In general, real estate is the physical surface of the land inclusive of what lies above and below that is permanently attached to it, plus all the rights of ownership such as the right to use, own, mortgage, sell, and lease. It is a class of asset that is characteristically different from others by being both physically immobile and unique; the geographic location of the real estate can never be changed with no two being exactly the same – while in some ways similar, each differs geographically.

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1. What are the types of real estate available in Ho Chi Minh City?

Being a metropolis that is developing with the aspiration to turn into a prominent urban centre, Ho Chi Minh City (HCMC) has a diverse mix of real estate; the five main types of real estate in HCMC are:

  • Residential real estate: Any property used for housing purposes. Examples include row houses, villas, semi-detached, apartments, etc.
  • Commercial real estate: Any property used for business purposes. Examples include hotels, offices, shopping malls, shophouses, etc.
  • Industrial real estate: Any property used for manufacturing, production, distribution, storage, research and development. Examples include factories, power plants, warehouses, etc.
  • Land: Undeveloped property such as vacant land plots and agricultural land.
  • Special purpose: Property used for public socio-infrastructure. Examples include cemeteries, government buildings, parks, places of worship, schools, etc. 

Within the category of residential real estate in HCMC, there are 2 sub-categories of landed housing and high-rise buildings. Landed housing is made up of row (linked) houses, semi-detached houses, and standalone villas, while high-rises are made up apartments, penthouses, duplexes, and lofts.

Also of important note, that residential real estate in HCMC can either exist within the boundaries of real estate projects of varying sizes, ranging from a single building, a whole complex, up to integrated townships covering a massive land area. Or as a standalone low-rise building (house) with limited rooms or individual units.

2. How does the HCMC real estate industry work?

Real estate is one of the main drivers of economic growth in Ho Chi Minh City and Vietnam as a whole. In a rapidly developing country, housing is critical for the socio-economic health of the country. Key economic indicators are used to measure the status and progress of the real estate industry; these statistics include Gross Domestic Product, demographics, credit exposure for real estate, et cetera. Inversely, real estate market numbers also help to provide clues about how the general economy is developing. Housing supply in the primary and secondary market, absorption and sales take-up rate, price movement, are all indicators that the economy is doing well or slowing down.

Ho Chi Minh City’s real estate market is very complex and diverse; however, many people tend to assume the industry consists merely of developers and agencies. This is only the front for the market, merely scratching the surface of the industry. In actual fact, there are many professions of people making a living through real estate: there are the valuers that appraise real estate, property managers that operates buildings, financiers that power the industry, contractors that build, et cetera. Additionally, many other professionals and businesses such as accountants, architects, bankers, insurance companies, surveyors, and lawyers that depend on the real estate industry.

In a broad sense, the industry is driven by landowners creating land banks and applying for land-use permits from authorities, investors financing real estate for profits, developers executing a project from start to finish, real estate agencies marketing and selling products, retail investors investing in properties, and end-users buying for own consumption. The interaction among these groups drives the industry and market as revenue is generated, which can then be reinvested to compound wealth. 

3. Why invest in real estate?

Real estate ownership in Ho Chi Minh City (particularly residential properties) is gaining traction from retail investors (individual buyers), as its middle-class emerges with excess household incomes. The new found wealth stemming from Vietnam’s stellar economic growth has led to peoples’ aspiration of owning multiple properties. The fundamental reasons why people choose to invest in real estate are as follows:

  • Real estate is a hedge against inflation as rental rates and capital values usually increase in tandem with inflation rate.
  • Real estate has more predictable returns compared to stocks and bonds.
  • Real estate is an excellent asset to preserve equity in times when prospects for stocks and bonds fluctuate.
  • The equity generated from real estate investments can be used to finance other investment opportunities; investors can borrow against their property.
  • Investors do not have to use their own money to buy real estate; there are facilities to provide financing.

The benefits of investing in real estate are numerous. Some of the richest people in the world has built their net-worth from real estate. In addition to providing cashflow and equity for owners, residential real estate can also be used as a home or other purposes.

In summary, real estate is a distinct asset class that is comparatively simple to comprehend and can maximise the risk-and-return ratio of an investor’s portfolio. On its own, real estate offers cashflow opportunities, equity building, and a hedge against inflation. Real estate by character offers lower volatility through portfolio diversification.

4. How to make money from real estate investing?

Real estate value increment and rental income are just two ways to profit, the fundamental methods have not changed in ages. The first and most common way real estate generates a profit is by its equity value appreciating. This occurs by different factors, margins and rates for each type of real estate, but is only realised through liquidating the property (selling).

With reference to residential real estate at the macro level, location is often the biggest factor in appreciation. As the neighbourhood the home is located in develops and become more desirable for living; more transit routes for increased connectivity, higher standard of schools, sizeable shopping malls, recreation options, and many more, the home’s value starts to increase due to demand. However, note that the such trends can also work in reverse, with home values falling as a neighbourhood stagnates and decays. At a micro level, home improvements can help values appreciate; examples of such upgrades include creating an extra bedroom, remodelling the kitchen and bathrooms with modern fittings/appliances.

The second big way real estate generates wealth is by providing regular income through rental and leasing. Such forms of income from real estate can be derived from raw land, which may be rented for industrial/agricultural production, temporary housing, retail outlets, restaurants and cafes, et cetera. Or residential property whereby tenants are contracted to pay the homeowner a fixed amount monthly. After deducting operational out costs and mortgage repayments from it, the remaining amount is positive cashflow. A desirable neighbourhood location as mentioned earlier is of upmost importance to ensure ta ready pool of tenants and higher rents.

5. What are the most important factors for real estate investing?

While location is always the main consideration, there are numerous other factors that help determine if an investment makes financial sense. Listing out some of the most important factors to be aware of will prepare investors to invest in the real estate market in HCMC by knowing what to look out for.

Property Location: A neighbourhood location’s current status (amenities, connectivity, etc.) is only part of the story when factoring residential property valuations. Investors look into the future and make a calculated judgement on how the area is expected to evolve over the investment period. Today’s open green field in the front of a apartment complex could someday become a highway or a park. It benefits investors to conduct as detailed a review as possible into the ownership and intended land use of the immediate location vicinity where the real estate investment is going to be.

In HCMC, straightforward ways to collect information about what are the plans for the vicinity of the real estate investment is to look up government websites or follow the latest news in mainstream media channels on the intentions of the government regarding its urban masterplan and infrastructure works. in charge of zoning and urban planning. These will provide knowledge to the areas master planning and determine how favourable or not it is regarding the future value of the intended investment property.

Investment Purpose and Horizon: Each investment purpose involves different priorities and horizon. It will also determine an investor’s selection in property. Buy-to-let prioritise regular income, positive cashflow, building equity, and long-term capital appreciation. Buy-to-sell (speculate) for quick turnover over a small profit is short-term and highly dependent on the market.

Property Valuation: Gains in real estate is often made at the point of purchase (entry point). Thus, it is important to know how to determine and judge if a property is investment worthy. Using a “sales comparison approach” by comparing recently transacted properties that have similar characteristic as the investment, a “cost approach” by determining the total base cost of the land and construction, and “income approach” based on projected revenues, investors can calculate the estimated value of the investment property to determine if it is worth the selling price.

Leverage: An important part of real estate investing is making use of other’s money to invest. Investors can take up a bank mortgage loan if eligible. Shop around the different banks and see who has the better offer, pay attention to the period the interest rate is kept fixed, how the rate fluctuates after the fixed period, early repayment penalty (if any), et cetera. Note that each type of mortgage has its own risk profile and you need to study each carefully.

New Construction Versus Existing Property: New construction (including pre-construction and off-plan projects) usually offers attractive (early-bird) pricing, many options of units to select from, modern amenities, and the likes. A drawback is that its risks include possible handover delays, the unknowns of a how a new neighbourhood develops, future market situation, et cetera. On the other hand, existing properties removes majority of the unknown, offering many actual points of reference related to construction quality of the property, existing internal facilities and external amenities, rental income and yields, et cetera.  

Real Estate Market: Similar to other types of investments, it is good to buy low and sell high. Real estate markets move in up-down cycles, and market prices fluctuate. It pays to be aware and ahead of trends. Investors should stay constantly updated on trends and statistics for:

  • Primary supply (new construction)
  • Completed properties inventory (secondary supply)
  • Supply absorption and sale rate (demand)
  • Price movement (overall market and immediate location)
  • Mortgage rates movement
  • Foreclosure rate

Real estate can help diversify an investment portfolio, as it has a low correlation with other major asset classes. When the stocks are down, money flows into real estate as it is more secure. Even when stocks are up, the profits also tend to find its way into real estate. Moreover, a real estate investment can also provide steady income and cashflow, generate substantial value appreciation and equity, making it a sound investment. Of course, as with any investment, it is important to consider the main determining factors like the ones listed above, before actually investing.

6. What is the return on investment in real estate?

As real estate investments are quantifiable, investors can calculate the property’s Return on Investment (ROI) to measure the profitability of an investment; the possible return relative to the cost over a fixed period. The ROI is the current value of investment if not exited yet or sold price of investment if exited plus income from investment (proceeds) minus initial investment and other expenses divided by initial investment and other expenses, expressed as a percentage of the investment’s initial cost.

The ROI can increase or decrease in a property investment. For example, suppose a property (not rented out) was purchased as an investment initially (entry price) at 180,000 USD and is now worth 230,000 USD. The ROI for this investment is about 27.78% [(230,000 – 180,000) / 180,000 x 100]. Take note that this is the basic formula and includes generalised figures, investors should keep in mind that there are other variables that come into play with investment properties (especially rental properties) that can affect ROI numbers.

A ROI of 27.28% is attractive for a 2-year investment period but poor over a 10-year period. While ROI figures can be calculated for nearly any property and period into which an investment has been made, the outcome of an ROI will vary depending on which figures are included as earnings and costs. The longer an investment horizon, the more challenging it may be to accurately project or determine earnings and costs, amongst other factors (such as the rate of inflation).

What one investor considers a “good” ROI may be unattractive to another. A good ROI on real estate varies by risk tolerance; the more risk investors are willing to take, the higher ROI they can expect. Conversely, risk averse investors may happily settle for lower ROIs in exchange for more certainty.

Of course, before ROI can be realized in actual cash profits, the property must be sold. Often, a property will not sell at its market value; a transaction may be closed lower than initial asking price, which ultimately lead to a lower ROI than the forecasted number.

Disclaimer:

This article is intended to be an informational resource to provide tips in guiding real estate investors to understand the key considerations in Ho Chi Minh City real estate. It is by no means a replacement for professional investment advice and consultation. Investors are advised to engage the professional services of a property investment consultant and use the information in this guide to gauge the investment knowledge of your real estate agent.