• How COVID-19 Affects Property Investors in Vietnam: Redstone Asia Interview

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    How COVID-19 Affects Property Investors in Vietnam

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    Categorized as a global pandemic, the novel coronavirus (COVID-19) is having a drastic impact on all nations across the globe. From flight cancellations, travel restrictions, conferences and business gatherings being delayed, to millions of workers encouraged to work from home or stay at home, COVID-19 is affecting global supply chains and financial markets around the world.

    Its rapid spread has resulted in an unprecedented series of measures, effectively closing entire countries and making it impossible to travel. Consequently, this has led to both property buyers and sellers taking a more cautious approach with their investments.

    In order to get a better grasp of the situation, we reached out to our partners Redstone Asia, specialized in Vietnam property investments.

    What is the current state of the situation in Vietnam?

    Over the last couple of weeks, the global situation has become more and more distressing with the sharp rise of confirmed cases in Europe and the US followed by a number of new cases in Vietnam. The Vietnamese government was swift to contain the impact of the virus by aggressively tracing infected people’s contacts and introducing forced quarantines to prevent the spread of the virus.

    In addition, the government has introduced the conscription of medical students, retired doctors and nurses to join the fight. With its one-party state, Vietnam is a “mobilization society” with large security forces and military, driven by top-down government policies, best to respond to natural disasters such as COVID-19.

    At a time when its neighbor Thailand is being criticized for its haphazard response to the virus, Vietnam’s response has been praised by health officials.

    Their efficient response to the virus comes as no surprise given that Vietnam was the first country to eliminate SARS and continues to set a strong example in containment. This is resulting in more and more manufacturers seeing Vietnam as a China +1 model, which would result in greater demand for Vietnam industrial space, as corporations seek to mitigate risk and diversify locations.

    The shift of investment capital in the region will be advantageous for Vietnam in becoming a more attractive investment destination, contributing to promoting economic growth in general and the real estate market in particular.

    In the long run, we can foresee that the government’s handling of the virus will hopefully provide future investors with hope and confidence that an emerging country can efficiently deal with the virus and future epidemics, which would have a limited impact on future investments.

    Despite being the third-largest country in Asia with more than 97 million habitants, the young and dynamic nature of the population (more than 50% below 35 years old) surely helped the country maintaining a relatively low number of confirmed cases at 169 on March 28th per World Health Organization (vs 1,136 in Thailand).

    How is the current situation affecting properties under construction in Vietnam?

    The current situation has impacted the global real estate market and Vietnam is no exception. The hardest-hit sectors, where immediate impacts can be observed, are hotels, retail, entertainment venues, and other tourism-related assets.

    Residential real estate is however only seeing a short-term impact as travel bans are preventing buyers from visiting and closing deals, especially as China, South Korea, and Japan account for a large proportion of international demand in Vietnam’s residential sector.

    New projects have also been temporarily put on hold to avoid social gatherings and the increased risk of infection. Nonetheless, compared to competitors in the region, Vietnam still has one of the highest rental yields and lowest real estate prices.

    Thus, we can expect interest from foreign buyers to remain high – they are only suspending their investment plans in response to travel bans and focusing on their own well-being amid COVID-19. In the long run, we can expect to see local and international demand to increase even more after the crisis thanks to the rise of new projects and investments opportunities.

    Let’s say that I am eager to invest in Vietnam real estate, but cannot visit the country. How can you help me?

    There are indeed some restrictions for foreigners to enter Vietnam at the moment due to the COVID-19 lockdown, but there are however no new restrictions regarding the purchase of properties. The activity continues as normal, despite some slowdown in the process, in particular regarding administrative papers.

    During this period, the majority of the investment process can be handled by firms like Redstone Asia, with our team on the ground, fully operational to support our clients located overseas.

    Our staff can assist with both the primary and secondary markets: We help investors to find the best projects and units available on the market and secure the unit with a first small down payment, legally bound by a Deposit Agreement signed by both parties.

    Then we will take care of all the paperwork with the seller or developer in order to have everything ready for when the investor will be able to come to Vietnam to sign the Sales and Purchase Agreement.

    At what stage would I need to actually be in Vietnam?

    An investor technically does not need to go to Vietnam before the signing of the Sales and Purchase Agreement. The legal requirement for a foreigner to purchase a property is to be able to enter the country, i.e. go through the border control at the Airport.

    We differentiate two different cases. First case buying a property from the developer off-plan with an accommodating payment scheme until handover. In this case, the investor will have usually one to six months to go to Vietnam to sign the SPA upon the developer’s request.

    The second case where the investor purchases from an individual seller, will need both buyer and seller to meet at the notary office in Vietnam to legalize the transaction. This is more flexible and can be organized at any time, i.e. when borders reopen for both buyer and seller countries.

    Do you expect more distressed sellers to put their units on sale?

    We have indeed recently noticed a growing number of investors contacting us to help them resell their assets. This is mostly the case for people that purchased properties 1 to 3 years ago when the first projects started selling to foreigners after Vietnam opened its market to foreign direct investment.

    The contracts were signed with a flexible payment scheme proposed by developers, allowing investors to only pay a small chunk of the total amount during the construction of the project, followed by a large last lump sum at handover.

    As a few of those projects are being handed over this year, and due to more distress linked to the COVID-19 situation across the world, we can see more and more new cases of investors finding themselves struggling to make this last payment. This creates a situation of urgency and a rush to sell their units quickly under market price to get cashback.

    We however still advise our clients to keep their units if their personal situation allows it until the crisis settles down, as selling during this kind of exceptional situation is usually not good timing.

    It is impossible to say for sure, but do you think anything good (from a property buyers’ point of view) could come out of this situation?

    It is a bit early to answer this question as many uncertainties still remain regarding the settlement of the current situation. However, we can say that now is an opportunistic time for investors to find good opportunities under market price and have the ability to vastly appreciate in value once the situation is resolved.

    In addition, with many project constructions currently on hold, we foresee a reduction in the supply of new projects in the following years, which will increase the value of delivered and soon to be delivered projects due to the increasing demand.

    Author

    This article was created in collaboration with our partners Red Stone Asia, a Hong Kong-based agency specialized in Vietnam property investments.

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