Law allowing foreigners to own property to cause price fever?

Some experts believe that the new law allowing foreigners to own property in Vietnam will warm the market, and even create a price fever in the market, but others do not share the same view.

Under the pilot scheme on allowing foreigners to buy houses in Vietnam, 21,000 of 81,000 foreigners who have been working and living in Vietnam since 2004 will be eligible to own property.

Nguyen Manh Ha, Head of the Housing Management Department under the Ministry of Construction (MoC), the author of the pilot scheme, said that the scheme had been drawn up in a way that prevented speculation in the context of higher demand over supply in Vietnam.

In Hanoi, some 1,300 apartments with the total area of 220,000 sq m are being leased to foreigners, mostly in the districts of Hoan Kiem, Ba Dinh and Tay Ho.

In HCM City, foreigners are living in 4,000 leased apartments with the total area of 660,000 sq m, mostly in Phu My Hung new urban area, and districts of 1, 2, 3 and 5, and Phu Nhuan.

Foreigners prefer villas and high-grade apartments. In Hanoi, leasing fees range from $700 to $1,000/month on average for every apartment. In HCM City, leasing fees are usually between $1,000-1,500/month on average, and they are more for apartments in the centre of the city, at $2,500-3,000/month. The leasing duration is less than five years.

Though encouraged by the pilot scheme, foreigners still fear that the new policy will face a lot of difficulties in implementation. Richard Leech, Managing Director of CBRE, said that he would buy a house immediately when he was permitted to, but when reviewing the progress made in recent years in the policy on allowing foreigners to own property, said he believed that a lot of barriers still existed.

The Housing Law, which came into effect on July 1, 2006, stipulates that Viet Kieu have the right to buy houses in Vietnam. However, over the last one year, only several Viet Kieu have been able to buy houses in accordance with the new law.

Prior to that, in 2001, the Government enacted Decree 80 allowing several Viet Kieu subjects to buy houses in Vietnam. However, only some 100 Viet Kieu have bought houses in accordance with the decree.

The biggest obstacle, according to experts, is that the law still needs circulars and other documents to be promulgated to guide the implementation of the law. Before the Housing Law came into effect, optimists estimated that some 100,000 Viet Kieu would return to Vietnam to buy houses, and the real estate market would see some $10bil injected.

In HCM City, the Phu My Hung new urban area is the favourite of many foreigners. However, over the last one year, the capital flow into the real estate market has proved to be ‘modest’.

Meanwhile, Vietnam’s laws still do not allow foreigners to own land and property (including Land Law, Housing Law and Civil Code). If the pilot scheme is accepted and becomes the official regulation, it will still need the ratification of the National Assembly and the amendment of related laws.

Real estate developers said that the new law on allowing foreigners to own property would not likely cause a price fever.

Tran Thanh Tuan, Director of the Phuc Long Property Company, said that in Hanoi and HCM City, where many foreigners want to buy houses, the prices are too high for many foreigners to afford.

Moreover, according to Mr Tuan, the difficulties in assigning houses and the prohibition against leasing houses will also keep foreigners from owning property. Mr Ha from the Ministry of Construction himself also said that the number of foreigners eligible to buy houses was limited, and the pilot scheme would not have big impacts on the real estate market.

Thomas Tung, a Viet Kieu, who has bought a house at The Manor, related that one would think that it would be better to own a house than lease a house and pay $2,000-3,000/month. However, his friends, who heard about the new regulations, said that they would not be able to pay $200-300,000 to own an apartment.

Park Moon Sick, Business Director of V-Star high-grade apartment project, said that many South Koreans who leased V-Star’s apartments wanted to buy houses but most of them did not meet the requirements set by MoC.

Mr Park added that with the price of more than $100,000 for a medium-sized apartment in the Southern Saigon urban area, those who lived in Vietnam for less than five years would find it better to lease than buy apartments.

Meanwhile, Do Thi Loan, Secretary General of the HCM City Real Estate Association, asserted that the new law would have positive impacts on the real estate market.

According to Vo Van Lam, Deputy Director General of the Lam Phuc Property Company, a recent survey by the company shows that some 2,000 foreigners in HCM City want to buy houses at once. He said that the price fever would not occur in the first year after the pilot scheme was implemented, but said the demand would surely increase in the next years.

However, even the most optimistic are not predicting that the new law will stir a fever in the market, as the number of foreigners eligible to buy houses is not big enough. Meanwhile, a series of real estate projects to be put into operation in two or three years will help balance supply and demand.

Source: VNE