Peter's Perspective
7th July 2015 by Peter Churchouse

Big Gains for Real Estate in this Country in the next 2 years

Anyone who’s spent as much time in Asia as I have will know that countries in this part of the world move very slowly when it comes to changing investment laws.

This is particularly true for anything related to real estate…

…and it’s an even slower process in developing Asia.

That’s why July 1st was a significant day for one of my favourite emerging Asia plays: Vietnam.

I revisited the country last month and came back more convinced than ever.

Subscribers to The Churchouse Letter can also take another look at our May 2014 edition “Vietnam: Standing out from the Crowd”.

What took place on the 1st of July in this country marks a fundamental change in our ability to own real estate and financial assets there.

And by “our” I mean foreign individuals and companies.

You see, buying real estate in Southeast Asia (Indonesia, Thailand etc.) is a messy business.

In a lot of these countries, you’re not allowed to ‘own’ a house or villa at all.

You can own 49% of it, and then pair that with opaque and dubious legal shenanigans where some other onshore person or entity owns the remaining 51%, and you have some kind of side-agreement locked in a safe somewhere.

These kinds of structures simply don’t pass my basic sniff test. So I’ve always avoided them and recommended others do likewise, particularly if it’s for an investment property.

In Vietnam, in order for a foreigner to buy a condo, you had to have worked in the country at least a year as well as meet other criteria. You could only buy one condo. You couldn’t rent it out. And at the end of your 50-year leasehold, you couldn’t apply for any extension.

Clearly, this was not attractive or conducive at all to investing in real estate!

Now on the other hand, anyone who’s simply allowed to enter the country can buy an unlimited number of condos.

Leases can be extended after 50 years (and indefinitely if a spouse is Vietnamese).

And you can lease it out for income.

They key issue here is that a foreigner can own 100% of a condo or landed property (i.e. Villa or townhouse).

There are still restrictions on what percentage of the condos in a building can be owned by foreigners (30%).

But I have no doubt that FULL ownership, coupled with the ability to lease are huge steps forwards for opening this market up to global real estate investors.

There are also new liberalising measures for foreign companies in the real estate space which I won’t go into here, suffice to say that they will make a big difference for companies looking to invest into Vietnam’s recovering real estate sector.

Real estate is not the only sector that will benefit from changes in investment law.

Further changes are unfolding with respect to foreign ownership limits of listed companies in Vietnam.

The current rules have stacked the deck against foreigners in the local stock market.

New rules will level the playing field dramatically and we believe will spawn a raft of new products that will significantly improve access to this growing market for foreign investors.

This is likely, I believe, to provide a boost to the market and greatly enhance to number and scope of listed companies in the market.

We are researching this closely ourselves for investment recommendations for subscribers to The Churchouse Letter.

But listed plays aside, the changes to real estate rules for foreigners will have very immediate effects on a market that is struggling to scrape itself out of a four year slump.

I fully expect big gains to come in the Ho Chi Minh (formerly Saigon) residential property market in the coming one to two years.

I saw some very interesting property developments there myself…

We’ve received a lot of enquiries from readers looking to connect to our contacts in Vietnam for potential real estate investments.

We’re happy to make those introductions where appropriate, and of course as a reminder we do not provide individual investment advice (nor do we have any remuneration agreement with anyone we refer people to).

I write this to you from 35,000 feet. Next stop, Bangkok Thailand.

Since May of last year the country has been under the rule of a military junta and is under martial law. Parts of the 2007 constitution have been repealed. The media has been censored and political gatherings banned.

But this is also a country where the market went up over 300% between 2009 and 2013… so I’m looking forward to getting on the ground, catching up with my contacts, and seeing if there’s anything worth our consideration.

As we all know, there’s no substitute for boots on the ground research!

Good investing,

Peter

P.S. In the past 3 weeks I’m told that the Chinese equity market has lost US$1 billion of market cap per MINUTE the market has been open!

We tightened our trailing stops on our positions and exited taking double digit gains across the board.

Things will remain volatile for a while in China… but we have another profitable way to play China, and it’s one that hardly anyone’s talking about.

We’ll tell you all about it in the next edition of The Churchouse Letter….

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