Vietnam Business Channel

Short-term leasing becomes a trend in Vietnam

One of the hot “trends” in Vietnam’s real estate market is the practice of individuals buying multiple apartments throughout major cities, such as Hanoi, and Ho Chi Minh City and then renting them out on a short-team basis to tourists, rather than renting on a long-term basis. 

Many individuals have been lured by the success of home owners who are using Airbnb and travel agencies to market and sell their properties and they note that they can generate 20 ~ 50% more revenue each month from short-term leases versus long-term. 

Because of the large supply or apartments in major cities, real estate investors have spotted an opportunity to buy apartments and then leverage that ownership into paying back bank loans faster and then using the value of their “investments” to buy more apartments. 

Airbnb has been pushing this business model and the number of Airbnb listings in Vietnam has increased dramatically since the service was launched in Vietnam in 2015. From 6,500 listings in 2016, Airbnb has grown to more than 16,000 listings as of spring 2018. Market research firm Nielsen Vietnam noted in one of its recent reports that 76% of Vietnamese like using “shared products and services”, compared to 66% globally, and this has created a positive image for “short-team rental business.”

However, as the “short-term rental business” receives increased media attention, a number of other elements are coming into play which may signal that the business will be restricted in coming years and could actually become a negative factor in Vietnam’s real estate growth.

Earlier this year, Japan passed a series laws and regulations related to short-term rentals, which subject to apartments to police registration, inspection and licensing and owners being subject to taxes on their earnings. 

Increasingly, management boards of major real estate developments are also looking at whether they should impose regulations on apartment owners that relate to short-term rentals as many owners say they did not buy into development to have their buildings taken over by foreign tourists who aren’t obeying building rules and customs. 

Developers and owners of hotels in Vietnam are also pointing out the fact that the short-term rental business directly competes with their operations which are subject to major financial investments, employ thousands of people and generate significant tax revenues at both the local and national level. 

And finally, tax authorities are looking at whether they are missing out on monies that should be taxed as either individual or business income. One tax authority said that income from individuals who own multiple units but who rent out their units on a long-term basis should be subject to individual taxes whereas those renting their units on a short-term basis should be taxed as businesses. The issues are how to determine the use of a property and how much income or loss can be attributed to it. 

Real estate experts report that real estate investors / speculators are attracted to the short-term rental model because it allows them to generate money while waiting to sell their apartments and that owners don’t get tangled up with tenant contract problems when they want to sell their apartments. 

The supply of apartments in Vietnam has grown in major cities in recent years. According to real estate management company, Savills Vietnam, Ho Chi Minh City will see 130,000 new apartments come on line by 2020. This projected oversupply will ultimately reduce apartment prices and this could negatively affect investors who own too many apartments and who will be unable to maintain either short or long-term lease pries at current levels. 

Owners however note that if the apartment is in a good location and their prices are reasonable, that they will be able to generate enough revenue to cover expenses and make a profit. Whether their profit will remain stable will also depend upon owners keeping their apartments in good condition, providing good customer service and building their business model to encompass the unforeseen, including future regulation and taxation.