Real estate market stays vibrant with lots of opportunities
Real estate market stays vibrant with lots of opportunities
High GDP growth and favourable factors are facilitating FDI inflows and the development of the property market in Vietnam. VIR's Nguyen Huong spoke to Mark Ridley, group CEO at Savills; Neil MacGregor, managing director at Savills Vietnam; and Chris Marriott, CEO for Southeast Asia at Savills, about the role of environmental, social, and governance (ESG) criteria and logistics in the journey.
Vietnam's economy is forecast to grow by 7.5 per cent in 2022, the highest in East Asia and the Pacific region. Do you think this will be leveraged to attract more investors to the real estate industry?
Ridley: Vietnam’s economy will be a giant accelerator. There will be more interest from global investors in Vietnam than ever. The GDP growth forecasts worldwide are back to 2.5 per cent, and Vietnam is accelerating that significantly. Meanwhile, some developed markets in Europe or the UK will be in recession for the next two to three quarters, making Vietnam a robust market for investors to leverage.
MacGregor: Manufacturing is the key growth driver of Vietnam. We may see a dip in manufacturing orders in the short term because consumer spending is dropping elsewhere in the world. However, we will continue to witness the shift of manufacturing into Vietnam, which will drive the manufacturing sector to grow further. This, eventually, continue the growth of the GDP figures of this country.
This then link to the industrial real estate market, we might see a short-term, maybe six months or nine months tailing off demand for industrial real estate. However, it will bounce back strongly as manufacturing trends kick back in. The government will need to work very hard to continue to attract investment property.
Marriott: Emerging markets have attracted investment interest because of GDP growth. High-tech manufacturers such as Samsung, LG Electronics, and numerous Apple suppliers are now manufacturing in Vietnam. The country is moving up the value chain from regional investors. This then further highlights the need for transparency and ease of investment. Both getting the money in and getting the money out are essential for the FDI, primarily when they're investing in real estate investments.
What should Vietnam do to attract more foreign direct investment (FDI) from other countries regarding the current relocation of manufacturers ?
Ridley: The first critical thing is that people want security for their investments. They need to understand if the investment is safe and secure, and at some stage, if they decide to relinquish that ownership, they can easily get their money out.
The second is the supply because if there is lots of interest, investors want high-quality products. So, creating the development supply is fundamentally important for Vietnam. If we cannot satisfy that needs, people will invest in other markets where they can get more accessibility.
It is critical to translate the interests into reality, and creating a development supply is the key to unlocking this in Vietnam. Investors need to see their manufacturing can come in and have to start manufacturing in the shortest timescale possible. If this process takes years to complete, they will look at another market.
Furthermore, the demographic of Vietnam is great, with a young and skilled labour supply. This is very attractive for FDI coming into the market.
MacGregor: Vietnam has done an excellent job of investing in infrastructure recently. The government should continue to invest more in infrastructure, which is crucial as the economy grows fast. That allows new real estate markets to open up, helps manufacturing grow, and support the industrial real estate markets.
What are some prevalent trends in the global real estate sector?
Marriott: We've seen a surge in investment in places like Japan or Australia in the buy-to-rent residential market. That global trend has been coming to Asia and become exceptional across Asia. It is not just about building properties for rent, it is how you manage those properties for the residents and get a premium rent by integrating the management with the asset.
The other, probably driven more out of the US, is online retail and logistics, which is becoming more specialist logistics in either high-velocity, high-speed or specialist in terms of high-value or chilled goods.
Moreover, we are seeing people playing around to find out how they can extract higher returns from similar properties through different management structures. This leads to the appearance of some niche real estate sectors, for example, data centres. Data centres are attracting much interest because they can generate superior returns if structured correctly and if the deal was structured in the right way.
Ridley: The other trend to expect is Life Sciences. Because of the pandemic, life sciences are becoming the front of mind, and there has been significant growth. Life Sciences sit alongside technology companies. And the ideal cluster in that sector would be education, alongside life science and technology. If you get one of those three together, you will create a life science market, that numerous investors and occupiers are looking for.
Savills has committed to net zero target and ESG criteria. How is its sustainability journey in Vietnam going?
Ridley: As a global business, we have committed to achieving net zero by 2030 across all of our directly owned or managed estates, and all our offices worldwide. We have adopted science-based targets, not only with carbon offsets. This is changing the way Savills operate as a business and our team is strongly committed to this pathway. Beyond that, our target is to look at the supply chain, even though we do not own or run the property, we do it on behalf of our customers.
For instance, when we look at office environments, one of our most significant areas, we are looking at how sustainable that office environment can be, how we fit out the space, how we can use a circular economy, and reusing things to the most significant degree. That's our commitment as a business, as a global salvage business. And then from that, we have to educate all of those in our supply chain and how we can help them on that journey.
Marriott: In terms of how we can support Vietnam in this initiative, we might bring back to Vietnam the module that we have adopted in Singapore. We established a department that will come into buildings and give them a grading relative to the local grading. We will then look at the engineer's design plan to improve the grading, for example, to improve the building from bronze to a gold or platinum level. Then we will go to the contractors' engineer to get a quote for the UPSC parading of that property to improve its position in terms of the green mark.
It is now getting slightly more complex because that is just the carbon footprint and power consumption. It will then depend on which route the Vietnam government wishes to choose in terms of ESG or net-zero target. There will be plenty of examples of what we can do as consultants to come in and assist in either assessing or looking at the refurbishment and project management.
From January, all listed companies will have to report on their ESG initiatives as part of their workforce, so we can help through these initiatives and take data, for example, from managing properties in terms of energy efficiency, and contribute to the reports that all companies will have to do.
What are the challenges in Vietnam's real estate sector in the upcoming years, especially as a developing country with a high land price that’s even on par with developed countries?
Mark Ridley: Prices have gone up dramatically in the past two years or so in Vietnam, which is caused by a land supply shortage in the market. The short answer is that the government needs to facilitate more land supply and bring quality, clear land development into the marketplace.
That will introduce more supply and diversified products, whether affordable housing or to complement the higher value housing delivered increasingly by foreign and local developers, even in some niche sectors that we've mentioned, as well as facilitating the continued growth of manufacturing. So, there needs to be a real focus on creating more land supply, partly driven by the master plan and the zoning master planning efficient auctions.
We will likely see some price corrections in some regions of the market. However, the great fundamentals of Vietnam, the fantastic growth story, and the strong demand across all real estate sectors will remain, which means in the longer term, prices will continue to go up, in a more sustainable way.
Another thing is that we will see investors get attracted to Vietnam market because of the growth story, and they can get superior returns in the Vietnam market, which is opposed to other more developed markets. So, as long as they can achieve investment returns, prices will continue to go up.
