A Guide to Investing in Apartments in Ho Chi Minh City – 2021 Edition

▸ 1. Are apartments a good form of property investment in Ho Chi Minh City?

Ho Chi Minh City apartments offer a decent price entry point for inexperienced investors. The lower outlay will afford you fewer risks and more product choices. It also gives investors who have a decent seed money pool the opportunity to buy multiple apartments, helping them to diversify their investment portfolio and spread their risk. Additionally, the industry-specific and market knowledge required, as well as the investment process for investing in apartments are not beyond the ability of fledgling investors to pick up. With a little hard work, any diligent investor can achieve the same result as a savvy investor.   

A 2019 government census placed HCMC as the third-highest rate of the urban population in Vietnam at 79.2%, and also with the third-highest positive net migration rate among all provinces of 75.9%. Therefore, in order to provide a roof for the majority of HCMC’s rapidly expanding population (a fundamental of social stability), housing solutions are needed to cater across all sections of society; from low-income earners to the mass market middle class and high-net-worth individuals. High-rise (apartment) living that is differentiated by product segments and pricing is seen as the de facto solution by industry stakeholders to continue facilitating homeownership in the face of rising costs of land in HCMC.

It is obvious that there is an inherent demand for housing in Ho Chi Minh City and apartments are increasingly seen as the choice option by HCMC’s residents. So, what does this imply to investors?

• More renter demand and choice over who rents your apartment (tenants);
• Potential to charge higher rent leading to higher rental yields;
• Increase demand leading to capital values appreciating;
• Greater investment security.

Apartments in HCMC also have a mass buyer appeal; popular with a wide range of buyers – first-time homeowners, upgraders, downsizers, and investors. When it is time to sell your apartment investment, you will have a broader and ready pool of prospects, giving you more opportunity to create competition and position your apartment to maximize income. 

▸ 2. What are the ways to invest in apartments in HCMC?

Before you even begin the process of buying an apartment, you should ascertain your investment priorities. The priorities you set will result in the way you invest in apartments; the investment strategy you will adopt. This in return will determine your selection of apartments invest in. At this stage, you will have to decide if your priorities lie in a capital gain or monetary income. In a perfect situation, you will want to maximize both, but the reality is that investment strategies that maximize gains do not tend to perform well for cash flow, and vice versa for investment strategies that yield good cashflows.

If your objective is capital gain, you may want to consider growth investing as a way to invest in apartments in HCMC. The nature of HCMC’s apartment market is that high capital appreciation for apartments is focused on developing neighborhoods. As infrastructure is completed, the neighborhood becomes better connected to job centers, education hubs, and lifestyle amenities; the increased desirability of a specific neighborhood will then lead to higher housing demand and hence pulling apartment prices up (capital gains).

All developing neighborhoods must undergo a period of maturity. At the start of the growth, housing supply outweighs demand and this will result in deflated rental prices (low rental income for the investor). As more apartment buildings are handed over, residents will slowly start to move into that specific neighborhood, and the resultant population increase will attract businesses providing amenities catered to these residents. Such a process takes time (maturity period), especially if each new apartment project supplies thousands of units into the market. End-user demand has to catch up with the apartment supply in order for rental prices to be increasingly attractive.

Alternatively, if your objective is monetary income, you can consider income investing as a way to invest in apartments in HCMC. As demand for apartments is usually high in an established (mature) neighborhood while supply remains scarce. Rental prices are some of the highest (high rental income for the investor). However, despite strong demand and limited supply, capital gains on apartment prices do not appreciate as much as developing neighborhoods because entry prices tend to already be some of the highest in HCMC as well. Characteristics of a mature neighborhood include highly developed infrastructure, majority of land area have been built-up, densely populated by residents, sufficient amenities to cater to different lifestyle needs, et cetera. Therefore, there is not much opportunity for further mass development that is the primary catalyst for a surge in housing demand and in consequence a rapid increase in apartment prices (slow rate of capital appreciation for the investor).

▸ 3. When is the best time to buy and sell an investment apartment in HCMC?

As a rule of thumb, investors will always want to buy an apartment when the market prices are low and sell it at a high price. For the more adventurous investors (you will be surprised how many there are), are willing to buy high with the unlimited optimism of selling even higher. Buying low and selling high (or buying high and selling higher) is easier said than done, due to the fact that absolutely nobody can accurately predict how the market will move in the future. The further it is into the future, the more obscure forecasts become. But wait, investing is not about having a crystal ball that allows you to see the future. It is about looking at numbers (price, supply and demand volume, etc.) to determine market trends and make an informed decision here and now with an eye to the future.  

The real estate market moves in cycles starting with upwards price movement (upmarket) to hitting the lowest price before bottoming-out (downmarket), this is considered as 1 cycle. The previous real estate market cycle in Ho Chi Minh City lasted 7 years from 2006 to 2013 and the cycle before that, 6 years from 2000 to 2006. The current market cycle started in 2013 and counting till date in 2021, so far it has registered some 8 years of upward growth. This is in tandem with Vietnam’s economic boom, so no surprises here. For more cautious investors, it pays to note that if you miss the opportunity to invest in the current upmarket market, and wish to wait for the start of the next cycle (where prices are at their lowest) you will need to wait. Looking at the 3 downmarket periods of each market cycle since the housing market in Vietnam was established sometime in 1993, on average it takes 4 to 5 years from peak to trough. All this while, your money will be sitting around and not working hard to grow your wealth through real estate.

Timing Ho Chi Minh City’s real estate market cycles to predict price movement and identify the best time to invest in an apartment is good, but it is to be taken as a general guide for good practice. We have to delve further into a more micro level of understanding of the apartment market in HCMC to really capitalize on investment opportunities and not allow money to sit around idle. Given certain specifics on how HCMC’s apartment market functions, there are new launch apartments that can still be suitable to invest in even as prices are higher versus the base price.

As for the best time to sell an investment apartment, using the real estate market cycle as a guide, it is optimal to sell when the market peaks, as this is when the value of your apartment is worth the most. Most investors make the mistake of holding on to their apartments for too long that they miss the market cycle’s peak before prices start to drop. They always do so as they assume holding up for a better price means maximizing their returns. Whilst this is not wrong, it is important to note that the value of apartments only increases on paper, only after cashing out by liquidating the asset can the value be realized in a monetary sense. When it comes to investing, having cash in hand to make use of opportunities that arise is important, this is rolling your money to make it work hard for you to grow your capital by continuously buying and selling (trading) apartments.

Honestly, if you ask anybody (except the most optimistic of real estate agents) when is the best time to buy an apartment in HCMC, chances are they will give you the same answer: “yesterday” was the best time to buy an apartment because prices have kept increasing ever since. However, there is no real best time to buy an investment apartment in HCMC. An opportune time to buy is anywhere during the real estate market cycle whereby prices have bottom-out and are trending upwards. How about the best time to sell an investment apartment? The same is also true; there is no best time. As long as the market gives you a good return, you should cash out and use the proceeds to reinvest in more apartments to grow your capital. Of cause, if you want to talk about maximum gains, it is selling when the market is at its peak, but this leaves you no margin for error, if you miss the peak, you will need to wait years for the market to recover, missing out on more lucrative investment opportunities along the way. Because nobody can predict when does the market bottom-out or peak, but when you find there are opportunities for capital gains over a longer horizon (historically, the next market peak prices in HCMC will always be higher than the previous) and sell when the market allows your expected profit to be achieved. It is never too late to buy an apartment in HCMC, but do not be too late to sell your investment!

▸ 4. How to choose apartments that have high capital appreciation?

There is no one all conclusive Ho Chi Minh City apartment market, but multiple sub-markets within one; divided by geographic location, a segment of apartment property, buyers’ profile, and entry price point. While certain sub-markets may perform well in terms of capital growth, others may remain stagnant or even be in decline. As such, it benefits investors to have a micro-level understanding of the Ho Chi Minh City apartment market. 

In order to generalize, neighborhoods, where demand for apartments outstrips the supply, is an indication for high capital appreciation. After all, prices are the direct result of the interaction between demand and supply. The demand for apartments is made up of buyers who are primarily investors or end-users (people who will actually live in the apartments). However, investors buy with the purpose to resell or rent out their apartments, their target will ultimately be end-users, as such demand in order the sustaining capital growth (real demand) must be made up predominately by end-users. As an investor, you will want to identify neighborhoods in Ho Chi Minh City with strong real demand that continues to grow and stay on top of apartment supply.

So, in order to determine real demand while lacking certain numbers (there is market research on the indication of general demand but lack an accurate breakdown on real demand), we have to consider market sentiments and homebuyers’ psychology. Apartments that have high demand, are located in developed neighborhoods with access to good schools, a variety of shops, malls, medical facilities, entertainment and recreation options, et cetera, that can cater to a variety of lifestyle needs. The apartment complex must be within acceptable commuting time to work locations (good connectivity) and lifestyle destinations. Moreover, it has to avoid common inconveniences of living in HCMC, the likes of flooding and traffic jams. All these while ensuring that the price quantum remains within the affordability of the target end-user profile. In short, the neighborhood has to be desirable and well within the acceptable means of the intended end-users.

The demand factors have to be balanced with supply-side factors as well. Strong demand coupled with lack of supply is a good indication of potential capital appreciation. The supply of apartments can be determined by having knowledge of the scarcity of easy availability of project land and the overall masterplan of the HCMC’s municipal authority. For example, in HCMC’s Central Business District, there is a well-known lack of land that has been granted permits for apartment projects and the authorities have publicly declared that they will temporarily stop granting permits there. As a result, the price ceiling for apartments in the CBD has risen to be twice-fold over the price ceiling of the next most expensive neighborhoods.

However, investors should be wary that as price (due to capital appreciation) increases unabated, demand tends to fall as higher prices often mean a smaller pool of buyers, as a portion of buyers will be priced out of the market. While higher capital values are always welcomed, if demand falls lower than supply, we will experience price stagnation and subsequent decrease as supply floods the market. Also, note that demand and supply are not equal across all apartment sub-markets in HCMC, and investors should meticulously do their homework before investing.   

▸ 5. How to choose apartments that have a high rental yield?

Rental yield is not the same as rental income, although they are directly related. Rental income is purely the amount of rent you the investor collects based on the activity of renting out your apartment. On the other hand, rental yield is the amount of rent collected annually divided by the total purchase price of the apartment including the cost of fitting-out. Assuming that your total acquisition price of a premium 2-bedroom apartment is 250,000 USD, and rental per year is 10,800 USD, your gross rental yield is 4.32%. If you invest in a mid-end 2-bedroom apartment for USD 180,000 and your rental per year is 9,000 USD your gross yield is 5%. You will be investing more in a premium 2-bedroom apartment and despite enjoying higher rental income, it returns you a lower rental yield.

This means that your annual rental income can be high, but if your entry purchase price is also high, your rental yield will still be below average. The higher your rental yield, the less time (number of years) it takes to break even your investment cost; a rental yield of 8% means that it takes approximately 12.5 years to break even and a rental yield of 4% means 25 years to breakeven. In order to build positive cash flow, you can consider taking out a bank mortgage loan on your apartment investment that can have a rental yield that is higher than the bank’s repayment sum, this will afford you extra cash monthly. 

So, in order to choose apartments that can bring you a high rental yield, you must first study the rents across the neighborhood, paying attention to which market segment the apartment complexes are classified under. Next, will be to survey the selling price of apartments in the district and compare it with the current rents. Note that purchase prices for apartments in HCMC are dictated by market value, but rents are dictated by how much tenants are able and willing to set aside for housing on a monthly basis.

▸ 6. Are new launch or resale apartments better for investment in HCMC?

It is important to understand the nature of both new launch and resale apartments, as to which is a better option depends a lot on your investment objectives. A new launch apartment tends to have the lowest entry price for the project, even more so if it is part of the first launching (Phase 1 launch). For investors, this often means a guaranteed capital appreciation that is built-in by the developer and not wholly dependent on the market as the developer will have to price up their subsequent stock release as the project progressively develops and take shape. Moreover, the nature of the new launch market is that developers tend to want to outdo each other for each newer launch, thus pushing new launch apartment prices up.

Typically, for new launch apartments, prices can increase anywhere between 3% to 10% between each phase (dependent on absorption rate). In addition, new launch apartments are sold off-plan and pre-construction, which allow investors to pay in installments, meaning to say, the financial outlay at the beginning is up to 30% of the developer’s selling price, and after putting down this payment, the investors can then look to sub-sale and assign his contract with the developer to another buyer for a profit, allowing him to earn a return on investment for only 30% payment. As such, new launch apartments are suitable for investors with the objective of earning capital appreciation through growth investing.   

However, a drawback is that for new launch apartments in Ho Chi Minh City, there is no room for price negotiation with developers for retail buyers (buyers of individual units). The developers set the price, and it is a situation of taking it or leave it. Considerate developers will cater for price upsides for buyers, allowing buyers to make some profit margin by aligning the price of their apartment products with the current market trends. However, more often than not, most developers tend to make full use of the opportunity bestowed upon them by a lack of supply and strong demand and set new price benchmarks on their products that is far into the future. This can result in investors buying in at future prices that will take a while for demand to accept the new benchmark prices, especially in a stagnating or down market. For an upwards trending market, higher prices are quickly accepted and absorbed by demand.

As for resale apartments, prices are determined by willing buyers and willing sellers, as such prices are flexible enough to be negotiated over. This means there is space for investors to score a good price that is possibly below the market price average. Homeowners liquidate their apartments for many personal reasons, and not all the time is about making a capital gain. The investment objective of spotting and acquiring under-priced apartments by investors is known as value investing. And this is where buying resale apartments have an advantage over new launches.

With regards to rental yields, it is by hands-down much more predictable to determine the rental income of a resale apartment. You can easily know how much the current or previous tenant of the apartment unit you have shortlisted has been paying or even do a comparison with how much the neighbors are renting out similar apartments for. This is definitely more accurate than drawing assumptions from the neighborhood rental price average of apartments and forecasting it for new launch apartments that are slated for handover in the future. If your objective as an investor is to build positive cash flow through leasing out your apartment, using the strategy of income investing, then it makes sense to opt for resale apartments.

As you can see, investing in new launch apartments in HCMC tends to be cheaper when compared to the future handed-over apartments in the same project. This gives investors an edge when it comes to capital appreciation; the value of an apartment increases quite a bit from the planning stage to construction completion. However, the flexibility in price negotiations, getting a deal for under-priced units, and predictability of actual rents make resale apartments the better option when it comes to the value and income investing.