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Over the past decade, Ho Chi Minh City’s skyline has been redefined by increasingly flashy towers of glass and steel, bold symbols of the country’s economic advancement and growing luxury property market. While foreign investment in the Vietnamese city has played a significant role in transforming the fast modernizing metropolis, so too have affluent Vietnamese buyers, whose personal wealth has increased in step with their nation’s financial growth.

“Across Vietnam, and particularly in Ho Chi Minh City, high-end real estate has spurred a wave of local and overseas interest and investment,” said Dung Duong, senior director, national head of professional services at CBRE Vietnam.

The luxury property market first took hold in the country’s biggest and busiest city before spreading to the capital, Hanoi, and elsewhere. Now, interest in high-end real estate is expanding beyond Vietnam’s borders as an increasing number of individuals find themselves with the means to invest internationally.

Since opening up to foreign investment and joining the World Trade Organization, Vietnam is enjoying an assurgent trajectory. Last year, Bloomberg reported that the Southeast Asian nation, once one of the poorest countries in the world, recorded 7.1% economic growth, making it one of the best performers globally.

And the forecast remains positive.

According to the recent Economic Insight: South East Asia report, compiled by the Institute of Chartered Accountants in England and Wales, the Communist nation’s economy is expected to grow 6.7% this year, the fastest rate in Southeast Asia.

The country’s emergence as a global manufacturing and export powerhouse has also seen personal wealth explode. According to The Wealth Report 2019, published by British real estate consultancy Knight Frank, the number of millionaires in Vietnam is expected to grow from 12,327 last year to 15,776 by 2023, a healthy increase of 28%.

As such, affluent Vietnamese are investing beyond the country’s borders, although, according to Troy Griffiths, deputy managing director at Savills Vietnam, “due to outward currency restrictions, it’s done a little more quietly than other countries.”

That doesn’t mean it isn’t done, though.

“There are more and more Vietnamese investing in overseas property,” Ms. Duong said. “Ten years ago, only those who had relatives would buy properties overseas, so that they could live close to their parents or siblings. But these days, there is an increasing trend of wealthy parents sending their children to study internationally, and these parents are also investing in overseas property for their kids.”

Where They Buy and What They Buy

One reason for international property purchases is immigration, where buyers invest in citizenship via investment programs, such as the United States’s EB-5 visa program, which allows immigrant investors to become permanent residents by investing at least US$500,000. (That figure will rise to US$900,000 after Nov. 21.)

According to Ms. Duong, English-speaking countries such as the U.S., Canada, Australia and the U.K. are most popular among ultra high-net-worth Vietnamese because they are seen to offer the best educational opportunities and investment potential, although the high threshold of investment makes those countries out of reach for all but the wealthiest buyers.

“In recent years, we have seen more investment into European countries, where it is easier to gain citizenship, including Cyprus, Malta, Portugal, Hungary and some of the Eastern European countries,” Ms. Duong said. Properties bought in these countries will often become permanent residences for some, if not all, family members.

Mr. Griffiths noted that property in Europe is preferred by Hanoi residents, while English-speaking markets are more popular with Ho Chi Minh City residents. This follows the economic divide that exists between the country’s capital and its biggest, more dynamic city in the south and supports Ms. Duong’s observation that only the most affluent can afford to invest in the U.S., the U.K., Australia and Canada. Because the EB-5 program places no restrictions on where investors can buy property, many are drawn to states with an existing Vietnamese community, such as California, New York and Washington, D.C.

In terms of the types of property sought after by Vietnamese buyers, townhouses or villas are the most frequently invested in at all locations outside of the U.S., according to Ms. Duong. “However, in the U.S., Vietnamese buyers will invest in under-construction projects, most of which are condominium developments.”

Buying Closer to Home

But, of course, wealthy Vietnamese are also investing in high-end real estate in their own country, too.

“The residential market in Vietnam has seen a very strong recovery over the last four years,” Ms. Duong said. “Probably 95% of our buyers are local ones.” This is echoed by Mr Griffiths, who said: “Vietnamese purchasers dominate by a long way.

In 2015, Vietnam changed its laws to allow foreign property investors, who are now joining wealthy Vietnamese in buying high-end luxury homes. The move came as the rest of Southeast Asia was enjoying a property boom, and the Vietnamese market was quick to reap the benefits associated with increased interest from overseas buyers, too. However, as Mr. Griffiths pointed out, there are regulations regarding the ways that buyers from overseas can invest, limiting them to a owning a maximum of 30% of the apartments in a condominium or 250 dwellings per ward. “HIgher-end apartments in Ho Chi Minh City have been filling up their foreigner data quickly,” said Mr. Griffiths.

The major southern city’s District 1, considered the financial center of the country, where the Ho Chi Minh City Stock Exchange and the Vietnamese headquarters of international banks are located, ultra high-end developments like The Marq and Vinhomes Golden River dominate.

“Due to the very high land prices, there are only a few residential developments here” and they’re all luxury, Ms. Duong said. “We have some very wealthy investors looking at the luxury market in District 1. However, most are looking for capital gain rather than rental yield, because the rental yield of this segment in this area is only probably 4% or 5%.”

However, the majority of investors in Ho Chi Minh City who buy outside of District 1 are buy-to-let investors who hope to capitalize on growing expat demand, according to Ms. Duong. “Most of the big international companies in Vietnam have offices and branches in Ho Chi Minh City… so the leasing demand for expats is huge in Ho Chi Minh City and it is increasing everyday,” she said. Ms. Duong explains that despite profits being compressed recently due to supply outpacing demand, the average rental yield in Ho Chi Minh City outside of District 1 remains between 6% and 7% compared with 4% to 5% in Hanoi.

A plan is in place to create a “New Urban Area” on the east back of the Saigon River, opposite the existing Central Business District, that will ease congestion and lessen environmental pressures currently faced by the city.

“The first metro line in Ho Chi Minh City will be developed in this area, connecting District 1, District 2 and District 9,” Ms. Duong said. “Even though it will take another two to three years for the line to be completed, buyers are speculatively investing. And because a lot of land was made available in these areas for developers, buyers can still choose from a diverse portfolio of products in this area.”

Beyond Ho Chi Minh City, affluent investors—both local and foreign—are also looking to other destinations across the country. Last year, Hanoi overtook its southern counterpart as the main recipient of foreign direct investment in Vietnam.

For the moment, investors look for “landed property” in Hanoi, meaning detached houses, terraced houses and semi-detached houses, rather than condominiums. “The land price has seen a much higher growth rate in Hanoi than in Ho Chi Minh City, so for those investing in landed property, they make higher profits in the capital,” Ms. Duong said.

And real estate market growth is not limited to top tier cities. Pritesh Samuel, senior editor for Asia briefing at professional services firm Dezan Shira & Associates, also points to coastal cities Da Nang, Nha Trang and Phu Quoc, which are benefitting from the nation’s fast-growing tourism industry. He notes that numerous hospitality and residential projects are currently under construction, aimed not only at international arrivals but Vietnam’s growing middle class for whom a vacation property is now within reach, too.

Source: Mansion Global