Golden opportunity for foreign investors?

Experts affirmed that though the property market is frozen, it is still very attractive to foreign investors thanks to the high accommodation demand, young population, steady economic growth and the slow urbanization speed.

They also said that it is now the right time for foreign investors to invest in Vietnam’s real estate, when the market cools and domestic investors have no more money to develop their projects.

However, foreign investors have not flocked to Vietnam to buy the ongoing projects as predicted.

Nguyen Ngoc Thanh, Deputy Chair of the Vietnam Real Estate Association (VNREA), while saying that the current difficulties of domestic investors could be the great opportunities for foreign investors, has admitted that foreign investors have just “explored the situation”, while no project transfer deal has been made public.

A senior executive of Savills Hanoi said the real estate service provider has been asked to act as the bridge to link domestic investors and the investors from Japan, South Korea and Singapore.

However, experts warned that too many barriers still exist which may prevent foreign investors coming to Vietnam. These include the 2 percent assignment tax, the complicated procedures, the once-pay land use fee and the lack of the market transparency.

According to Tran Nhu Trung, Deputy Director of Savills Hanoi, in many cases, domestic real estate developers cannot show necessary documents to prove their ownership. Meanwhile, foreign investors only accept to buy the projects with legal documents.

To date, only one project in HCM City has been officially transferred to foreign investors, while the others are still under negotiations.

Foreign investors pour less money into real estate sector

According to the Foreign Investment Agency, an arm of the Ministry of Planning and Investment, foreign investors registered 16 investment projects in the real estate sector in Vietnam in the first 10 months of 2013 with the total investment capital of $588 million, accounting for 3.1 percent of total FDI.

The figure was just equal to 1/3 of that in 2012 (13 projects, $1.9 billion). Since June 2013, only one new project has been registered every month (no project was registered in September). Most of the projects were small, capitalized at $168 million in total.

The figure showed that the Vietnamese real estate sector has not attracted foreign investors despite the great potentials.

The market remains frozen except the low-cost housing market segment. In the past, when the property market was hot, the low-cost housing market segment only made up 5 percent of the real estate market value. Meanwhile, the figure has risen to 80 percent.

Foreign investors, who plan long term investment and optimize profit, only target the high-end market segment.

“The real estate market has bottomed out. The high end market segment remains frozen, while the investments won’t bring immediate profits. All these factors explain why foreign investors do not come to Vietnam,” said Dang Hung Vo, Deputy Minister of Natural Resources and the Environment, a well-known property expert in Vietnam.