Real estate investment trusts pivotal for long-term success

Real estate investment trusts pivotal for long-term success

Vietnam is entering a rare window of opportunity marked by moderate interest rates, strong stimulus policies, and far-reaching capital market reforms. Quang Tran, senior manager at NAI Vietnam, told VIR‘s Nguyen Huong how real estate investment trusts are emerging as a natural instrument to finance commercial real estate and attract foreign capital.

How do you assess the emerging trend of commercial real estate financialisation in Vietnam?

Quang Tran

Over the past 10-15 years, Vietnam’s commercial real estate market has largely followed a traditional model, where developers simultaneously owned, developed and bore the full financial risk of their assets. From 2025 onwards, however, we are seeing a notable shift in mindset. Many developers are moving away from a pure development-led approach towards asset management and balance sheet optimisation.

Real estate investment trusts (REITs) are the clearest manifestation of this transition. When income-generating assets are placed into a REIT structure, rental cash flows are no longer confined to a single corporate balance sheet but are integrated directly into the capital market. This is the essence of financialisation: transforming tangible, illiquid assets into tradable investment products that can be priced, exchanged and used to redistribute risk.

In developed markets, REITs are already a core component of the financial ecosystem. Investors do not need to acquire entire office buildings or logistics parks; instead, they can invest in units representing entitlement to rental income. In Vietnam, the model remains at an early stage, with only a handful of pilot products.

However, the growth potential is significant, particularly as Vietnam’s stock market is set to be upgraded to emerging market status by FTSE Russell in September.

Beyond capital raising, what role do REITs play in reshaping risk within the commercial real estate market?

REITs should not be viewed simply as another funding channel. Fundamentally, they are a mechanism for reallocating risk. Historically, leverage and liquidity risks were concentrated on developers’ balance sheets and within the banking system. By transferring assets into REITs, part of that risk is shifted to the capital market, where investors accept price volatility in exchange for stable and predictable cash flows.

For this reason, REITs represent a structural evolution of the commercial real estate market rather than a standalone financial product. The key question is not whether Vietnam should develop REITs, but how and when to do so in order to ensure they perform their intended role effectively.

What key lessons can Vietnam learn from countries with well-established REIT markets?

In the US, REITs account for nearly 4 per cent of the S&P500 and act as a stabilising force across property investment cycles. Their success is built on three main pillars.

First is transparency: US REITs provide regular disclosures, clear rental cash flow reporting and widely accepted performance metrics.

Second is a well-defined profit distribution mechanism. REITs are required to distribute at least 90 per cent of taxable income to investors, ensuring that they function as income-generating vehicles rather than profit-retaining entities.

The third aspects is a robust legal and governance framework that offers strong protection for investor rights.

Singapore provides a regional benchmark that is particularly relevant to Vietnam. S-REITs account for around 10 per cent of total capitalisation on the Singapore Exchange, equivalent to more than $76 billion. Their success is underpinned by international reporting standards, clear tax incentives and an effective supervisory system, including dedicated indices to track sector performance.

REITs are often described as highly sensitive to interest rate cycles. How significant is this risk?

REIT performance is closely linked to interest rates, exchange rates and monetary policy. In low-rate, high-liquidity environments, REITs tend to exhibit lower volatility and stable yields. When the cost of capital rises, however, unit prices can come under considerable pressure.

Another important risk lies in the gap between valuation-based pricing and market-based pricing. During periods of cheap capital, assumptions on rental growth and discount rates can become overly optimistic, pushing asset valuations above true market levels.

When interest rates reverse, this gap narrows rapidly, often resulting in sharp price corrections, particularly for Grade A office assets in central business districts.

What will be the strongest conditions for REIT development in Vietnam over the next two years?

Vietnam entered 2025 with deposit interest rates at their lowest level in nearly a decade, around 4.5-4.75 per cent. This has coincided with an unprecedented public investment programme exceeding VND1.28 quadrillion ($51 billion), focused on infrastructure, industrial development and social housing. GDP growth is expected to remain strong, while inflation is projected to stay around 4 per cent.

These conditions are conducive to debt restructuring among commercial developers and the preparation of stable, income-generating asset portfolios suitable for REIT structures. If macroeconomic stability is maintained, Vietnam’s 2026-2027 environment could resemble Thailand during 2021-2022, when abundant liquidity and low capital costs supported rapid REIT expansion.

With that, what are the main obstacles for such development?

The most significant challenges remain institutional and structural. Vietnam does not yet have a dedicated REIT law, while land use rights and asset transfer procedures remain complex. This complicates the process of transferring properties into fund structures.

Transparency and governance also require improvement. IFRS and environmental, social, and governance (ESG) standards are still applied mainly by large corporates, often with foreign participation. For many domestic firms, ESG remains more of a marketing concept than an embedded management philosophy.

Capital market liquidity is another constraint. The current scale of Vietnam’s stock exchanges limits the ability to support large REIT listings, particularly in the absence of sizeable institutional investors.

Finally, investor behaviour remains heavily skewed towards short-term trading rather than long-term income investment. Without addressing these issues in a coordinated manner, REITs risk being misused as short-term fundraising tools rather than stable, long-term investment vehicles.

Which commercial segments are most suitable for REIT development in Vietnam, and what recommendations would you make to policymakers, businesses, and investors?

Grade A offices and industrial and logistics properties are the most suitable segments in the initial phase. These assets typically feature long-term leases, relatively stable cash flows and strong demand driven by overseas funding and supply chain relocation. Retail and hospitality assets may be considered on a pilot basis, but with caution due to their higher sensitivity to consumption and tourism cycles.

For regulators, the priority is to establish a dedicated and coherent legal framework for REITs that aligns with existing land, real estate, investment and securities laws. Clear tax incentives, including relief on transfer and withholding taxes, are also critical. Pilot programmes for green REITs linked to energy-efficient assets could provide a useful starting point.

For developers and corporates, standardising financial reporting, clearly separating development assets from income-generating assets and upgrading governance through partnerships with international investors are essential steps.

For investors, a shift in mindset is required, from capital gains speculation to cash-flow-oriented investment. It is equally important to recognise that REITs remain exposed to interest rate cycles and operational management risks.

Vietnam needs to move cautiously in order to build long-term success. If implemented correctly, REITs can enhance transparency in the commercial real estate market and reduce reliance on bank credit. If mishandled, they risk becoming a new asset bubble within the capital market. The ultimate outcome will take time to determine, but REITs have clearly placed Vietnam at a pivotal juncture in its market development.

VIR