Vietnam's real estate market has recently been spurred by foreign investors, mainly from Japan, South Korea and Singapore, who continue to see opportunities in an increasingly crowded field.
These regional companies are particularly interested in large-scale mixed-use developments comprising apartments, offices and retail space in Hanoi and Ho Chi Minh City. Investors’ interest is fueled by Vietnam’s fast-growing economy, urbanization and an expanding middle class.
Foreign investment into real estate hit $983 million in the first 10 months, around 5.5 percent of all new pledges in the period, according to the Ministry of Planning and Investment.
Japanese companies have pledged $2 billion in total for Vietnam's real estate sector. One of Japan's largest builders, Kajima Corporation, has formed a joint venture with Indochina Capital to channel funds worth of $1 billion into property developments in Vietnam over the next 10 years.
Vietnam is currently viewed among the most potential markets in Asia for foreign direct investment, said Keisuke Koshijima, Kajima’s Market Development Executive.
Local companies clearly do not want to stay out of this. The number of newly established companies in the real estate sector almost doubled to 2,160 during January-September, compared to the same period last year, the Ministry of Investment and Planning said in a report.
That means, on average, eight property firms were launched every day in the first nine months. The registered capital of new property companies also increased 2.5 times year-on-year.
About 22 percent of overseas remittances have also been flowing into Vietnam's real estate market on average. The country recorded $12.25 billion in overseas remittances last year, slightly up from $12 billion in 2014, according to data released by the central bank.
Remittances from overseas Vietnamese remain a key source of funds for the country's economy, equivalent to about 8-10 percent of gross domestic product.
All of this positive trends come even though the government has announced new lending restrictions to prevent a bubble.
The State Bank of Vietnam said in May that it will raise the risk weight of property loans at commercial banks to 200 percent from 150 percent on concerns that the housing market may overheat. The new rule will take effect on January 1.
In addition, the central bank has also set new restrictions on how banks use their funds. Accordingly, banks will not be allowed to use more than 60 percent of their short-term funds for medium to long-term purposes, including loans for the real estate sector, until the end of this year.
The ratio will then be lowered further to 50 percent in 2017, and 40 percent by 2018.