In Vietnam, every working adult dreams of owning a brand-new home. This attracts homebuyers into the many projects showroom every day. One drawback of buying a new launch property is that the final end product and housing project is left to the imagination of the buyers. Therefore, you should be prepared to take the right steps and ask the right questions to identify potential red flags and minimise the risk of buying a new launch project.
If you are thinking of buying a new launch property, do not disregard the risks. These off-plan properties while generally attractive, always come with some inherent risks associated with buying into the project at the pre-construction phase of development. Make sure you know exactly what you are buying into before committing to a purchase.
Learn the importance of conducting due diligence on a new launch project, finding out about a developer’s standing, financial issues, or just simply understanding the product that you are buying into. This article identifies some of the top things you need to know as a buyer before buying a new launch property in Ho Chi Minh City.

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1) Do your own due diligence on the project

The legal status of housing projects in HCMC is a deep-rooted problem for the industry. Municipal authorities have not prioritised clearing the administrative bottleneck caused by procedural red tape in approving new projects and dealing decisively on with projects that have infringed proper legal process. This has resulted in many real estate projects stuck in limbo at different stages of the legal process checklist for getting the permits to construct and sell the housing project.

Current laws regarding real estate business and housing are not comprehensive enough in providing exact guidance to developers in managing the legal aspect of executing their projects. As a result, many housing projects were launched ahead of time without having sale and development permits in order. Causing years of delay for developers to begin construction or executing the Sale and Purchase Agreement (SPA) with homebuyers.

Always ensure that you do your own due diligence on current legal status of a housing project. Basic paperwork that the developer has acquired help you to understand the project’s situation. Namely, land ownership certificate (Land Ownership title), land use rights certificate (LURC), approved 1/500 project master plan, construction permits for each development phase, and sales permit.

The horror stores you hear about high-rise development projects being stuck in limbo without constructing are likely true. But more buyers do not have access to the inside picture. However, what they do know is what that has been covered by the gossip column in the media and circulated on social media by agents. Due to bureaucratic red tape, stalled projects can happen to even the most reputable developers. While financial hardships tend to befall first-time or small developers. Therefore, make sure to do your due diligence. As the saying goes, caveat emptor; buyer beware.

2) Be aware of developer history and creditability

Everything begins and ends with the housing developer. Here are some questions you should think through and ask:

  • Do they have a good or at least reputation?
  • What have they built before?
  • Have you visited any of their completed buildings or know anyone who resides in one of their buildings?
  • How sound are their financial ability, and can they complete the project if they run into any unforeseen circumstances? 

Always do your research on the developer before committing to any new launch property purchase. Be sure to always spend time to take a look at a developer’s past projects (portfolio). Paying attention to how successful they have been in terms of built quality and adherence to construction schedule. It can be beneficial to ask for references from experienced property investors or a property agent that you can trust. Also, not forgetting your own due diligence on the developer by searching the internet for negative news such as faults and complaints against the developer.

3) Ensure payment schedule adheres with construction progress

As a homebuyer, you should know your rights with regards to making payments for a new launch property. Developers are not allowed by law to requests payment from buyers of more than 30% prior to signing the SPA. In turn, the execution of the SPA by the developer is only legitimate after it completes certain prerequisites such as completing the building foundation and attain a sales permit. You should not be pressured into signing the SPA and making further payments upwards of 30% if the developer has not completed the foundation or cannot produce an official letter from the authorities permitting the sale of a housing project.

Also, note that project developed by foreign developers are not allow the collect payment of 50% prior to handover. As for projects developed by local Vietnamese developers, only up to 70% is allowed to be collected from buyers before handover of the property. This would mean that a housing project has to complete the construction progress adhering to all requirements such as building safety and built exactly to the approved construction/design plans.

Always check the payment schedule issued by the developer, that it complies to the above conditions for payment milestones. You should be very careful with housing projects which payment schedule is not in accordance with construction progress. 

4) Be mindful on what you are buying  

Before you decide to exercise your option to purchase a new off-plan unit, it is best you have a clear understanding. You should study the apartment floorplans and site plans beforehand. Do not wait until the sales event itself before deciding. Chances are you will not have much time from the release of the price list to the time when you have to commit. Look at the which compass direction the units are facing and understand the corresponding landscape views.

Understanding the site plan and the surrounding views and areas of the project will also give you insight into how developers will price each unit. Desirable views will command a price premium, while blocked views or less desirable views will be cheaper.

Ensure that you are always updated on any change to the floorplans as unit numbers and floorplans tend to be subjected to some changes before the sales event. Causing confusion for buyers and forcing mistakes in choosing the right unit. 

It is also important to know that information contained in marketing materials and reality are two separate things. The amenities, site plan, and even unit layout, may be subjected to change. Developer usually put disclaimers in their marketing materials and contracts stating that the final product could be different. Reputable developers, a careful and professional enough to try to minimise changes after the have launched their project sales. But lesser developers commonly make changes without informing buyers. So, there should be certain flexibility to prevent future heartaches. 

5) Understand the handover condition of the new launch property

Most new launch housing projects are handed over either in a bare shell, partially-finished or fully-finished condition. Pay attention to the handover and material checklist. Do not overlook the price difference between bare shell and finished condition. Quite a number of new launch projects in HCMC offer both options with a significant difference in prices. In order to work out which is a better deal, you should calculate the market value of the fixtures and fittings provided by the developer. Should the finished condition be substantially more expensive than the bare shell condition, you should consider the bare shell unit. Although, you will have to subsequently pay for interior renovations upon handover, you might actually save a bit money from it.

Whatever is your choice in a new launch property’s handover condition, it takes a certain amount of experience to understand how a space feels and function once it is built. Moreover, being able to visualise living in a space that is not physically available is even more challenging. When looking at a unit layout plan, you should try to visualise its condition upon handover. Paying attention to how much sunlight flows into the unit, how high is the ceiling height, what are the views from the windows, are there any outdoor space, and how much useable space for living. Knowing what to look for and choosing the right property unit will determine your future satisfaction as a homeowner or return on investment as a property investor.

Last but not least, developers in Vietnam typically offer 5-years warranty on structural elements of the building (think window leakages, wall cracks, etc.) and 1-year warranty for defects on the home finishing (for example carpentry work, bathroom fittings, etc.). As for appliances, it is usually a standard 1-year manufacturer direct warranty. Do not agree to anything less, you will find that such warranties come in very useful months down the road. Ensure that the developer commits to provide such warranties.

6) Take note of price discounts given by developers 

Price discounts from developers give you an insight into the confidence level of the developer. Large discounts more often than not always catch the eye of homebuyers and property investors. After all a new launch property advertising at 10% discount is hard to resist. As buyers are led to think they are actually getting a good deal a they are buying at a price that is below the market rate. 

However, there is a possibility for developers to mark up the list price of released stock only to provide big discounts to bring the price down in order to create a fear of missing out (FOMO). Any significant discount over and above the market norms of 1 to 5% is an indication of this. Of course, this is might not always be the case. Heavy sales incentives are a sign that the general market sees prices on the high side and buying demand is lower than expected. Or as mentioned earlier, a sales gimmick developers adopt.

7) Study and consider the financial support provided by banks 

As new launch projects price increases, developers are increasingly tying in with banks to offer preferential property loan schemes. This is to provide more access to funds and liquidity for homebuyers and property investors. This is a means that help developers achieve their goals of selling out their product inventories.

Various financial support packages include zero interest until property handover, potentially up to 100% loan to value with other conditions attached, easy qualification to loan, or no penalty for early loan repayment. Most projects tend to offer a combination of several of the above-mentioned incentives.

From the point of view of the homebuyers and property investors, preferential property loan schemes help to stretch your payment liabilities longer. Benefiting you with a more comfortable payment schedule; requiring less cash upfront as the building is being built. By requiring less up-front cash, investors can make full use of the delayed payment to reinvest the cash originally required for payment. Your money will not be locked up in an asset that is still under construction and is not producing income. Additionally, if a property investor would like to liquidate the property for a profit while still under construction, your return on investment will be high because the actual amount of money that comes out of your pocket to pay for the property is less (due to the interest free bank loan).

8) Calculate your financial liabilities of making a purchase  

While it is enticing to be able to stretch your financial liabilities for buying a new launch property over the period of construction, it is important to calculate your finances to ensure that you have enough cash on hand to pay for each instalment. Buyers who miscalculate their financial liabilities only to find themselves struggling to make subsequent instalment payments will be forced to liquidate their property prematurely. Consequently, this may result in financial losses for the buyer.   

If you are taking a property mortgage loan from a bank, you should also note that banks are only allowed to disburse loans ranging typically from 70 to 80%. And this comes after you have made a down-payment of between 20 to 30%. Banks also typically disburse the loan direct to housing developers during the time the SPA is executed, because the project will have sufficient legal standing at this stage. Therefore, you should ensure that you have enough cash on hand to pay up to 20 or 30%.

Additional point to note is the monthly interest and principal repayment to the banks. Often the banks advertise a very attractive interest rate of like 7 to 9% per annum. But note that this is only applicable for the promotional period of the first 3 years. After which, the interest rate will float, and readjusted to the prevailing interest rate. This can easily be anywhere between 2 to 4% higher, or even more. S, you should be sure to calculate clearly about your financial liabilities in repaying the banks each month for the property loan.  

9) Consider the minimum holding period of a new launch property  

Many property buyers make the mistake of focusing on buying a new launch property. But they forget to check the minimum time period that they have to hold onto their property. And only after which they are allowed to liquidate it. Note that some developers allow a change of buyer’s name and details before the SPA is executed. But there are also many reputable developers that do not allow a change of name prior to executing the SPA. What this means is that in situation whereby the legal standing of a project does not allow the SPA to be executed by the developer, it can take a period of 1 to 1.5 years before you are able to dispense with your new launch property. In the meantime, if for whatever reasons you have to liquidate urgently, you will not be able to do so and have to continue making you payment instalments up to executing the SPA.    

10) Appoint a real estate agent to assist you

Believing you might get a bigger price discount or priority in choosing units from the developer’s salesperson is a common misconception. The savings on agent commissions are not passed on as discount to you as the homebuyer. Due to the fact that developers already factor in the cost of paying agency fees (commissions) in their project development costing. By not using an agent, the developer simply earns more. Developers are in the business of continuously launching real estate products into the market and they rely on sales agents to help them sell out their projects.

By not using an agent to represent your property purchase, you are putting yourself at a disadvantage. An experienced and knowledgeable agent can help you navigate the actual buying process advising you on a strategy to increase you chances of securing a unit. Note that the sales process is varied for new launch properties in HCMC. Developer’s may opt from many different approaches to conduct their sales. Common approaches include balloting, distributing separate stocklist to lead agencies, allocating stock based on the total number of bookings each lead agency accumulate, priority in selecting unit based on the time of booking, or any form of combination. Only an experienced agent, can help you to navigate the different processes to increase your chance of securing a choice unit.

Disclaimer:

This article is intended to be an informational resource to help buyers identify the important things before buying a new launch property in Ho Chi Minh City. It is by no means a replacement for professional home buying services. Buyers are advised to engage the professional services of a career-minded real estate agent and use the information in this article to ensure that your rights are protected.