Dzung Trieu Law firm_Mr Mark D’Alelio, Managing Partner at Limcharoen, Hughes & Glanville in Vietnam, tells of the increased momentum seen in some sectors of Vietnam’s real estate market this year.

Do you agree with comments that Vietnam’s real estate market is warming up?

I would agree with that viewpoint. The positive movements in the property market have been mainly due to improved lending conditions along with falls or the levelling out of real estate prices encouraging further investment. Prime properties in Ho Chi Minh City and peripheral areas have fallen considerably, making it an opportune time for investors to purchase.

Furthermore, domestic investors are seeking to diversify their investments from the gains realised from the warming up of the stock market. Real estate has traditionally been considered a profitable investment channel and its attraction to many investors is therefore understandable.

In which sectors do you see the market warming up?

Sectors seeing positive momentum are:

Commercial: Commercial property continues to be attractive to developers, especially for “golden sites” located within the central business district, with some 60 investors lining up for bidding in one particular site on prestigious Dong Khoi Street for a commercial and hotel development project. Other “golden sites” are attracting similar interest in the domestic and international marketplace. Certainly, with more supply coming on the market in 2009 and 2010 it will continue to be a tenants market in this area, but this has not seemed to dissuade developers (both foreign and domestic) from investing in these projects.

Residential:

• There appears to be a boon in investment in low-cost housing. With the government offering attractive incentives to developers, such as soft land use fees or land lease charges and value added tax (VAT) exemptions, this segment of the market will see increased investment, not to mention demand among lower income domestic families;

• Luxury villas are proving very resilient during these times, with prices remaining stable and still attracting buyers with prices ranging from $500,000 to more than $1 million;

• Overall the residential market should continue to edge upwards for projects located in desirable locations and with increased infrastructure improvement. Buyers are able to command better incentives from developers at this time, which is further fuelling the attraction among buyers.

Retail: This will continue to be an attractive market for store fronts located in desirable locations - for instance the central business districts of Ho Chi Minh City and Hanoi. There is increased interest and entry into this market from international brands, with many luxury brands using local distributors at this time but with a plan to eventually establish an onshore presence in the foreseeable future.

Do you think now is the right time to invest in Vietnam’s real estate market?

While dependent upon the investor, it is probably the best environment that it has been in many years for investors, as developers are needing to sell properties and with prices falling or levelling out, investors are able to command much, much more than in the past with their purchasing power. Gains realised from the stock market lasting until 2010 along with the six month personal income tax exemption earlier this year have provided much needed stimulus in the market and, more importantly, purchasing power for investors. It is important that the investor perform his/her own due diligence before making an investment, as opposed to just following the movement in the market. In particular, it is important that the investor understand the legal aspects of the investment, specifically:

• Whether the developer is licensed to sell or only lease the property;

• Whether domestic investors are able to obtain long and stable interests (i.e., freehold);

• Use of the property - is it timeshare/fractional ownership and usage, or can it be used at the leisure of the investor?

• Is the management company in charge of the property?

• Are there leasing and rental programs?

• Maintenance fees;

• Payment terms;

• Insurance.

These are just some of the legal considerations that should guide investors before investing in a particularly property. Depending on the investor, these legal considerations may be easily understandable, but it is recommended that investors take a prudent approach and when necessary seek out professional advisors for assistance.

Asian property analysts say that people now tend to opt for villas (second homes) instead of luxury hotels or resorts. Do you think Vietnam’s second home market has potential?

I believe there is an attraction for this market, and I’m not alone in this thinking as there has been an increase in the pipeline for developments of villas and condos nationwide. The appeal is understandable on a domestic level, as a second home offers another mechanism for diversifying investments, as most domestic investors are currently trading in the stock market along with the precious metals market.

There is an allure for foreign investors as well with many large international brands signing on to manage the properties. Foreign investors are traditionally more comfortable to invest with brands that they know and recognise, as it gives them a feeling of comfort in what they are buying, even though the legal landscape for ownership in Vietnam is not as relaxed as in other  locations. The same holds true for domestic investors, but additionally offers prestige as well as established leasing and rental programs, something that is not necessarily known in domestically managed properties. Nevertheless, I believe this market will primarily be driven domestically given that foreign ownership is still somewhat in its infancy in terms of structure and that foreign investors have traditionally been more interested in second homes in Thailand and Malaysia due to pricing, infrastructure, and hospitality.

In the end, the degree of success for this market is heavily dependent on infrastructure improvements (upgrades in airports, roads and bridges, etc), competitiveness on pricing as well as hospitality improvements and training. Infrastructure improvements are on the way, with the government’s commitment to upgrade several existing airports for international arrivals, with a plan to eventually have ten international airports nationwide.

Limcharoen Hughes & Glanville is a legal services provider that dispenses high quality business advice throughout Asia and to clients across the globe. Aside from advising their clients, Limcharoen is conscious that they should disseminate their knowledge throughout the real estate industry to inform the market of real estate law developments, stimulate foreign direct investment in the relevant country of expertise, and provide educational information on best real estate legal practices.

LINH SAN (news.vneconomy)