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Written by Administrator   
Tuesday, 07 March 2006
Article Index
Residential acommodation
Page 2- Hanoi overview
Page 3- National overview
Page 4- Short Term Future
page5-Medium Term Future
page 6 -Infrastructure Improvements

National Overview

It is often said that land prices have never fallen in Vietnam . The rampant speculative ‘land fever' of the last 5 or so years has, to a degree, been controlled by the new Land Law and its implementing Decrees. However, though ‘frozen', prices have yet to be adversely affected, partially because prices are quoted in gold taels and partially because the vast majority of buyers are prepared to pay a premium to become home owners. For those with the resources to buy several houses and / or land plots, the pressure is now on to build / redevelop, in accordance with the new legislation, that is attempting to end the speculative trading in undeveloped land plots. Tho ugh prices remain very high – Vietnam is often cited as having the highest land prices in world relative to GDP – the Vietnamese population's appetite for real estate remains unaltered (in common with their Chinese counterparts), despite the apparent overvaluation, as compared against bank interest rates. This can best be demonstrated by the fact that most (state employed) families are only able to afford to buy one-third of one square meter of an apartment each year (Asian Development Bank Survey 2004).

Since construction costs are so small in comparison with land prices and because the government have now prevented undeveloped land trading, the result is an orgy of residential construction throughout the city, with almost every road and alleyway being temporary home to one or more gangs of construction workers. Also because of the high price of land, owners develop as much of the site area as possible (frequently 100% of the surface area – albeit in contravention with local laws and decrees and guidelines), and / or chop their land into ever smaller parcels. Typical unit sizes are 5m x 20m, developed into 3 to 4 storeys, and almost invariably with the stairs situated in the middle, thus making sub-division virtually impossible. To illustrate this, a recent news report referred to a road that had “gradually lost its beauty due to the construct­ion of at least 20 narrow houses with an area of less than 20 sqm each…….Passers-by have been impressed by the three-sto­ried houses with widths of 1m and depths of 10m.?

Many of these new houses are second or third homes and are being built to rent. Because there is no ‘cost to ownership' many of these landlords don't care if they rent their properties or not and so hold out for rentals of over USD$1,000 per month. Most avoid tax as well, so are seldom able to issue a VAT (Value Added Tax) receipt, and the few that can and do usually ask for tenants to sign two contracts: one for the property rental that excludes furnishings and which is low and declared to the authorities; and the other for the furniture, which is relatively high and is not declared. Rooms in some of these are available for @USD$400 per month, but are more akin to student bedsits than expat residences. Consequently, many expats with low budgets or who are ‘self-financed' (such as teachers) tend to gather amongst the cheaper 2 and 3 star hotels and backpackers that can negotiate food & washing packages.

Rentals

Whilst it is an economic fact in more developed and / or market economies ( * ) that demand increases / decreases to fall into equilibrium with supply, this has not happened in Vietnam . There are two main reasons for this. Firstly, there are very few capable large domestic developers (* * ) and the state owned developers either lack the capital or else are instructed to direct it elsewhere eg roads & bridges, low income / student / state employees housing. Secondly, because real estate is still regarded as a “sensitive? area, the legal rights of foreigners have remained severely restricted and unfriendly in comparison with, principally, China but also Thailand , India and other countries in direct competition for FDI (Foreign Direct Investment). Consequently, there have been very few large new buildings constructed to fill the demand-supply void and no foreign invested ones at all!

Because of the relative lack of any significant developments over the past five years occupancy levels have remained abnormally high, and so landlords' now typical seek annual contracts, and often also ask for / demand 6 months rent-up-front and / or a 6 month security deposit.

Rentals in both the main cities are in excess of USD$20 / sqm / month with the better / larger foreign invested buildings even above USD$30 / sqm / month +/- 10% VAT (Value Added Tax & @5% Management / Service Charge).

* Note – Vietnam is still regarded as a non-market economy by USA (see Appendix1), partially because of the real estate issue.

** Note – The 33 firms currently listed on the stock market have a total capitalization of only USD$230 million, with 11 having a total registered capital of less than USD$1.9m each. Over half are seeking to diversify into real estate development, partially because most of the products / services produced by them are / will be uncompetitive in the global context when Vietnam joins the WTO, and because most of them were former State Owned Enterprises who were ‘given' land well below market value when they were initially equitised eg Air-Conditioning manufacturer Refrigeration Electri­cal Engineering Corp ( REE ), the largest listed company and owner of e-Town office building.

Utility Costs

Most expat serviced apartments charge an all inclusive rent to cover electricity (typically USD$1/sqm/month), water, cable TV monthly fee, etc. However, for those renting houses, the rental is typically exclusive and the costs borne by the tenant and total costs are usually from USD$150 to USD$300/month, depending upon the size of the house and how often one uses air-conditioners and not including telephone calls. Maids cost about USD$75 to USD$150/month for cleaning, ironing, shopping and depending upon whether cooking in included and / or they ‘live-in' full time, and security guards are about USD$70 to USD$120/month per guard.

Last Updated ( Saturday, 14 October 2006 )
 
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