Short Overview: Vietnam's Framework for REIT (Excluding the Civil Law)

 Before reading this blog, I would suggest you read through "Research Summary: The Growth of REIT Markets in Asia" written by me, to get an understanding of the overall REIT market and its establishment.

Legal Structure

Under Decree 155/2020/ND-CP and the real estate law in 2024, REIT can only be undertaken in two forms: a public real estate securities company (or joint stock) or a closed-end public investment fund. 

Different from the USA, the regulation issued in the Law on Securities in 2019 stated that a real estate investment fund must have at least 65% of revenue coming from real estate (the remaining 35% can be diversified into stocks, bonds...), rather than 75% in the USA and other countries. 

REITs in Vietnam are strictly prohibited from borrowing more than 5% of their net asset value (NAV), meaning they can only leverage 5%, which is incredibly low in comparison to S-REITs or J-REITs, where they can leverage up to 40-50%. However, to establish a REIT, it is required by law for the trust to have a minimum capital amount of 50%.

Dividend payout is the same in any country in the world, at 90% for REIT.

To be counted as a REIT, it must be listed on one of Vietnam's stock exchanges (HOSE or HNX) after IPO

Tax

Unlike the USA or Singapore, Vietnamese REITs have not yet had tax exemption from the government, and REIT investors will be experiencing a double-tax system. At the corporate level, the REIT firm will be taxed at 20% and individuals (dividends) will be taxed an additional 5%.

Barriers

As already pointed out, the main barriers would be the legal framework supporting the development of REIT. Despite having somewhat of a somewhat legal framework for real estate investment funds, there has not yet been any for trusts (although some REIFs do function similarly to REITs). Moreover, despite Vietnam's real estate market being one of the most popular markets, many investors, especially local investors, are not aware of REITs and how they work. Lastly, with a high property cost and a low rental yield (as most of the returns come from appreciation), REITs, especially residential REITs, would find themselves in a difficult position trying to find suppliers due to them having to sell their properties below the market rate in order to secure a 6~7% return for investors.