Promoting REITs in VN requires changes

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

Nguyễn Xuân Minh, chairman of the REIT launched by Techcom Capital last year (TCREIT), said there was significant room for the development of REITs in Việt Nam, 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 per cent 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 per cent 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 Việt Nam 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 Việt Nam 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,

Nguyễn Hoài An, head of market research and consultancy at CBRE Việt Nam, was quoted by Đầu Tư Bất Động Sản (Property Investment) newspaper as saying that it would take some more time for REITs to develop in Việt Nam 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.

New capital source

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

Trần Ngọc Quang, general secretary of the Việt Nam Real Estate Association, said in a story published on Diễn Đàn Doanh Nghiệp (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 Việt Nam property market was small, estimated at US$21 billion, compared to Singapore’s $241 billion, Indonesia’s $189 billion and Thailand’s $89 billion.

However, more than 70 per cent 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 a important capital source for property development, according to Quang.

Quang said that improving the legal framework coupled with a thorough understanding of Việt Nam property market was important to promote the development of REITs in the country

Source: VNS