Foreign cash could absorb supply glut
Foreign cash could absorb supply glut
A favourable tax framework that encourages participation from foreigners and retail purchasers is needed.
That was the message from foreigners to Vietnam’s government to eliminate the current large volume of unsold accommodation in Vietnam.
During the Vietnam Business Forum last week in Hanoi, its Land Sub-Group head David Lim said that a favourable tax framework was one of the practical ways to encourage real estate transactions.
“One of the main considerations for any real estate investor, be they retail or institutional, would be the commercial aspects of the decision,” Lim said.
Currently, different taxes are imposed on real estate transactions in Vietnam, including real property gains tax, value added tax, registration tax and non-agricultural land tax.
Lim stressed that other countries in the region have reduced or waived similar taxes to stimulate real estate transactions in the past.
Other measures to consider would be to introduce a schedule with tax rates reduction over a period of time the property held by the purchaser.
Lim also suggested the government open more to foreign participation in real estate business in Vietnam.
Currently, non-resident foreign entities are not allowed to lease or buy property in Vietnam.
“Resident foreign individuals and foreign-invested enterprises incorporated in Vietnam are permitted to acquire limited residential apartments for their own residential use only. Note that this is inconsistent with other countries in the region which already allow foreign ownership of real estate properties subject to various terms and conditions,” Lim said.
Meanwhile, he also mentioned to the different policies were applied in Thailand, Singapore and Malaysia which government should follow to permit foreigners purchase residential and commercial property.
Moreover, suggestions from Land Sub-Group also further pointed out that currently the Law on Real Estate Business prohibits foreign individuals and organisations from using property for any purpose aside from residential purpose.
“It may be useful to consider revisiting this prohibition as it restricts the ability of foreign individuals and organisations to obtain the maximum commercial benefit out of their properties. This also prevents legitimate real estate business operators from operating in Vietnam. It would be useful for instance if a property developer could sell a large number of apartments in a building to a foreign investor which could then re-sell such properties on the secondary market or lease them out. Any change in this prohibition would make the real estate market in Vietnam more attractive to a real estate investor,” Lim said.
Apart from that, provisions relating to taxes and repatriation of funds out of the country must also be implemented so that it is attractive commercially for foreign investors to purchase property for this purpose.
Lim also suggested that in most other countries, the main source of funds for acquiring real estate property is by way of bank financing.
“Whilst it is possible to obtain bank financing from banks in Vietnam, interest rates currently in Vietnam are at the level of 15 per cent. This high interest rate is prohibitive and is a deterrent to those seeking to purchase real estate property,” he said.
One way to encourage home buyers is for credit institutions to make available end financing at lower interest rates or have more flexible payment terms.
In order to deal with the real estate inventory overhang, Lim concluded, it was important that there was a clear policy and action to introduce measures to stimulate real estate transactions.n
“The characteristics of each of the suggestions made above can be tweaked according to the policies of the country and objectives to be achieved. It is critical however to be nimble and flexible to introduce measures which are beneficial to the real estate sector quickly to address any specific deficiencies,” he added.
According to Ministry of Construction, the unsold stockpile of condominiums now number in the thousands and are valued at around VND40,000 billion ($1.9 billion).
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