Proptech in Vietnam: Building Resilience to Overcome Real Estate Difficulties
Gone are the days of traditional real estate listing presentations and physical walkthroughs. In modern times, proptech, or property technology, has revolutionized the real estate industry by making property searches, transactions, and rental management easier and faster. Here’s what foreign investors should know about the future of the proptech industry in Vietnam.
Vietnam’s property market is going through a significant metamorphosis, where technological breakthroughs and innovations have transformed the way prospective customers buy, sell, rent, and manage properties. Proptech startups have been creating major upheavals in the real estate value chain, offering trailblazing technology solutions to meet the changing needs of a new generation of customers. Artificial intelligence (AI), big data, virtual reality (VR), and blockchain have proffered manifold benefits to optimize customer experience in the property sector.
With the accelerating pace of digital adoption spanning across the growing urban population, Vietnam’s proptech is poised to become a rising star in the Southeast Asian market, albeit from a nascent base. Recent years have seen the emergence of augmented reality technologies giving buyers full-size, real-time viewing services like virtual tours. This has enhanced online listings and market analytics.
However, there are also certain challenges in the real estate market in Vietnam that hinder technology-enriched property platforms. Regulatory ambiguity, market fragmentation, and real estate turmoil are pressing problems for proptech startups. Planning for these long-term challenges can help firms build resilient and sustainable growth strategies in the proptech industry.
Vietnam’s proptech industry in numbers
According to the Vietnam Real Estate Association, the country’s real estate sector is set to be worth more than US$1.23 trillion by 2030, representing about 22 percent of the economy’s total assets. This large market will facilitate the development of technology-enriched platforms, as the demands for buying, selling, and managing property become increasingly sophisticated.
In 2021, Vietnam’s proptech emerged as a game-changer, seeing exponential growth in popularity and massive investments poured into the sector. Figures from the proptech Vietnam Network show that Vietnam recorded about 140 startups operating in real estate marketing, office management, smart homes, retail malls, real estate logistics, and hotels in 2021. The majority of market participants—around 80 percent—were foreign start-ups or start-ups backed by foreign investors. The prevalence of proptech solutions in Vietnam was also evident in a number of investment deals in recent years.
Notable deals in the proptech industry
|Name||Category||Amount (US$m)||Lead investors|
|Homebase||Real Estates Fintech||20||Y Combinator, Goodwater Capital, Partech Partners|
|Rever||Digital Brokerage||10.2||Mekong Enterprise Fund IV|
|APlus Home||Co-living||2||Asia Business Builders|
|Citics||Data Analytics||1||Vulpes Investment Management, Nextrans, TheVentures.|
|Houze||Property Management||2||DKRA Group|
However, the real estate market in Vietnam is currently facing a dire situation, with home sales falling, construction projects frozen, and consumer sentiment rocky.
In 2022, the number of newly licensed housing projects fell by 90 percent, the number of existing development projects decreased by 50 percent, and the number of completed real estate projects fell by 81 percent from the preceding year. Property developers have also had difficulty financing projects with turbulence in the bond market caused by numerous high-profile arrests centered around allegations of fraud.
Additionally, SoftBank-backed proptech startup Propzy ceased its operations in September 2022 due to financial hardship and global market volatility.
These problems have taken their toll on the growth of Vietnam’s proptech industry, making investor confidence in Vietnam’s real estate sector plummet significantly. But there may be a silver lining, as the property market is expected to recover in 2024.
Stricter lending regulations and a draft of the Land Law issued this year may loosen price controls and put them more in line with market rates. This will in turn help Vietnam to foster a safe and long-term investment environment and spark a property market rally.
“Vietnam is an attractive proposition not just for seasoned investors, entrepreneurs, and factory owners seeking to diversify their investments and businesses into other countries, but also buyers looking for holiday homes and prestige seekers who are eyeing luxury properties,” said Winston Lee, PropertyGuru’s Director of Special Projects.
The emergence of proptech 3.0
Traditionally, industry practices have been plagued by inefficient and time-consuming processes, impacting directly on a number of stakeholders, including owners, tenants, clients, and investors.
In the past, clients had to find their listing agents via word-of-mouth or a local advertisement in a newspaper or flier. They then had to travel back and forth between different apartment buildings to make deals and conduct transactions in person.
For owners and investors, there were several difficulties in communicating with their tenants regarding areas for improvement of the property, for instance, maintenance requests, concerns over facilities, or rent payments.
Real estate developers favored hiring brokers because they provided low-cost and high-efficiency services. But oftentimes, unqualified brokers colluded with realtors to push prices up, causing land fever and deep levels of mistrust in major cities.
But these pressing problems can be and have been, solved by the emergence of new technologies. Management firms are increasingly harnessing various technological innovations and moving all the outdated processes to the digital realms to provide innovative solutions to real estate clients.
Currently, proptech is in the third stage of development, with real-time data analytics, virtual property tours, enhanced listings, and property management solutions paving the way for a more structured, informed, and tenant-centric approach moving forward. According to the University of Oxford Research, proptech 3.0 is characterized by three verticals: smart real estate, shared economy, and real estate fintech.
These three subsets are reshaping the property sector in Vietnam, with a wide variety of services and platforms emerging to serve the different needs of different customers. According to Korean-based venture capital firm Nextrans, the most prominent segments in Vietnam’s proptech industry are project development, property management, tech-enabled brokerage and leasing, and investment and financing.
Growth opportunities in the proptech industry
Reinventing traditional brick-and-mortar brokerages
Emerging technologies have shaped how real estate is experienced and consumed. With the increasing adoption of technology-driven solutions, the industry has witnessed a shift away from brick-and-mortar broker offices to online marketplaces.
Additionally, the introduction of AI, VR, IoT, and blockchain technology has entirely digitized the transactions, management, utilization, and marketing of real estate. This will help property firms to create a seamless and highly personalized experience throughout their transaction journey: from inspecting and touring houses, carrying out legal checks, setting up financing, and handling paperwork that comes along with home ownership. Technology acts as an enabler to serve the wide-ranging and sophisticated customer needs in the era of digital transformation.
Increased productivity and profitability
Brokerage and leasing is a leading segment. It gained about 70 percent of proptech’s total funding over the last six years, driven by the COVID-19 pandemic. In situations where many SMEs were forced to cease their operations, proptech proved its advantages and efficiencies in leveraging new possibilities.
Digitally enabled property platforms help firms to boost their performance in the real estate brokerage business. With the right proptech software, a broker can provide service to a wider client base more efficiently and effectively, from tracking deals and managing lease life cycles to conducting asset allocation and managing real estate portfolios. By automating numerous processes, the technology will not only help increase the productivity of brokers but may also improve the profit margin of the business.
The ‘rent generation’
In recent years, Vietnam has witnessed a remarkable growth in house rentals, and many people are now gravitating towards renting rather than saving up to own a house. Search for rental properties increased by nearly double in January compared to the same month last year. Both Hanoi and HCMC also saw gradual increases in the average rent of apartments of 8 percent and 4 percent, respectively.
This emerging group of consumers has been dubbed the ‘rent generation’ in Vietnam, with more and more tenants seeking higher, better-equipped accommodation with the newest technology. Considering this shift, proptech software has completely changed the real estate sector. Whether it is their work, retail, or residential environment, consumers are now demanding more control of their experience, from cost and temperature to energy consumption and water management.
In this way, co-work and co-living spaces can cater to these different needs by providing fully furnished rental properties and turnkey living experiences. Real estate financial technology firms can also tap into these segments by offering a more streamlined and tenant-centric onboarding process. These innovative solutions can in turn minimize additional expenses in operational support and enhance the overall client experience, representing a significant opportunity for proptech startups to thrive in the coming years.
Critical challenges affecting Vietnam proptech industry
Outdated or ambiguous legal mechanisms and the ongoing real estate market turmoil are key problems holding Vietnamese proptech startups back.
The proptech industry has made significant strides in advancing cashless online payment technology, revolutionizing the conventional transaction process and enhancing the overall customer experience. Nevertheless, there exists a notable absence of a well-defined legal framework for online lease-purchase payment systems.
Another critical challenge for Vietnam’s proptech industry is the current real-estate bubble and the crackdown on fraud in the corporate bond market. The crisis was brought on by builders taking on excessive debt, the COVID-19 outbreak that slowed housing demand, and the government clampdown on corruption. As real estate turmoil continues to plague the real estate sector, more than 1,800 builders have been impacted with 340 businesses driven into bankruptcy in the first quarter of 2023, according to the Ministry of Construction.
Looking toward the future
Despite numerous challenges in Vietnam’s real estate market, the proptech upheaval continues to demonstrate its potential in transforming the market into a vibrant, efficient, accessible sector. Proptech startups should focus on providing more streamlined and tenant-centric services to cater to customer needs and build resilience in times of market volatility.
Moving forward, a more sustainable corporate bond market and a more diligent approach in real estate development may help Vietnamese proptech startups to gauge financial stability and gain sustainable growth drivers over a long-term period.
Foreign investors and property firms should ensure they are well-informed on the legal frameworks and new policies impacting the Vietnam real estate market in order to unlock proptech’s full potential.
For support with legal and regulatory requirements in Vietnam, contact the legal experts at Dezan Shira and Associates.
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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at email@example.com or visit us at www.dezshira.com
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