Promoting REITs in Vietnam requires changes

Hanoi (VNA) - Improving legal frameworks and incentives are critical to promote the development of real estate investment trusts (REITs) in Vietnam, chairman of the first domestic REIT said.

Nguyen Xuan Minh, chairman of the REIT launched by Techcom Capital in 2015 (TCREIT), said there was significant room for the development of REITs in Vietnam, given the developing domestic realty market with a young population who have a high demand for investing and owning property assets.

REITs would enable individuals to invest in the property market, such as trade centres, office buildings, hotels and resorts, which used to be the land of investments from large or institutional investors.

“REITs will generate stable returns for investors as 90 percent of the funds’ assets must be invested in finished property products under the current regulation,” Minh said, adding that this would make investments in REITs less risky than investments in property companies. REITs must spend 90 percent of its profits to pay dividends to investors.

Although regulations on REITs were promulgated four years ago, the development of REITs and their operation remained modest in Vietnam while active REITs were mainly foreign ones.

“REITs remain a new thing to individual Vietnamese investors despite being popular in the world for a long time,” Minh said. He said that this was partly because the development of the financial market in Vietnam was still at the infant stage with a significant absence of investment products for individual investors.

To attract investors, it was important that REITs operate with transparency and efficiency, Minh said,

Nguyen Hoai An, head of market research and consultancy at CBRE Vietnam, was quoted by Dau Tu Bat Dong San (Property Investment) newspaper as saying that it would take some more time for REITs to develop in Vietnam due to the shortage of experience as well as the quality of property products.

“Incentives to encourage investors to pour money into REITs should also be raised,” An said.

REITs were expected to become a new source of capital for property development.

Tran Ngoc Quang, general secretary of the Vietnam Real Estate Association, said in a story published on Dien Dan Doanh Nghiep (Business Forum) online newspaper that it has become pressing to restructure the capital sources for the real estate market, in which property finance products such as REITs would be a solution.

Quang cited statistics from the Nomura Research Institute showing that the scale of the Vietnam property market was small, estimated at 21 billion USD, compared to Singapore’s 241 billion USD, Indonesia’s 189 billion USD and Thailand’s 89 billion USD.

However, more than 70 percent of capital in the property market was banking loans. Other capital sources came from residents, foreign direct investment, foreign indirect investment and official development assistance.

In other countries, funds were an important capital source for property development, according to Quang.

Quang said that improving the legal framework coupled with a thorough understanding of Vietnam property market was important to promote the development of REITs in the country.-VNA