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Even if Vietnam has emerged as one of the most interesting countries for real estate investments, the buying process can be tedious and complex.
In 2019, projects were put on hold for almost a year and foreigners decided to pull out, being refunded their deposits.
Also, did you know for example that foreigners sometimes pay higher prices than locals, due to the quota of 30% imposed on foreign ownership?
Naturally, if you pay a higher price than a local, you’ll generally suffer from a lower yield and capital gain. That’s simple logic. Fortunately, there’s another way of investing in Vietnam’s real estate market, namely through so-called Real Estate Investment Trusts (REITs).
In this article, we review the REITs available in Vietnam, and if there are any foreign REITs with Vietnam real estate under their portfolio.
Topics covered in this article:
- Can foreigners buy REITs in Vietnam?
- How can I invest in REITs in Vietnam?
- What is REIF?
- What are the benefits of buying REITs in Vietnam?
- REITs Available in Vietnam
- Are there any foreign REITs that own Vietnam real estate?
Can foreigners buy REITs in Vietnam?
The same as it goes with stocks, the process to set up a trading account in Vietnam is relatively complex and requires that you visit the country for account openings.
To answer the question of whether foreigners can buy REITs in Vietnam the answer is: Yes, but it’s not as straight-forward as in many Western countries.
Vietnam might be one of the fastest-growing countries in the world with a promising real estate market, but investing in physical properties and REITs is not the easiest task on hand for persons with limited experience in developing countries.
How can I invest in REITs in Vietnam?
I’ve written a comprehensive guide that explains how you can invest in stocks in Vietnam as a foreigner.
Needless to say, the process is somewhat lengthy and requires that you visit the country for an account opening before you can start trading.
The process is generally as follows to start trading:
- Register a Securities Trading Code for foreign investors
- Apply to open a Securities Trading Account
- Open a Foreign Indirect Investment Capital Account (FII Account)
- Receive your username and password
REITs (referred to as REIFs) can be traded in the same way on the stock exchanges. Keep in mind that REIT is a relatively new concept in Vietnam and you rarely come across people who invest in or have even heard about Vietnam REITs.
What is REIF?
Vietnamese laws don’t cover the concept of trusts, but since 2013, investors can invest in real estate through funds that are managed by fund management companies.
As a result of this, REITs are often referred to as Real Estate Investment Funds (REIFs).
REIFs have the following characteristics:
- Capital is pooled for investments in residential or commercial real estate projects or organizations, which results in partial or full ownership of the units or entities. Fund certificates or stocks are issued
- The beauty here is that you don’t have to directly own real estate, which is often beyond foreigners’ reach. Instead, you buy stocks or fund certificates. A trust management board takes care of the operations and management of the investments
- REIFs generally acquire, manage, or provide capital for real estate developments or companies
As you can see, the structure and characteristics of REIFs are similar to that of REITs in Singapore, for example.
REIFs must allocate a minimum of 65% of their net assets for real estate investments to receive profits. Besides, REIFs cannot be directly involved in the development of projects or provide loans and financing.
The properties must be kept for at least two years from the date of the purchase, excluding some pre-determined asset types.
What are the benefits of buying REITs in Vietnam?
So now that we know what the characteristics of REITs are in Vietnam, let’s take a look at some of the key benefits of the investments in these assets.
Notice that we still call it REIT as most investors don’t know what REIFs are and use the term REIT.
1. Market access
Vietnam grows by a rate of around 7% and investors can capitalize from its residential, retail, and industrial real estate sectors, for example.
Foreign investors sometimes pay particularly much attention to residential real estate markets overseas, but the commercial dittos often provide greater yields.
Investing in commercial real estate in Vietnam requires that you either open a real estate trading company or establish a joint-venture with a Vietnamese shareholder.
Sure, this might be an option for institutional investors but is often not accessible to individuals.
To summarize: REITs give you deep market access and you’ll be able to profit from assets that are proven to generate high yields.
2. Overcoming buying and ownership restrictions
Buying and selling real estate in Vietnam requires due diligence and that you’re well-versed with local ownership regulations.
Again, foreigners often have to pay higher prices for resale properties as you can only own 30% of the units in a given condominium project.
Technically, the supply is scarcer and foreigners are sometimes unaware of the real market prices.
I know, the proportion of foreigners is lower than the number of Vietnamese, but they also have access to other property types such as local apartments, houses, and villas, for example, which makes a difference.
3. Substitute for owning real estate
If you but-to-let a unit, you and/or the real estate agent have to manage tenants, monthly rental payments, payment of management fees and taxes, maintenance, insurance policies, and the list goes on.
This is not the case with REITs where the management of the fund manages the unit on behalf of you.
4. REITs are liquid assets
Real estate is referred to as illiquid intangible assets. Simply put, it requires both time and money to sell units, might it be agent commissions, transfer fees, and income taxes.
REITs, on the other hand, are liquid and you can opt-out comparably easier.
5. Often good dividend yields
REITs oftentimes get undeservedly little attention when looking at the benefits and high dividend yields provided, on average.
Keep in mind that the REITs are managed by experts who select a handful of units that they have analyzed in great detail.
The same as in other countries, the fund managers are required to distribute at least 90% of the net profits made annually as dividends to the shareholders.
You can also profit from the capital appreciations of the units at the time of the sales.
REITs Available in Vietnam
At the moment, there’s only one REIT available in Vietnam that I will explain more about. The reason for this is that the REIT market hasn’t existed for a long time and Vietnam is a developing country.
TCREIT (Techcom Capital)
TCREIT, managed by Techcom Capital (TCC), was the first REIT to be listed on Ho Chi Minh City’s Stock Exchange (HOSE) in 2015.
The REIT goes under the code FUCVREIT and might not only help foreigners to capitalize on Vietnam’s real estate market but also locals that cannot afford to purchase physical units in the billions of Vietnamese Dongs.
Hopefully, the value of the REIT will remain stable and generate good yields in the coming years. This is the beauty of REITs, not only in Vietnam but in other countries and regions.
As of 2017, the REIT had a net asset value of VND 50.3 billion with VND 17.5 billion in cash and VND 32.77 billion is in stocks. 65% of the total asset value is real estate shares.
The REIT had a somewhat volatile pattern through the COVID-19 pandemic and traded between VND 5,000 to VND 8,900. At the end of 2020, the REIT was valued at a bit more than VND 6,000.
Are there any foreign REITs that own Vietnam real estate?
In some countries like Singapore, the REIT industries are developed and you’ll find plenty of REITs that are managed by leading real estate developers. Examples of REITs in Singapore, for example, include CDL Hospitality Trust and the Keppel DC REIT.
As you can see on Keppel DC REIT’s website, they currently manage 18 data centers in Australia, Germany, Ireland, Italy, Malaysia, Singapore, The Netherlands, and the UK.
By looking at the REITs listed in Singapore, you’ll notice that none of them have acquired any real estate so far. At the time I’m writing this article, I am not aware of any foreign REIT that focuses on real estate in Vietnam.
For now, we’ll have to stick to the TCREIT and wait until there are more options available in Vietnam and overseas.
Disclosure: This information is intended for educational purposes. It does not constitute investment advice and should not be considered as a recommendation for investment. The writer of the article and the owners of the website don’t own any of the securities/REITs mentioned in the article. Note that the value and income of investments can go up, as well as down (resulting in a loss).
