Last week I wrote about the rules regarding land ownership for foreigners in Vietnam, here, this week I’m going to review the rules for owning a house or villa as a foreigner in Vietnam. These rules are different and, in fact, ownership is a bit of a misnomer–though the law uses the term, it really isn’t ownership, but we’ll get to that in a minute.
There are two types of foreigners who can own either apartments or villas, housing, in Vietnam. These are organizations and individuals. The organizations include foreign-invested enterprises, branches, rep offices, foreign investment funds and foreign bank branches operating in Vietnam. In order for these organizations to purchase housing they must have a valid investment registration certificate that is effective and valid at the time of entering into the housing purchase. For foreign individuals to be eligible to buy housing, they must have a valid passport and be legally in the country with an “entry stamp by the immigration authority.”
Once these formalities are established the road seems clear for the foreign organization or individual to purchase housing. But that road is anything but straight, though it is narrow. Foreign organizations and individuals aren’t allowed to outright purchase housing. They cannot obtain what in common law countries is referred to as fee simple rights in the housing. What they are, in essence, purchasing is a long term lease. For organizations, the term of “ownership” is limited by the operating term listed on their investment registration certificate. For individuals, the term of “ownership” is 50 years. This term can be extended upon application, but even then, it remains limited and acts to fence the rights of the “ownership” itself.
Now, what is included in this “ownership”? Not much. Foreign organizations and individuals who “own” housing in Vietnam may not use their property for business, may not bequeath their rights in the property for more a term greater than that remaining in the allowed term of 50 years, nor may they do much of anything but live in it. It is strictly a long-term lease and comes with all the limitations and provisions that a normal lease might come with, only the payment for it is in a lump sum upfront.
Foreign organizations and individuals are further limited in that they can only “purchase” housing in approved commercial housing projects. That means the project must be approved for “sale” to foreigners, and even then foreign occupation is limited. For apartments, the rule is 30%–though this may vary somewhat by individual construction approval–and 10% for villa projects. This, of course, excludes areas preserved for national defense and security by the government.
So far, this is fairly straightforward. A foreign organization or individual comes to Vietnam and buys an apartment. They pay a lump sum upfront for a 50-year lease. Some calculation will reveal that–though they may have a nicer location–they would spend the same amount of money by leasing the property on a month-to-month basis over those 50 years. They are allowed to sublease the property, though, so long as it is not for business purposes. That means they could fix it up, furnish it, and lease it out at a markup to make a profit over their upfront purchase. The rental market is fierce, though, and the likelihood of having a 100% occupancy rate for 50 years is limited. In fact, I spoke to one financial consultant who said that purchasing housing in Vietnam as a foreigner is a bad financial decision. But assume, for argument’s sake, that the foreigner still wants to purchase housing. What happens at the end of the 50 years?
This had long been a concern of mine in examining housing ownership. Initially, it didn’t seem like there was a good solution. Inquiries shortly after the decree allowing for foreign “ownership” of housing was promulgated did not reveal the right answers. I was told that at the end of the 50-year term, the “ownership would simply end” or that the right of land use would revert to the State. Now, in some instances this is the case–namely in the instance of inaction by the “owner.” The foreign “owner”, however, has the choice to alienate the housing to either another foreigner or to a Vietnamese citizen.
If the foreign “owner” wishes to alienate his rights in housing to another foreigner, such alienation is limited in term to the remaining time on the 50-year “ownership” right–or any extension on the initial “purchase”–and will not continue in perpetuity through renewals by a second or subsequent “owner.” If the foreign “owner” wishes to actually get value for his “purchase” he can sell the housing to a Vietnamese citizen. If this happens, the Vietnamese citizen will take full land-use rights in the housing and be able to sell or dispose of the housing property as they wish.
In theory, then, a foreigner can “buy” a 50-year lease of an apartment, rent it out for marginally more than he paid for it, and then sell it again to a Vietnamese citizen. His profit, then, over a 50-year term, would be the rent received. He does not truly accrue equity. Moreover, the secondhand market for apartments in Vietnam, especially luxury apartments–which is the main form of commercial housing project in which foreigners can invest–is notoriously bad. Vietnamese don’t want to buy apartments. They want to buy land–or land use rights as the case may be.
Because the Vietnamese people retain ownership of the land in common, and the government manages it, the concept of individual “ownership” of land is different than in many other countries regionally. In Thailand or Cambodia, for instance, foreigners can actually obtain a fee simple ownership of an apartment. Not in Vietnam. It is a 50-year lease that may be extended in certain cases and can only be used for residency.
Though possible, then, it is not recommended for foreigners to “purchase” housing in Vietnam. It comes with too many strings, not enough rights, and for too short a time. Unlike commercial property projects that foreign organizations might develop as an investor–with rights for resale, commercial leases, etc.–the options for returning the investment are too limited to make “purchasing” housing in Vietnam a good buy. Unless, of course, you intend to move to Vietnam for life and want to have a rent-free flat until you die. But even then, you’d spend less money renting month-to-month.
Be that as it may, those are the rules, and if you do want to “purchase” housing as a foreigner in Vietnam, Indochine Counsel can help. So feel free to contact your favorite lawyer in the firm, or visit the firm’s site at www.indochinecounsel.com. There, got the call to action in.