Overseas developers heat up market
With the rosy first-quarter rise in foreign direct investment commitments, the foreign capital flows into the Vietnamese real estate sector since the beginning of 2019 remain on pace as the second-most attractive after manufacturing and processing, thanks to a climb in interest from overseas investors.
Foreign direct investment (FDI) commitments in the first quarter of 2019 totalled $10.8 billion, the best first-quarterly performance to date, and soaring 86.2 per cent on-year, according to a report by the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment.
Foreign investors have poured money across 18 fields and sectors, in which manufacturing and processing continued to attract substantial attention, with investment capital of $8.4 billion, accounting for 77.7 per cent of total FDI approvals.
Especially, real estate was the second-most heavily invested area, with $778.2 million, or 7.2 per cent of the total registered capital.
In the property sector, some big firms have made a splash. For example, VinaCapital Opportunity Fund Limited transferred 34.18 per cent of interest in Green Park Estate, a 15.7 hectare mixed-use development project in Tan Phu district of Ho Chi Minh City.
Another VinaCapital fund, Vinaland, holds 63.47 per cent interest in the project, but has plans to divest in the near future.
According to economist Nguyen Tri Hieu, real estate is a special business containing many other segments alongside housing, such as offices and apartments for lease, trading centres, and industrial and logistics development, among others.
“Many real estate developers have proved themselves strong enough to be listed on the stock exchange where they can shake hands with other foreign partners to co-develop projects and mobilise funds for their investment capital flow,” Hieu said.
The Vietnamese real estate market is currently attracting different international investors. Those from Japan, South Korea, China, Hong Kong, and Singapore are dominating, while some funds from the United States and Europe have been also eyeing the market.
“All of the commercial segments are interested, which is different from the past when overseas financiers mostly eyed housing projects. Now they are expanding their interest to offices for lease, trading centres, high-end hotels, and industrial developments,” he added.
Chu Thanh Hieu, general director of MIK Homes, said that location is the first things which developers have to think of.
“For example, foreign developers have been flooding into the west of Hanoi market where the land fund is big enough for large-scale projects. In the coming time, I believe that developers will set up mega urban development areas there,” he said.
Price and demand attracting investors
According to Savills Vietnam, apartment prices in cities such as Ho Chi Minh City and Hanoi are generally still lower than regional peers such as Kuala Lumpur and Bangkok, despite much stronger growth rates in Ho Chi Minh City when compared with these markets.
Neil MacGregor, managing director of Savills Vietnam, said that the average price across the broader market is expected to continue increasing, albeit at a somewhat slower pace, with price rises linked to higher development standards and continued strong residential demand driven by urbanisation, the rapid growth of the middle class, as well as new infrastructure.
New home prices in Ho Chi Minh City’s central business districts now average around $5,500 to $6,500 per square metre, a fraction of the eye-watering levels seen in Hong Kong where prices are at all-time highs.
MacGregor said, “With many countries also introducing cooling measures, resulting in higher taxation, the relatively low taxation in Vietnam appears increasingly attractive to buyers both at home and abroad.
It is not surprising therefore that demand for investment properties in Vietnam has increased significantly since 2015, when the new housing law opened the market to international investors.
“With the distinct shortage of prime property in Vietnam’s key cities, many buyers can see the potential for significant capital gains over the longer term. Whilst in the meantime, rental yields in excess of 5 per cent represent an attractive investment versus falling returns elsewhere in the region,” he added.
At the luxury end of the market there is tremendous upside and opportunity for long term investment, with buyers set to benefit from potential capital appreciation as Vietnam continues its remarkable growth story.
“Although there is still a long way to go for the Vietnamese property market to reach the dizzying heights of Hong Kong and Singapore, Vietnam is well on the way to becoming Asia’s next economic tiger, with strong growth, a rapidly growing middle class and, for the time being at least, relatively affordable pricing,” MacGregor said.
Experts expect the local property sector will continue recording growth in almost all segments, with industrial real estate the hottest in 2019, driven by the relocation of factories from China and the positive impacts of trade agreements.
The remainder of 2019
Nguyen Van Dinh, deputy chairman of Vietnam Real Estate Brokerage, expected that FDI in real estate market in the rest of the year will be certainly higher than that of 2018, based on the bright signs of the market, such as the lower price of property of Vietnam compared to other markets, high profitability, and high absorption percentage in projects.
Economist Bui Quang Tin also expected that FDI into real estate will increase in the foreseeable future, with diversifying interest from housing to industrial developments, trading centres, and offices and apartment for lease.
“We have seen a wave of Japanese investors pouring into Vietnam in affordable housing. Among those, Hankyu Realty and Nishi Nippon Railroad have co-ordinated with domestic Nam Long Group in a range of housing projects and they are very successful thus far,” Tin said.
Discussing the issue with VIR, Steven Chu Chee Kwang, CEO of Nam Long, said that Japanese investors are always exceedingly careful in considering any investment.
“The reason why those Japanese investors choose to co-operate with Nam Long in developing a range of different projects was due to the realisation that the Vietnamese real estate market is now thirsty in mid-end and affordable housing, in which Japan can be very strong developers,” Chu said.
Highlighting the role of FDI in the real estate sector, Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, said that in recent years, real estate FDI has usually been of high interest to international investors.
“This fact is very important especially when the Vietnamese government is limiting credit for real estate developers. Thus FDI is a supportive investment capital source for domestic developers,” Chau said.
Together with funding in infrastructure development to improve links between regions, FDI flow can create ideal conditions for developing real estate projects.
“In 2019, segments of housing, trading centres, offices for lease, and especially industrial development and logistics services will increase,” Chau added.