Rental real estate market: Investment potential and legal regulations

DNHN - This information was presented at the seminar "Rental real estate business: Legal and practical issues" organized by the Vietnam Lawyers Journal on July 5 in Hanoi.

Rental real estate is an important segment of the real estate market, involving the provision of buildings, apartments, and commercial properties for use by others over a specified period under a lease contract. Renting real estate offers many benefits, such as relatively large and sustainable profits, high demand for rental properties, sustainable investment, and high asset control.

In Vietnam, in recent years, the rental real estate business has been one of the strongly developing investment fields. According to statistics, the number of tourists and business travelers has grown significantly, increasing the demand for short-term accommodation services. Cash-flow properties like hotels, guest houses, and homestays are attracting much interest and investment. Choosing the right geographic location is an important factor in attracting customers. Additionally, service quality and marketing play crucial roles in attracting and retaining customers.

However, investing in rental real estate also faces challenges such as asset depreciation costs, as property value may decrease after long use. Investors lacking knowledge and experience also encounter many difficulties and risks in this field. Additionally, this business involves numerous legal regulations, including those in the Law on Real Estate Business, Enterprise Law, Fire Prevention and Fighting Law, Investment Law, Residence Law, and Insurance Law. Businesses also face many practical difficulties and obstacles.

The rental real estate business is clearly regulated in the Real Estate Business Law of 2006; Real Estate Business Law No. 66/2014/QH13 of 2014; and most recently, Real Estate Business Law No. 29/2023/QH15, passed by the National Assembly on November 28, 2023, effective from January 1, 2025.

Current situation of rental real estate operations

Mr. Cu Xuan Trinh, General Director of Rocland Group Joint Stock Company, believes that rental real estate has been a rapidly developing investment field in Vietnam in recent years.

Regarding the office rental model, the number of newly established businesses has surged, leading to a high demand for office rentals. According to the Business Registration Management Department, the number of newly established businesses in 2023 was 1.2 times higher than the average from 2017 to 2022, indicating strong growth potential in office rental real estate.

In the hotel, guest house, and homestay rental model, the growing number of tourists and business travelers has increased the demand for short-term accommodation services. This suggests strong development potential for such real estate types. The right geographic location is crucial in attracting customers, alongside service quality and marketing.

In the apartment and room rental model, the increasing housing demand shows the development potential for rental rooms, serviced apartments, and condominiums. This is reflected in Vietnam's population statistics; in 2023, the General Statistics Office reported Vietnam's population at 100.3 million.

Mr. Nguyen Quoc Huy from Dong Tien Real Estate Joint Stock Company outlined the current situation of rental real estate models.

According to Mr. Huy, the cash-flow real estate model, including room rentals, serviced apartments, and condominiums, has many advantages, such as easy tenant acquisition, stable monthly revenue, a safe investment channel, the potential for property value appreciation, and practical investment experiences. Small investors can also participate due to the low capital requirements for renting rooms or apartments.

However, Mr. Huy also highlighted some disadvantages. Not all tenants can pay rent on time or keep the premises quiet. Tenants are diverse and complex. Therefore, landlords should set specific criteria to ensure security and a quiet environment. Effective management and quick emergency handling are essential to smooth operations and risk minimization. Poor management or unclear regulations can lead to complicated issues and reduced service quality.

Mr. Huy emphasized the risk of fire safety. Not all rental properties are adequately equipped with fire prevention systems, especially older buildings, making them prone to fires. Hence, fire safety must be prioritized. Properties failing to meet basic fire safety requirements will be gradually replaced by newer buildings with comprehensive fire safety systems, ensuring customer safety.

Another risk is landlords reclaiming properties before the lease term ends. In such cases, the lease agreement must be stringent regarding compensation terms for unilateral contract termination.

Challenges in the rental real estate business

Regarding legal regulations for rental real estate business activities, Dr. Tran Minh Son from the Department of Civil and Economic Law (Ministry of Justice) stated that post-Covid-19, land prices and the real estate market, especially the rental market, have faced many difficulties and challenges. In major cities, the wave of returning business premises is high due to economic difficulties and market instability, causing many businesses and investors to downsize and return premises to protect themselves.

Mr. Son emphasized that the rental real estate business faces many obstacles. Specifically, the supply of rental properties suitable for workers' wages is decreasing, while luxury rental properties are increasing. Price inflation occurs due to the abundance of real estate brokers. Additionally, the government's electricity and water pricing policies for rental properties are not being correctly implemented by landlords.

Significant violations also exist in the rental real estate business, severely affecting tenants' safety. "Since the beginning of 2024, we have witnessed severe casualties from mini-apartment fires due to illegal construction and serious fire safety violations", Mr. Son noted.

Therefore, he proposed more detailed regulations for renting various types of real estate to avoid legal loopholes that landlords might exploit, leading to severe damage.

Ms. Hoang Thu Hang from the Department of Housing and Real Estate Market Management (Ministry of Construction) believes that the rental real estate business faces many issues, particularly the lack of comprehensive understanding among businesses about this field.

Ms. Hang stated that the Ministry of Construction is currently finalizing draft decrees and circulars.

"We need to hear contributions from business representatives directly involved with these legal regulations to perfect the decrees and circulars and submit them to the Government", Ms. Hang shared.

Anh Nguyen