Pros and Cons of purchasing apartments in Vietnam

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Pros and Cons of purchasing apartments in Vietnam

Update: 13:43:07 28-06-2018Date Submitted : 09:43:29 27-06-2018

Although landed properties (land, townhouses, villas) are preferred by most people, apartments will still be the most popular trend of investment in Ho Chi Minh city in the next several years.

Pros and Cons of purchasing apartments in Vietnam

 

Pros

 

​Slow payments spread over a few years.


Very easy payment schemes are usually offered by projects developers in order to keep the competitiveness of their business in the market, some may last up to 72 months. If one-time payment is made, buyers can get a discount of 5-15% depending on the projects.
Compared with other real estate investment channels, including: land, detached houses in the city, long-term payment method when investing in apartments helps buyers to easily gradually accumulate assets.
 
Easy loan procedures.

Compared with other types of properties, apartments are often appraised for lease rather quickly because developers have linked or mortgaged their projects to the banks to guarantee handover of properties in the future.

The law to protect buyers is more tightened.

Under the newly revised Vietnam Housing law, businesses selling apartments are obliged to cooperate with banks to guarantee handover of properties in the future, to protect homeowner's rights. In case developers can not hand over the properties as committed, the associate banks will help compensate for buyer's losses.
Regulations on selling apartments upon completion of foundation and that the sectoral management authorities continuously announce and update the lists of qualified residential projects for sale are also in the effort of the transparency of information and the protection of buyer's benefits.

Flipping is a possible investment strategy to earn profit in a short period of time.

Typically, Vietnamese developers need 18 to 24 months to complete the projects, from the time of publication, start of construction, from construction till completion and handover of the apartments. Investors just have to make payments for their apartments following the construction progress, and can take the opportunity to sell the properties by flipping them with an increase of price from 5% to 7%. This is quite a popular way to increase the selling price of properties in short term.

Rental income.

Right after handover, your apartment can already be ready for lease thanks to the high-end facilities and concierge services, together with the best security systems, bringing residents the most convenient living place. Rental income is equivalent to or more than bank interest rate (about 7% per annum). Compared with land which can not be rented, and villas which are pretty difficult to lease because of the expensive rent, apartments are considered the easiest rental investment channel. Depending on location and segmentation of the apartments, on average, you can expect 100% return on investment in the 15th year just from rental income.
 
Cons
 

Overwhelmed by the virtual value of advertising.

All apartment projects are classified into the type of property to be completed in the future, off-plan, pay first, get the key later. When buying apartment, buyer have to pay right at the moment any contract is signed (or even before that), but can not immediately see the actual apartment of theirs, they can only see the imaginary one shown in advertisements. Therefore, apartment investment is thought to be more or less influenced by PR campaigns with messages somehow far beyond the reality.

No sudden increase in value as land.

Except for the first 10 years when property's value appreciation is still good, capital gain may continue to rise at narrow margins of less than 5% per annum on average, then it enters the stage of saturation. From the 15th year onwards, apartment price is difficult to progressively raise due to the decrease in construction quality over time. At that time, maintenance funds need to be used to continue operating or repairing the developments. If the maintenance fund is well managed, quality of the buildings will remain stable for several decades.

Low home appraisal.

Although mortgage at banks is not a difficult thing, apartments are often under-valuated after a long period of use. The cause is that when appraising apartments the banks must take into account the depreciation of this kind of property over time as it will gradually deteriorate. Typically, when apartment owner receives a pink book (ownership certificate), the mortgage amount will not exceed 50% of the property value. Meanwhile, it is 60%-70% for landed properties.

Fierce competition due to oversupply.

The number of condominiums launched in the last three years has reached many tens of thousands. In 2017, another 25,000 to 30,000 apartments are planned to be added to the market. The overwhelming supply will lead to lower expected liquidity or lower rents.

Disputes are always "smoldering", and may explode at any time.

This is the thing that investors can not control. Continuous disputes can reduce the property value. As the property market in Vietnam's major cities has just grown rapidly over the past few decades, the legal system is still on the verge of completion. Property management still has to be largely improved and it requires more time to enter the "reel". Therefore, conflicts between buyer and developer, or between first buyer and second buyer, or buyer and apartment management parties have been happening for many years and will definitely continue in the future.