Open for business - investing in Vietnamese real estate

Vietnam's real estate market is of key interest with foreign investors turning to Vietnam in increasing numbers as the real estate sector gathers momentum on the back of the improving economy.

Open for business - investing in Vietnamese real estate

In tandem with the continuing growth of Vietnam's economy, reforms have been made to the real estate legal framework so that it better serves the needs of the market. The legal framework provides foreign investors with a number of options for structuring their investment, of which the following four are the ones most commonly seen.

Establishing a Vietnamese subsidiary and securing land from the government

Under this structure, an investor will identify a plot of land for development and then apply for planning and other necessary approvals from the authorities, including approval to establish a subsidiary in Vietnam to own the land and carry out the proposed development. Once all approvals are obtained, the subsidiary will be formally established and granted with land by the government. Because only the government can grant land to foreign investors, if the land is in the hands of a private entity, that entity would need to first return the land to the government for issuing to the foreign investor.

Establishing a joint venture

Because most prime development sites tend to already be in the hands of private entities and foreign investors are prohibited from receiving direct transfers of land from private entities, establishing a joint venture with a Vietnamese party who will make an in-kind capital contribution of land is a common method by which foreign investors obtain land from existing land owners. Arrangements may also be entered into with the Vietnamese joint venture party to allow the foreign investor to buy out its stake once the land has been contributed.

Transfer of a licensed development project

An on-going licensed real estate project (together with the associated land) can be transferred (in whole or part) from one investor to another, provided that the transfer is first approved by the authorities and certain other conditions are satisfied. The requirement that projects be "on-going" means that the development has not been finished at the time of transfer. Although the need to obtain pre-approval from the authorities does mean that transfers of real estate projects remain less straightforward than in other jurisdictions, recent legal reforms have clarified and expanded the right of investors to receive such transfers which, it is anticipated, will lead to project transfers being more widely used.

Acquiring shares in an existing real estate company

Another common method by which foreign investors gain access to the Vietnamese real estate market is by acquiring shares in an existing Vietnamese developer which owns one or more pre-existing licensed development projects or other operational assets. Structuring an investment in this way is particularly attractive in that it allows the foreign investor to circumvent the lengthy approval processes described above. The current, more favourable economic climate has resulted in a number of previously stalled developments becoming attractive financial propositions, with less financially capable developers of those projects eager to offload. Structuring the transfer as a share acquisition is often the most efficient (and therefore the most common) way to complete such a transaction.

With the recent growth in the real estate market expected to continue over the near- to medium-term, well-positioned foreign investors will likely continue to play a key role in the development of Vietnamese real estate. The updated legal framework has helped to clarify the foreign investment process which, it is hoped, will further facilitate foreign investment in Vietnam's real estate market.

Back to main blog
Loading data