The Ministry of Construction plan applies to foreigners who will stay in Vietnam for a year. They will be allowed to buy and own one house per person over 50 years.
Many of the expatriates are executives in foreign-invested companies.
"The new rule," said Nguyen Xuan Dao, chief executive at the Hanoi-based developer Vietnam Property, "will not only attract more investment in quality property projects but also boost demand from foreigners and create more opportunities for locals to trade in real estate."
The proposal allows foreign owners to sell without restrictions and use the property as collateral for bank loans in Vietnam but forbids them from renting the home.
In Vietnam, the state owns the land but gives infinite freehold to its citizens.
Property markets are on the rise across Asia, fueled by cash-rich investors looking for higher returns, the booming economies of China and India and the emergence of Japan from over a decade of economic stagnation.
Since India eased rules on investment in the construction sector, foreign property funds have flocked in, helping to double property prices in major cities since 2005.
Home prices in Singapore have seen their biggest gains in over seven years, led by strong buying of luxury properties by foreigners.
About a quarter of the 81,000 expatriates currently living in Vietnam would be eligible to buy houses, said the director of the Housing Management Administration, Nguyen Manh Ha.
"House ownership will help expatriates cut living cost significantly," Ha was quoted as saying by state media Monday.
Last year, the consulting firm Mercer ranked Hanoi the world's 32nd most expensive city for expatriates, mainly for high rents that could go up to $3,000 per month for a three-bedroom serviced apartment.
Real estate prices, especially condominiums in big cities like Ho Chi Minh City, have gone up about 50 percent in the past year due to limited supply, with most new projects sold before they are built.