Real estate funding on right track via overseas sources
Real estate funding on right track via overseas sources
Although the global economic picture of 2023 is expected to face a series of conflicts, foreign direct investment in real estate is still expected to prosper.
While the global economy is on the mend and demand is recovering, hiked interest rates and inflation along with geopolitical tensions, among other things, continue to threaten.
Locally, economic and adaptation measures, irregularities in the bond market, and a property credit crunch were notable events stemming from last year.
According to Marc Townsend, chairman of Arcadia Consulting Vietnam, 2023 looks set to be another year of the world living dangerously. But on the other hand, the impending return of confidence promises a silver lining.
“With better clarity on Vietnam’s policies and an improving economic outlook, investor sentiment is expected to recover. Opportunities remain for them to tap alternative asset classes such as self-storage spaces, workers accommodation, data centres, cloud kitchens, and retirement living,” Townsend said.
“A creative blend of core and alternative assets and relentless yields engineering will add resilience to portfolios amid the ongoing volatilities. But first, we must brace for more pressures,” he added.
Although high inflation accompanied by signs of economic recession in the US and Europe has been covering the picture of the global real estate market with gloomy colours, brighter spots can still be found in some markets in Asia-Pacific.
According to Savills, the three countries with the most prominent prospects in the region today are Vietnam, Singapore, and Japan. In addition, China, Vietnam, Indonesia, and India are forecast to lead global GDP growth in 2023.
It is also expected that activity in the construction market of Vietnam will increase from $41 billion in 2022 to $46 billion in 2023.
Inflow of capital
The improvement in the business environment and incentives from the government are boosting the interest of foreign businesses in the Vietnamese real estate market. While some domestic investors faced difficulties due to tightened credit, foreign inflows into the market continued to grow.
For example, recently, Singapore’s CapitaLand announced a plan to develop a complex that is expected to provide more than 1,100 luxury apartments and shophouses in Ho Chi Minh City.
As for industrial real estate, manufacturing enterprises are actively investing in this field and logistics, aiming to diversify activities in their China+1 strategy. These include German group Tesa, ESR Cayman Ltd., BW Industrial Development, and others.
A report released December 2022 by the Housing and Real Estate Market Management Agency under the Ministry of Construction showed that industrial real estate was recognised as a bright spot of the entire market in 2022.
The average occupancy rate of industrial parks in the southern provinces is the highest in the country, reaching about 85 per cent. Some industrial zones in the major cities are almost completely filled. Meanwhile, Binh Duong is the locality with the highest occupancy rate in the country, with 29 industrial parks already in operation with an occupancy rate of over 95 per cent.
Vietnam has also been a key beneficiary of the reallocation of manufacturing and supply chain activities to Southeast Asia. This transformative shift has been further accelerated by the supply chain disruptions that have resulted on account of COVID-19. Vietnam’s best-in-class response to the pandemic and successful public health outcome has ensured that the country continues to benefit from increasing manufacturer interest from across regions.
Meanwhile, with the housing market in South Korea entering a period of stagnation, the business expansion strategy of Korean construction enterprises is also changing. Large companies such as GS, Daewoo, and Lotte have chosen Vietnam as priority to explore foreign markets in 2023.
Lotte E&C is strengthening its local presence by undertaking large-scale development projects in Ho Chi Minh City and Hanoi, and is recently considering to southern Binh Duong province.
The Lotte Eco Smart City Thu Thiem project broke ground in September and will cover 50,000 sq.m in Ho Chi Minh City. The project will feature 11 buildings of 10-50 floors and feature hotels, homes, and apartments.
Also joining the market in Ho Chi Minh City is GS E&C. The company is currently building Korean-style smart urban area GS Metro City Nha Be in the city’s Nha Be district.
Along with those individual ventures, and with the active support policy of the South Korean government for domestic companies to penetrate foreign markets, overseas orders of Korean construction enterprises are expected to be more active.
More to come
David Jackson, CEO of Colliers Vietnam, stressed that entering the year of 2023, the sentiment among real estate investors is much like cautious anticipation of steady growth and healthier returns in the longer term starting the latter part of 2023.
He added that though some recent changes may prompt investors to be more caution, Vietnam still projects a consistent reputation as a safe place to park money amid global turmoil.
“The country has achieved stellar growth over the years, in fact, one of the world’s fastest-growing economies, with long-term positive returns on real estate investment in almost all segments,” he said.
With investors shifting to a more defensive investment strategy, office, industrial and logistics real estate are most in demand in 2023. The Vietnamese government has been investing heavily in national infrastructure development to boost the industrial manufacturing sector and lowering barriers for foreign investors. Jackson explained that foreign investors who want to enter Vietnam market and set up their operations need offices, factories, and warehouses.
“The next types of assets to be on investors’ radar would be in the housing and serviced apartment segments, especially those serving the real needs of workers, experts and expats migrating to Vietnam and industrial clusters in the country. Other interesting segments worth watching in 2023 are retail and hospitality real estate, as Vietnam’s domestic consumption has potential,” he added.
The most recent notable deals of foreign investors that took place at the end of 2022 include Malaysian property developer Gamuda Land has acquired a local company to develop a high-rise apartment building in Thu Duc of Ho Chi Minh City. The site, covering approximately three hectares, will consist of 1,300 apartment units. The total gross development value of the project is estimated to be over $250 million.
Last September, Becamex TDC announced a plan to transfer the entire project of Ngan Ha Street Commercial Housing Area in Binh Duong to Gamuda Land Binh Duong Co., Ltd., with the total transfer value sitting at nearly VND1.28 trillion ($54.6 million).
Elsewhere, in addition to attracting foreign inflows from industrial park infrastructure tenants such as Samsung, Foxconn, and LG, Sri Avantika Contractor Ltd. from India has also chosen to invest in the International Pharmaceutical Park project in Hai Duong province. The venture has a scale of 960 ha and a projected value of $10-12 billion.
For the retail and rental real estate segment, Becamex Tokyu (a joint venture between Becamex IDC and a Japanese enterprise) topped off the SORA Gardens SC Shopping Centre in Binh Duong New City in December.
Thai group Central Retail also plans to pour around $840 million into Vietnam before 2026 to expand into commercial centres and the non-food sector.
