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Everything You Need to Know About Property Valuations in Vietnam

Oct 26, 2021

Everything You Need to Know About Property Valuations in Vietnam

Thousands, if not tens of thousands, of real estate transactions take place in Vietnam every day, with prices ranging from hundreds of millions to hundreds of billions of Vietnamese Dong (VND). How do you know you are getting a good deal? How do you know how to price your property for sale?

The following article will provide you with information crucial to determining the value of any real estate product in Vietnam. Read on to find out and become a savvy real estate buyer and seller!


What is real estate valuation?

In short, real estate valuation is the collection, analysis, and evaluation of information and data to estimate real estate value.

Let us take real estate to mean land and other assets attached to the ground. The value of the real estate can be converted into money. This monetary value can then be used for various purposes, including the purchase, sale, transfer, auction, donation, inheritance, investment, capital contribution, and so on.

Real estate is one of the most complex asset classes, as a wide range of factors impacts it. As a result, determining the correct value of the real estate is a subjective and challenging task.

Real estate valuation is critical because it directly impacts the entire real estate market in general and each real estate transaction in particular.


Real estate valuation's seven core principles.

Many principles are used in evaluating the price of a house. We have chosen seven core principles that you should always use throughout the valuation process.

The seven core principles are:

Three basic evaluation methods

With the core principles in mind, these are three methods for you to gauge real estate value.

Example: You want to assess the value of house A. House A is three stories high with a total area of 70m2 in an alley in Ho Chi Minh City's Go Vap district. When using the comparison method, you search the web, newspapers, and brokers in the area for a similar property and come across House B.

B has an area of 72m2, it has four floors, and is located in the alley next to House A. House B is listed for sale at 5 billion VND. From this, you might estimate that the selling price will likely range between 4.8 and 5.2 billion VND (depending on some other secondary factors such as design, construction, feng shui, etc.).  

The relative value of the property is linked to the property's average annual rental yield.

Example: Let's look at a two-bedroom apartment that can be rented out for VND 20 million per month. The one-year rental revenue from this apartment will be 240 million VND. The average income rate for rental apartments is 3.5 – 4% per year. Hence, the market value of this apartment will be between 240/4 percent - 240/3.5 percent = 6 - 6.8 billion VND.

Example: Let us look at House A in Bien Hoa city, Dong Nai province. House A was built in 2015 and had a total area of 150 sqm on a land area of 220 sqm. There are no similar houses in this area. To calculate the price, we can use the following cost method:

Value of House A = the total value of the land (220m2) + the construction cost of the entire house.

At the time of valuation, the average land price in Bien Hoa city center was 20 million/m2, resulting in a total land value of 4 billion 400 million VND. The house is 150m2 and has one floor; the construction unit price is 5 million per sqm, so the construction value is 750 million. Assuming we are calculating the price in 2021, after six years, the depreciation due to temporary wear and tear is 20%, so the construction value in 2021 is 750 million x (100% - 20%) = 600 million. Thus, The total value of the house, including land and construction, is 5 billion.

At Homebase, we combine all three methods with continuously updated and validated data from other related and most recent transactions. This data allows us to provide our clients with accurate real estate valuation information.
         

The elements of real estate

The above methods are basic and relative valuation methods. Other factors can affect the market value of the real estate. Let's take a look at five physical elements that affect the value:

Every single property's location is unique; no two properties will have the same location. It is not surprising that many investors look for real estate near city centers or economic areas with infrastructure development, traffic flow, public works, and residential areas. As a result, a house on the main street near the city center can be priced dozens of times more than a house of the same size in a small alley a few kilometers away. When determining the value of the real estate, always consider its location first.

Liquidity and net income of the property

All investors are interested in the profitability of their real estate. Thus, the ability of the real estate product to generate income and the total annual revenue or profit from the property has a significant impact on the selling price of that property.

These are essential factors to consider:

The greater a property's liquidity and potential net income, the better. However, these will vary depending on the market's current situation.
           

Consider the health of the market.

Supply and demand are worth mentioning again. It is essential to understand how the market demand for that property is changing when evaluating the property. For example, if a house is in a densely populated area, the supply for similar properties will likely be below. The demand from the surrounding area will drive the price up.

Macroeconomic factors can also affect the value of a property. Consider the rate of economic growth, unemployment rate, population growth, bank interest rates, etc. The health of the market has a cyclical impact on real estate prices. Typically, a real estate market cycle lasts 7 to 10 years and consists of the five stages: Growth – Phenomenon – Recession – Freeze – Recovery.

Considering the bigger picture of the economy will help you value the real estate produce more accurately.

         

Homebase can confidently tell you that every real estate buyer or seller is concerned about the safety of their transaction. Whether or not buying or selling a property is safe depends on the legal status of the property. The following documents are crucial:

Properties missing crucial documents or having legal violations will have a much lower value and may be subject to future evictions, penalties, and disputes.

When it comes to real estate prices, the government's plans for the area cannot be ignored. The majority of the real estate price increases in Vietnam are due to the area's new planning information released by the government.

Real estate will increase in price when there is information on development planning of the area; look out for:

Homebase is here to help

Real estate valuation is a job that requires a lot of knowledge, time, and effort. Homebase is always ready to share more insight with you and make your real estate investment process easier and faster. We have a dedicated team prepared to welcome all of your questions; contact Homebase at +84 94 823 00 33 or email: contact@gethomebase.com.

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