ASKED to pick a prime destination for property investors and Tim Murphy, managing director of Hong Kong-based investment firm Intellectual Property, is quick with his answer: Vietnam.

Rules have recently been relaxed for foreign ownership. Those with working visas can buy homes on renewable leases, effectively making it freehold, while overseas-based foreigners are allowed to buy homes of shorter leases.

A massive undersupply of homes in major cities such as Ho Chi Minh City (HCMC) and Hanoi is driving up demand and prices.

"With the incredible amount of wealth created in the stock market, and a market not sensitive to interest rates, Vietnam remains an attractive destination for investors," said Mr Murphy.

Reflecting the high demand for quality homes, a new condominium project, CapitaLand Vista, at HCMC's District 2, developed by Singapore developer CapitaLand, saw a buying frenzy, with all 450 units snapped up within a week.

Big queues formed at the launch, which saw average prices of US$1,350 (S$1,951) per sq m surge to US$2,665 per  sq m - about $358 per square foot (psf) - within two days.

Hot spots within HCMC include Districts 1, 2, 3 and 7, where prices can range from US$1,000 per sq m for a mid-tier condo in District 7 to US$4,000 per sq m for high-end units in District 1, according to a recent CB Richard Ellis (CBRE) report. 

Rental prices are also on the rise, which will give overseas based investors good yields.

Rents for most service apartments are up by 12 per cent to 20 per cent from US$25 to US$33 per sq m a month last December to US$28 to US$35 now, said CBRE.

CBRE Vietnam's managing director, Mr Marc Townsend, said with demand far outstripping supply, prices should rise at least for the next couple of years until more quality units come to the market.

"Everything - from good mass-market homes, to high-end luxury villas - is short in supply. Until that balance is reached, I expect to see appreciation in capital values," said Mr Townsend.

Government efforts to release more land for development are also increasing investor confidence in the market, he added.

Mr Townsend points to Hanoi as another area of growth, although not comparable to HCMC yet. The city has seen high-end home prices averaging about US$177 psf.

More investment is set to pour into Vietnam. In the Dong Nai province 28km north-east of HCMC, for example, Singapore developer Keppel Land is building about 14,000 homes in a township project.

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