Whilst the purpose of this website was to explore how best to invest in the Vietnam stock market, investing is about relative choices so we cannot completely ignore other asset classes. With cash and bonds increasingly offering lower yields I thought it is worthwhile here to turn our minds towards property in Vietnam.
There might be some readers who are not so familiar with some of the unique features of the real estate market in Vietnam so I shall touch on that aspect. I also shall take a brief look at a Vietnam listed stock that can be an alternative way to get some exposure to an improving Vietnam property market.
Since it is mostly foreigners at this stage visiting this blog, I shall first outline one important aspect. I will deal with the question of if a foreigner can buy property in Vietnam, and note that the government made some key changes to this area around 2015, easing some of the restrictions in place.
CAN A FOREIGNER BUY real estate IN VIETNAM IN 2022?
- Yes there are less restrictions now (subject to my further comments). For example prior to 2015 you needed to show you are working in Vietnam for more than a year, whereas now those that are allowed to enter Vietnam is sufficient.
- A foreigner can buy up to 30% of the units of a condominium building.
- In terms of housing, a foreigner can buy up to 10% of the houses in a project.
- The above however is a leasehold arrangement, i.e., in effect you are renting it from the Vietnam government, say for example a 50 year period, refer to the property rights in Vietnam heading below.
PROPERTY RIGHTS IN VIETNAM, CAN YOU OWN LAND IN VIETNAM?
For readers across many parts of the developed world, this aspect may come as a surprise to get your head around. You might be used to the system where you are from, where buying a house you also own the land underneath.
Effectively in Vietnam for example you are renting the land from (collectively owned by the people or the government), often say for a period of 50 years. It could be longer depending on the state and with options that it will extend further. Or even the local Vietnamese think of it in some areas as buy or selling “perpetual leases” so the attitude / expectations of many in the market is similar to how we think when we buy freehold land arrangements in other countries. Now at first glance many would see that as a no-go area, why wouldn’t you simply invest in property in countries where your ownership of the land is clear?
For sure one should be mindful of these issues. Having said that, many are of the opinion that the Vietnam government will simply extend such lease terms, costing no more and it is not such a big deal. This is all very subjective though.
We also need to be open minded that property rights in developed countries could evolve over time and the choice between there vs Vietnam may not be so clear cut. Certain developed markets may look favourable now in regards to property rights, but could they change in 50-100 years’ time? It is such a long time away and there is no shortage of geopolitical tension, economic pressures and wealth inequality brewing in the world so who knows.
WHAT IS THE OUTLOOK FOR VIETNAM PROPERTY IN 2022?
Even though many might find the issues surrounding property rights in Vietnam far from perfect, there are some solid arguments why you could be bullish on the outlook on Vietnam real state in general.
Before I get too specific in mentioning some bullish factors, I make the point that the overall macro backdrop looks favourable. This is best explained on an earlier blog post of mine, click here to read about an overview of the Vietnam economy.
In addition to a broadly favourable economic environment from a long-term growth perspective, some more specific factors to be positive on Vietnam real estate would be the following.
REASONS TO INVEST IN VIETNAM REAL ESTATE?
- Vietnam in 2015 relaxing some of the restrictions for foreigners buying property. A government moving favourably towards foreigners on such issues, and the likes of ease of doing business globally and free trade are a positive signal in the growth of a frontier property market.
- Tourism has been hit badly in the last year or two but is poised for a strong rebound looking forward.
- Planned infrastructure spending is a good leading indicator to property price appreciation and the Vietnam government is committed in this area.
- Major Vietnam cities have and are developing rapidly, and property prices are attractive on a relative basis within Asia. (see the charts later on in this blog post). Yields are increasingly attractive in a falling interest rate environment.
VIETNAM PROPERTY VS SHARES WHICH IS BETTER?
Now I shall examine some factors to keep in mind why you may wish to choose to invest in property in Vietnam. This is from the point of view compared to say Vietnam shares or more specifically shares that are correlated to the performance of Vietnam real estate.
ADVANTAGES OF OWNING real estate IN VIETNAM
- You are more in control. You won’t wake up one day to find out management has made a crazy huge acquisition of another company in a different sector, or that it has racked up big losses in financial derivatives, or the accounts are fraudulent!
- Owning a “hard” asset has its advantages, particularly in an inflationary environment.
- You may choose to own it debt free, and therefore not taking on risks like company’s might do in leveraging their balance sheet.
- Use of the property itself. It can have lifestyle benefits e.g., a property for holidays in a tourist location, somewhere to live / do business, a more “self-sufficient” location in the countryside etc.
- Easier to forecast your returns if some of the return for example is the implied rental benefit you get from using the property yourself.
- Diversification benefits in am increasingly uncertain world. For example, another “flag” to plant in the context of owing something perhaps in tandem with some residency rights.
ADVANTAGES OF OWNING SHARES IN VIETNAM
- A lot less maintenance hassles!
- Less legal issues to worry about, whereas owing property directly in Vietnam comes with risks surrounding potential scams and ownership disputes.
- Getting exposure to the real estate sector via a Vietnam listed stock can achieve greater diversification across number of properties, and various types of properties e.g. commercial, hotels, office, residential etc
- Potential for higher growth with a Vietnam property related stock as they may benefit from leveraging up exposure to boost profits on the back of growth in number of property developments over the long term.
- Owning a Vietnam stock that profits from property development activities might put you on the favourable side of things. For instance often foreigners are buying individual properties directly yet to be developed and taking on development risk with the supplier.
Now that I have covered some of the pros and cons owning Vietnam property, or shares in Vietnam property related companies, let’s take a look at a stock example in Vietnam.
IS VINHOMES (HOSE:VHM) A BUY?
Vinhomes (HOSE:VHM), subsidiary of Vingroup, is the largest commercial real estate developer in Vietnam. It is a major player amongst all residential segments in Vietnam and sits on a large land bank across strategic locations to deliver sustainability and growth.
Below I will include a few graphs from a corporate presentation made by Vinhomes, it is a little old being from May 2020 but nonetheless I found quite interesting, and the themes remain valid.
Vinhomes make prominent reference within the presentation why the Vietnam residential market (which Vinhomes are positioned well for) is set to take off.
Source above 3 charts: Vinhomes Corporate Presentation May 2020
Vinhomes (HOSE:VHM) PE RATIO
Whilst Vinhomes at the time of writing is on a PE ratio of circa 10 times FY20 earnings, the pandemic has been particularly problematic for a company like Vinhomes so we can expect a bit of volatility for EPS numbers from FY20-FY22 at least.
However if it was to grow into a PE ratio of around 15 times what some reasonable EPS numbers might be for FY22 / 23 as hopefully the world is living more normally, there does look to be some good upside potential for the shares. That could mean a share price in 2-3 years’ time in the vicinity of 150,000 VND compared to at the start of October around 78,000 VND. The usual warning applies here that I am not giving any financial advice here! I don’t own the stock directly, although I do note recently the Vietnam Opportunity Fund (which I hold) has Vinhomes as one of its top weightings.
CONCLUSION ON SHOULD I BUY PROPErty OR SHARES IN VIETNAM?
I think the choice between Vietnam property or shares largely comes down to a personal lifestyle choice. Reasons I highlighted earlier why one might be tempted to own property directly relate to the consumption benefits, diversification, being in control and more of a hard asset inflation type hedge. All valid points for sure.
However if we are talking about more of a hassle free way to get positive exposure to potentially an improving Vietnam property outlook in 2022 and beyond, some Vietnam stocks are worth serious thought. From a pure investment potential and convenience point of view to allocate smaller sums of money, Vietnam property related stocks might stack up better in terms of growth over the very long run.
Is Vietnam a good investment?
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