New Work Permit Decree Impact on Saigon

Yesterday I was having a conversation with my landlord’s son in regards to rental rates for serviced rooms, apartments and houses in Saigon now.  You can check out the Craigslist for examples of the current rental rates across the city.  They have dropped significantly.  To see serviced room rates for around $250 USD including electricity in District 1 was unheard of.  Seeing them for around $200 USD is amazing.  I saw a serviced apartment at Saigon Pearl going for about $400 USD per month now.  This was unheard of 1 years ago.  This discussion came up in regards to the range of rents in my area.  For the first time since 2009, you can start renting houses again for roughly the same price as some serviced rooms.

Next year, it will get even better.  I expect all rents to drop significantly at least 10-15%.  I remember my $550 USD per month rental for my last house in Phu Nhuan.  I bet next year, if I stay in Vietnam of course, I could rent it for around $450 USD WITHOUT a deposit.  Vacancy rates are getting higher and higher as we get closer to 2014.  On November 1, 2013, it will get higher, prices should start to drop even more.

On this day, Decree No. 102/2013/ND-CP will take affect.  It will regulate the new work permit procedures for all foreigners, excluding a few, very few, working for universities.  On this day, all foreigners coming to Vietnam to work are expected to have work permits before entering Vietnam.  Foreigners in Vietnam already working but lacking work permits will be deported.  I may be extrapolating here but my guess is that this group would cover nearly 60% or more of “Western” Expats currently living and working in Vietnam.  Of this 60%, the majority are English teachers working for lower-end English schools already trying to make ends meet.  They are also the most likely group that will have the most difficult time getting work permits, ever, for various reasons here in Vietnam.

No work permit means no job.  If they do work at a school that will accept them without a work permit, they will have to accept an even lower salary.  It is a big risk for the school to hire them.  The police, DOET and MOET will make visits. They have done so in the past and this time around, they will “clean” house.  Vietnam is changing…

All legitimate companies, international schools and English schools have already complied with this above rule since they knew the decree was coming.  Next month teachers at the top English schools without work permits will lose their contracts.  Other English schools are now paying 100% for teacher’s work permits (American Academy being one of those schools).  Thus, it is a great time to come to Vietnam if you are a certified “legitimate” teacher.  For this group, hourly wages of $22 USD and above will return.  In a year, I can see contracts with housing being offered even to “certified” English teachers (ok maybe in more then a year). Even low-end English schools will have to raise hourly rates to recruit when they lose work permit-less teachers.

In the past, there was always talk about the “backpacker” teacher leaving Saigon in droves for Phnom Pehn or Bangkok where working procedures are deemed easier.  It never really happened but this time around, I think it could happen.  To “buy” a work permit will be way out of their reach.  These “bought” work permits are going from $500 USD up to $1000 USD with various agents.

The lucky few will get help from friends.  Some English schools may finally help them get their work permits but that will only  include just a few.  Remember, many in this group have legal issues in their home country that impedes them from getting the documents necessary for work permits here.  Their only option will be to leave Vietnam.

How does this relate to the future rental costs of Saigon, though?  It is quite simple, most of the above English teachers, without work permits, are the ones renting serviced one room apartments across the Saigon.  They are the ones in shared housing as well.  Some even rent entire houses in the outlying districts.  If they leave Saigon in “droves,” there will be a huge increase of vacant rooms, apartments and houses.  For those of use with work permits (and those who are retired here in Saigon), this will be great news.   You can do a lot with an extra $50-100 USD spending money each month.  International schools and companies will be happy, cheaper rent means their total costs will decrease.

For Vietnamese landlords, it may seem bad but rental prices will just need to be lowered to their more realistic levels.  To keep vacancy low, they will need to offer more competitive rates for Vietnamese professionals who work in District 1 but live in outlying districts.  Some actually would prefer to live closer to the city and then head home for the weekend.  Yes, they will pay lower rent but it is still revenue.  Overall, if they want to rent to foreigners, they will have to lower their rents since there are many other options now.  This is already happening in my alleyway.  The house with the cheaper rent has three “certified” English teachers living there.  The rent there is $300 USD, I see it dropping to $250 USD by next summer to keep the teachers there.

Worst case scenario, some friends feel that the real estate market’s bubble will finally burst.  Some say it already burst.  2014 rental and housing prices are expected to drop due to even lower vacancy rates (you ever wonder why many buildings in Saigon have colorful lights outside their buildings at night?  What do you think they are hiding?).

Best case scenario, English teachers without a work permit will be given a one year reprieve to take a local TEFL or Master’s ELT training course enabling them to qualify for their work permits.

Hint, hint, hint…

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