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Vietnam property: No-man’s land no more

Hoang Dinh Nam | AFP | Getty Images

Vietnamese property may finally be shaking off its years-long bear market to rise from the flames, with analysts pointing to rising sales and increased investment.

"It's a real-estate market turnabout," said David O'Neil, chief investment officer at Asean Investment Management (AIM). "Inflation and interest rates have dropped by 65-80 percent so it's no wonder," he said, adding the volume of sales has doubled so far this year and he's seen private equity deals "every week."

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In 2007, the country's property market hit a wall after a "flipping frenzy" was crushed in the following years by double-digit inflation, lending rates above 12 percent and multiple devaluations of Vietnam's local currency, the dong.

Credit for developers dried up and the dong devaluation boosted the cost of imported materials and labor, leading to many abandoned projects.

"Destocking will be complete by late next year," O'Neil said, adding much of the buying is going toward end-users, not investors. He expects Vietnam's land prices can rise as much as 600 percent over the next few years.

Others have also noted a turnaround in the sector.

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"It's a combination of factors. Interest rates are trending lower, banks are more aggressive to lend and the currency has been stable. The inflation has come down from highs of previous years," with the government projecting inflation will come in below 4.5 percent this year, compared with recent years' highs of around 23 percent, said Jason Ng, a director at asset manager VinaCapital. VinaCapital's VinaLand fund had around $421 million under management as of end-June.

"With all this macro stability, it forms a very good backdrop for the consumer to have more confidence in the asset markets," Ng said.

CIMB has also turned positive on Vietnam's listed property stocks, upgrading the sector to 'overweight' in a note dated Wednesday, citing data from a CBRE report showing Ho Chi Minh City property transactions have risen 95 percent so far this year.

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"All the international and local real estate brokers in Vietnam agree that transaction activity has surged because affordability has reached a 'tipping point,' due to falling mortgage rates and the prior fall in prices (which are about 50 percent off their peak levels), but also because of the increasingly savvy strategies of some of the developers," CIMB said, noting mortgage rates are now around 10 percent, down from around 20 percent just a few years ago and banks' real-estate lending has risen 12 percent so far this year.

"Real estate stocks have been sold off along with the rest of the market, but falling interest rates benefit those companies," the report said.

AIM's O'Neil also tips listed property stocks as the way to play the market.

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"You can still get better value via listed vehicles than buying land plots," O'Neil said, estimating that many property stocks are still trading at 65-70 percent discount to just the value of the land they own.

As an example, he cited API, which has a market capitalization of around $20 million, while its land bank's fair value is estimated at around $70 million.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1