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Opportunities and challenges of Vietnam's real estate market in 2020

Monday 01, 06 2020
Thanks to investment from not only domestic but also foreign investors, the real estate market in Vietnam is expected to explode in the near future.
Opportunities and challenges of Vietnam's real estate market in 2020

Thanks to investment from not only domestic but also foreign investors, the real estate market in Vietnam is expected to explode in the near futureSo, what opportunities will investors have and what difficulties will they face when they invest in this market?

Opportunities

1. Vietnam’s government.

One of the great opportunities for investors intending to invest in Vietnam's real estate market comes from the government. It can be seen that the government's impacts such as solving obstacles and uncompleted works from the second quarter of 2019 and earlier, the housing procedures are upgraded and more convenient, and drastically handling the violating localities in the field of housing and land have created a strong momentum for this market, Besides that, although the COVID-19 epidemic is still raging and there is no sign of declining in the world, in Vietnam, the government has taken timely measures to help the real estate market recover, such as offering tax reduction policies, extending the land lease term, reducing taxes for businesses, and especially offering credit support packages for businesses and farmers that affected by COVID-19 (250 trillion dong package).

On the other hand, the government has issued Decree 25/2020 replacing Decree 30/2015 in detailing the implementation of a number of laws on the Bidding Law of investors. After the compensation is completed, the allocation of land to eligible investors will be implemented by the government as soon as possible and support the resettlement of the project land.

2. The needs of the Vietnamese people.

The second opportunity for businesses is the needs of the Vietnamese people. Ranked 15th in the world and 3rd in Southeast Asia in terms of population, Vietnam always shows the need for housing in its cities, especially the big cities like Da Nang, Ha Noi or Ho Chi Minh. Besides, Vietnam's urbanization process is also taking place at a high speed. According to the Vietnamese government, with the rapid increase of urban population in the country, it leads to Vietnam having to build about 100 million m2 of new housing to meet the needs of urban residents every month.

3. Foreign Direct Investment (FDI) inflows to the real estate sector continued to increase.

According to data from the Foreign Investment Agency (2020), Vietnam's FDI disbursement in 2020 reached approximately $ 38 billion, an increase of more than 7% compared to the same period in 2019, in which the real estate business market. production accounted for more than 10% of total registered investment capital (nearly $ 4 billion US). This may indicate that investors, especially foreign investors, are promoting long-term investment activities in the real estate market in recent years. FDI capital inflows into the real estate business have increased sharply and increasingly substantially, the attention of the state and the private sector in investing in new infrastructure is also expected to create momentum for the market to develop stability.

Opportunities and challenges of Vietnam's real estate market in 2020

4. The infrastructure.

The current infrastructure in Vietnam, especially in the developing provinces of tourism such as Nha Trang or Da Nang, is receiving great attention which attracts many real estate investors, both domestic and foreign investment. Moreover, during the COVID-19 epidemic, domestic investment projects are promoted, which will create opportunities for the development of the real estate industry, typically Ho Chi Minh City will proceed to start. Constructing more than 20 key transport projects such as the new Eastern Bus Station or upgrading Thu Thiem 2 Bridge, ...

Challenges:

1. Administrative procedures, legal documents.

Although the Vietnamese government has made new reforms in the housing license process, real estate businesses still think that administrative procedures and legal documents are a big challenge. which leads to a shortage of new supply in the real estate market. Projects were still delayed due to prolonged processing and approval of construction permits, which made the real estate transactions on the market decreased significantly. On the other hand, the work of land planning, compensation for people is still tight while the demand for construction and project implementation of businesses is very high.

2. Legal documents related to the real estate market have not been synchronized.

Planning law, land, housing, real estate business, or bidding law are the policies that the real estate industry in Vietnam is affected by. The legal adjustments in the real estate market, from construction investment, transactions to management, and use of real estate are completed very slow, overlapping, besides, there are many problems arising from self-sufficiency or inadequacies in the policy mechanism that has not been timely added. This can be considered as one of the reasons for the delayed housing papers and directly affected the effectiveness of real estate projects.

According to real estate experts, if Vietnam does not make any changes or solve this policy issue, Vietnam's real estate market will be stagnant and difficult to make progress in 2020. Planning law, land, housing, real estate business, or bidding law are the policies that the real estate industry in Vietnam is affected by. The legal adjustments in the real estate market, from construction investment, transactions to management, and use of real estate are completed very slow, overlapping, besides, there are many problems arising from self-sufficiency or inadequacies in the policy mechanism that has not been timely added.

This can be considered as one of the reasons for the delayed housing papers and directly affected the effectiveness of real estate projects. According to real estate experts, if Vietnam does not make any changes or solve this policy issue, Vietnam's real estate market will be stagnant and difficult to make progress in 2020.

3. Difficulties in accessing capital

From 1/1/2020, the bank's credit activities for real estate business in Vietnam have been tightened through 22/2019 / TT-NHNN, replacing Circular 36. Specifically, real estate loans will be tightened (short-term and medium-term loans will be reduced from 45% to 40%), interest rates will continue to rise (mobilizing interest rates will be nearly 9 %) and the risk factor for real estate loans increased from 150% to 200%.

This not only affects the real estate market in Vietnam but also directly affects real estate investors and businesses. In order to reduce the dependence on bank loans, investors and businesses have to be flexible and diversify their sources of capital through the stock market, corporate bonds or FDI, etc. The real estate market in Vietnam is the most attractive market and requires many types of capital, so these forms are not suitable for all businesses, especially small and medium enterprises.

Currently, Vietnam does not have real estate credit but commercial credit for real estate loans with high-interest rates (8-10%), preferential loans range from 5-6% (much higher than other countries in the region). Besides, other capital sources such as bond channels, stocks only a very small number of large domestic enterprises can issue due to low customer confidence. The bond interest rates of some real estate businesses are much higher than the average bond interest rates, up to 12-14% / year.

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Which scenario is there for the real estate market 2020?

Compiled by​ VietnamCredit

Categories:
Investment

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