Everything you need to know is included in our Vietnam Property Pack
Vietnam's emerging market opportunities and cultural richness are attracting more foreign buyers to its real estate market.
However, as you might know already, this property market can be tricky, especially if you're not from around here. You might encounter unexpected issues and difficulties along the way.
Our community of property buyers and local collaborators have communicated several issues to us. We've listed them all in our Vietnam Property Pack.
This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.
Is it safe or risky to invest in real estate in Vietnam?
While Vietnam's residential property market has grown in popularity, the very rise of the market has brought with it an uptick in scams.
A notable example is in major cities like Ho Chi Minh City, where fake property listings have been reported. In one such instance, a foreign buyer was shown a property, only to discover after making a deposit that the agent had no actual authority to sell the property.
These scenarios reinforce the importance of dealing only with reputable agents.
Vietnam's unique land ownership laws are perhaps the most pronounced difference for foreign buyers.
A prominent case in Da Nang illustrated the risks of misunderstanding this structure. A foreign investor developed a series of condos, presuming they'd be able to sell them individually to foreign buyers.
The issue? Vietnamese law restricted the sale of individual units to foreigners in that specific area. The developer was left with unsold units and significant financial loss.
While Vietnam has been improving its legal framework, it still lags behind Western standards.
An Australian expat in Hanoi once recounted a tale of purchasing an apartment, only to find out that the developer had failed to obtain the necessary permits. The building was subsequently slated for demolition. While the expat had legal documents, navigating the Vietnamese court system proved arduous, and he never recuperated his full investment.
The Vietnamese government has made strides in welcoming foreign investment, but it's not without its quirks.
For instance, Decree No. 99/2015/ND-CP limits foreigners to owning only 30% of the apartments in a given building. An American investor in Ho Chi Minh City, unaware of this regulation, had to retract his purchase after the 30% cap had been reached, causing unexpected delays and financial stress.
Beyond legal and regulatory hurdles, there are cultural nuances to consider.
A British couple in Da Nang shared an anecdote about a beautiful beach front property they wanted to buy.
Everything seemed perfect until they learned about the local custom of 'lễ cúng đất,' a ground-breaking ceremony. Not engaging in the ceremony upset the local community, leading to strained relations.
Buying real estate in Vietnam can be risky
An increasing number of foreign investors are showing interest in Vietnam. However, 90% of them will make mistakes. Avoid the pitfalls with our comprehensive guide.
Potential real estate buying mistakes in Vietnam
"Sổ Hồng" or "Pink Book"
When buying residential property in Vietnam, a commonly overlooked aspect, particularly by foreigners, is understanding the nuances of the "Pink Book" or "Sổ Hồng."
This document is crucial as it serves as the official house ownership certificate in Vietnam. You should be aware that the Pink Book contains specific details about the property, including its size, location, and usage purposes.
A common mistake is not verifying that the information in the Pink Book accurately reflects the current state of the property.
For instance, if a house has been modified or extended after the Pink Book was issued, these changes might not be recorded. You should ensure that any alterations to the property are updated in the Pink Book, as discrepancies can lead to legal complications and affect the property's value.
Another critical aspect is understanding the difference between the Pink Book for land use rights and the one for ownership of a house. In Vietnam, these are two separate concepts. The land on which the house is built can have different types of land use rights, which might have restrictions.
You must ensure that the land use rights associated with the property allow for residential purposes.
Moreover, as a foreigner, you should be particularly cautious about the laws concerning foreign property ownership in Vietnam. There are restrictions on the locations where foreigners can buy property and the type of properties they can own.
Also, keep in mind that foreign ownership is often subject to a leasehold arrangement rather than freehold, with the typical lease term being 50 years, renewable.
Finally, it's essential to have a reliable local legal advisor or real estate expert who understands both the legal framework and the local market.
They can help you navigate these complexities and avoid pitfalls that are not immediately obvious to someone unfamiliar with Vietnam's specific property laws and regulations.
The concept of the "Ký Gửi" system
Another less-known but significant pitfall when buying residential property in Vietnam, especially for foreigners, is overlooking the impact of the "Ký Gửi" system.
"Ký Gửi" is a unique aspect of the Vietnamese real estate market where owners list their property for sale with multiple agents without any exclusive agreements. This system can lead to significant discrepancies in the information you receive about a property, including its price, condition, and ownership details.
In this context, you might encounter varying prices for the same property due to different agents adding their mark-up.
It's essential for you to cross-verify the property details through multiple sources to ensure you're getting accurate information. This situation requires you to be particularly vigilant in comparing and contrasting the information provided by different agents.
Another issue with the "Ký Gửi" system is the lack of a centralized database for property listings in Vietnam.
This can lead to challenges in verifying the authenticity of a property's status, such as whether it's genuinely available for sale or if there are any legal disputes associated with it.
As a result, you are advised to conduct thorough due diligence, including checking the legal status of the property with the local land registration office.
Additionally, you should be aware that some agents under the "Ký Gửi" system might not have an official mandate from the property owner, which can lead to issues in the negotiation and purchasing process.
To avoid complications, you should ensure that the agent you're dealing with has a legitimate authorization from the property owner.
Lastly, the "Ký Gửi" system may lead to a slower transaction process, as coordinating among various agents and verifying information can be time-consuming.
You should factor this into your timeline for purchasing property in Vietnam.
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The concept of "Feng Shui"
A unique and often overlooked pitfall when buying residential property in Vietnam, particularly for foreigners, relates to the concept of "Feng Shui" and its impact on property value and resale potential.
Feng Shui, an ancient Chinese philosophical system of harmonizing individuals with their surrounding environment, is deeply ingrained in Vietnamese culture and can significantly influence property decisions.
When purchasing property in Vietnam, you should be aware that the Feng Shui of a house or apartment can greatly affect its attractiveness to future buyers. Properties with poor Feng Shui are often harder to sell and may fetch lower prices.
This aspect includes the direction the house faces, the layout of rooms, and the location of the property in relation to roads, rivers, and other landmarks.
For instance, a house facing a T-junction or located at the end of a dead-end street is often considered to have bad Feng Shui. Similarly, the internal layout, such as the placement of the kitchen and bathrooms, can also play a crucial role.
You might find a property appealing without considering these aspects, but they can significantly impact its future resale value in the Vietnamese market.
Moreover, even if you do not personally believe in Feng Shui, it's important to recognize its significance in the local context.
The majority of Vietnamese buyers will consider these factors when purchasing a property, so ignoring them can limit your pool of potential buyers in the future.
Therefore, you are advised to consult with a local expert or even a Feng Shui master when considering a property purchase in Vietnam.
The risks related to "Bao Lanh"
Another specific pitfall for foreigners buying residential property in Vietnam is the challenge posed by the "Bao Lanh" system.
"Bao Lanh" essentially refers to the guarantee provided by developers for the construction and completion of a property project. This is particularly relevant when you are purchasing off-plan or new build properties.
In the Vietnamese property market, some developers might not have a strong track record or sufficient financial backing. If you invest in a property where the developer lacks a robust "Bao Lanh," there is a risk that the project may be delayed, stalled, or even abandoned due to financial difficulties.
This can lead to significant financial losses and legal complications for you as an investor.
You should thoroughly research the developer's reputation and past projects. It's important to verify whether they have consistently delivered their projects on time and to the expected quality.
Additionally, you should check the financial health of the developer and the specifics of the "Bao Lanh" to ensure it provides adequate protection to your investment.
Furthermore, it's crucial for you to understand the terms and conditions of the purchase agreement, especially those related to project delays and cancellations. Ensure that there are clauses in the contract that protect your investment in such scenarios.
This might include compensation for delays or a refund mechanism if the project is not completed.
Given the potential risks associated with the "Bao Lanh" system, you are advised to consult with a legal professional who has experience in the Vietnamese real estate market. They can help you navigate these complexities and ensure that your investment is secure.
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"Chung Cư" or apartment building management
In Vietnam, a specific and often overlooked pitfall for foreigners buying residential property is related to the "Chung Cư" (apartment building) management and maintenance systems.
These systems in Vietnam can be quite different from those in other countries and can significantly impact your living experience and the long-term value of your property.
When you purchase an apartment in a "Chung Cư," you're not just buying the property but also entering into a community with shared facilities and common areas. The management of these buildings is often handled by a Residents' Committee or a third-party management company.
In some cases, the management may be ineffective or lack transparency, leading to issues such as poor maintenance of common areas, inadequate security, or mismanagement of funds.
You should thoroughly investigate the track record of the building's management before purchasing. This includes understanding how the management committee is elected, how fees are collected and used, and the overall satisfaction of current residents with the management services.
It's also important to review the rules and regulations of the apartment complex, as these can vary significantly and may include restrictions you're not accustomed to.
Moreover, maintenance fees in "Chung Cư" can vary widely and may increase over time. You need to ensure that you are fully aware of these fees, how often they're assessed, and what they cover.
Unexpected increases in maintenance fees or additional charges for repairs and upgrades can affect the affordability of your property in the long run.
Another aspect to consider is the community culture within the "Chung Cư." Each building will have its own community dynamics, and as a foreigner, it might be challenging to integrate or understand the social norms and practices.
"Quyền Sử Dụng Đất" or land use rights
Another specific pitfall in the Vietnamese real estate market, particularly for foreigners, is the issue of "Quyền Sử Dụng Đất" (Land Use Rights) and its implications on property ownership.
In Vietnam, land is owned collectively by the people and administered by the state, meaning that you can only acquire rights to use the land, not outright ownership of the land itself.
When buying a property in Vietnam, it's crucial to understand the type and duration of the Land Use Rights associated with it. Different types of rights are residential, agricultural, commercial, etc., and each comes with its own set of regulations and restrictions.
For instance, as a foreigner, you are typically allowed to acquire residential Land Use Rights, but there might be restrictions on buying land in certain areas or for certain purposes.
The duration of these rights is also a key consideration. Land Use Rights are usually granted for a specific period (often 50 years for foreigners), after which they need to be renewed. You should be aware of when the Land Use Rights for your property expire and understand the process and likelihood of renewal.
The uncertainty surrounding the renewal process can impact the long-term value and liquidity of your property.
Additionally, transferring Land Use Rights can be a complex process, often involving multiple government departments and a lot of paperwork.
You need to ensure that the seller has a valid "Giấy Chứng Nhận Quyền Sử Dụng Đất" (Certificate of Land Use Rights) and that there are no legal disputes or liens against the property.
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"Đặt Cọc" or deposit contract
A particular pitfall in Vietnam's real estate market, especially for foreigners, involves understanding and dealing with the "Đặt Cọc" or deposit contract.
This is a preliminary agreement you might enter into before signing the official purchase contract for a property. The "Đặt Cọc" phase is critical and poses specific risks if not handled correctly.
In Vietnam, the deposit contract is not always as straightforward as in other countries. The amount, conditions for refund, and terms can vary significantly and are often subject to negotiation. You need to be particularly cautious about the terms of the deposit contract. In some cases, if you decide not to proceed with the purchase, you might lose your deposit.
On the other hand, if the seller backs out, they are typically required to pay you double the deposit amount. However, enforcing this can be challenging.
You should ensure that the "Đặt Cọc" contract clearly outlines the conditions under which the deposit is refundable, the timeline for moving to the official purchase contract, and any penalties for non-compliance by either party.
It’s also important to verify that the person you are dealing with is the legitimate owner of the property or is legally authorized to sell it, as there have been instances of fraud where deposits were collected for properties that were not legitimately for sale.
Another issue is that the "Đặt Cọc" contract may be informal and not involve a real estate agent or legal advisor.
While this is common in Vietnam, it can lead to misunderstandings or disputes later on.
You are advised to involve a reputable real estate agent or a legal professional in the process to ensure that all aspects of the transaction are legally sound and properly documented.
"Hợp Đồng Mua Bán" or "Sales and Purchase Agreement"
Another specific and often overlooked pitfall for foreigners buying residential property in Vietnam involves the complexities surrounding the "Hợp Đồng Mua Bán" (Sales and Purchase Agreement, or SPA).
This document is central to the property transaction process in Vietnam, and misunderstanding its terms and conditions can lead to significant risks.
The "Hợp Đồng Mua Bán" in Vietnam can contain clauses and stipulations that are quite different from those in Western countries. One key aspect is the payment schedule, which often requires a series of payments linked to construction milestones (in the case of new builds) or specific dates.
You need to be fully aware of these payment terms, as missing a payment can lead to penalties or even contract termination.
Another issue is the legal language used in the agreement. It's usually in Vietnamese, and legal terms can be interpreted differently than in English. This language barrier can lead to misunderstandings about your rights and obligations under the contract.
You are strongly advised to have the contract reviewed by a legal professional who is proficient in both Vietnamese and your native language to ensure accurate understanding and translation.
Additionally, the SPA in Vietnam may not always include comprehensive protection for buyers. For instance, clauses related to property defects, completion guarantees (for new builds), or compensation for delays might be vague or absent.
You should negotiate these terms where possible and ensure they are clearly stated in the contract.
Moreover, it's important to check that all relevant permissions, certifications, and legal documents (like the Pink Book or Red Book for land use rights) are in order and included in the contract. Any discrepancies or missing documents can lead to legal issues down the line.
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"Xây Dựng Không Phép" or unauthorized construction
A less commonly known but significant pitfall for foreigners buying residential property in Vietnam is the issue surrounding "Xây Dựng Không Phép" or unauthorized construction.
This refers to modifications or extensions to a property that have been done without the necessary permits or approvals from the local authorities.
In Vietnam, property owners often make changes to their homes or buildings without obtaining the proper permits. This might include adding floors, extending the building, or changing the layout.
While such modifications are quite common, they are technically illegal and can lead to serious issues for you as a buyer.
If you purchase a property with unauthorized constructions, you may face legal challenges.
The local government has the authority to order the demolition of any unauthorized structures, which can be a costly and stressful process. In addition, these modifications can also affect the validity of the property's "Pink Book" (the official house ownership certificate), which might not reflect the current state of the property post-modification.
You should ensure that any property you are considering purchasing has been constructed and modified in accordance with local planning laws and regulations.
This involves verifying that all constructions on the property have the necessary permits and are accurately reflected in the property's official documents.
A thorough inspection of the property by a qualified professional is advisable to identify any potential unauthorized constructions.
Additionally, consulting with a local legal advisor who is familiar with Vietnamese real estate laws can help you navigate this issue and avoid potential legal complications.
"Giấy Phép Xây Dựng" or Construction Permit
An often-overlooked pitfall for foreigners purchasing residential property in Vietnam is related to the "Giấy Phép Xây Dựng" or Construction Permit.
This is particularly relevant if you are buying land with the intention to build or if you are purchasing a new construction that is not yet completed.
In Vietnam, obtaining a Construction Permit is a mandatory requirement before any building work can commence. This permit confirms that the planned construction complies with local zoning laws, building codes, and architectural standards.
For foreigners, understanding and navigating the process of obtaining or verifying this permit can be challenging due to language barriers and the complexities of local regulations.
If you purchase land or a property under construction, you need to ensure that the Construction Permit is in order and specifically covers the intended construction work.
Buying a property without a valid permit, or where the construction does not align with the permit, can lead to legal issues. These may include fines, forced demolition of non-compliant structures, or challenges in obtaining the "Pink Book" (residential property ownership certificate).
Additionally, for properties under construction, it's important to verify that the project is progressing in accordance with the terms outlined in the Construction Permit.
Any deviations can affect the legality and value of the property.
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