Highlights in Real Estate Investment in Vietnam

  Vietnam is attracting interest of investors in both domestic and foreign market. Overall, investor confidence was returning to the Vietnam real estate market. Both buyers and sellers have enhanced activity in recent months.

The real estate market of Vietnam has overcome the recession period within 4 or 5 years ago but in the last 12 months, the market has recovered and noted positive signs as well as confidence in the market in general.

Law on housing and real estate business Law takes effect in July 2015 and has acted quickly and positively on the real estate market in Vietnam. The changes in the Law on housing have significantly eased the regulations on home ownership for foreigners, although there are still some limitations.

"Hot spots" of FDI inflows

According to a recent report of Jones Lang LaSalle Vietnam (JLL), a series of free trade agreements such as TPP, EU and ASEAN will further promote the medium and long term development. Interest rates and inflation rate have declined significantly and became more stable in the past two years, helping the investment activity to occur more positive in both Ho Chi Minh City and Hanoi. With some domestic and foreign investors such as CapitaLand and Keppel Land, they have spurred the construction activities thanks to the growing revenue in the last 12 months.

Accordingly, the amount of disbursed FDI in the period from January to September of 2015 rose by 8.4% compared to the same period last year, reaching 9.7 billion USD. This is the strongest growth since the late 1980s, contrary to the slowdown of the Chinese economy. The amount of registered capital of new investors also rose even more sharply with 11 billion USD, focused primarily on the manufacturing industry, in which the energy and electronics industries are the sectors with the highest registered capital investment in the year, followed by the real estate sector.

According to the Ministry of Planning and Investment, FDI investment in the industrial park in Vietnam accounted for 67% of total FDI in Vietnam with 11 billion USD and accounting for 59% of the total 1,400 projects in the first 9 months of 2015. A notable transaction is the event that Amata Corporation acquired the land worth 279 million USD in Long Thanh (Dong Nai) for the purpose of building residential and industrial areas valued of 500 million USD.

According to JLL, the residential real estate prices in Vietnam maintained an average rate with 2 bedroom apartments, 70 m2, 10 - 15 minutes to reach the central area of Ho Chi Minh City, which are sold at the price of 1,600 - 2,000 USD/m2, equivalent to 112,000 – 140,000 USD/apartment. When compared with the big cities in the region, the price is believed to increase significantly.

Who dominated the real estate market of Vietnam?

JLL's report showed that domestic investors are boosting investment activity in the real estate market of Vietnam. The largest real estate investors in Vietnam are Vingroup and Novaland Group.

Vingroup is Vietnam’s largest real estate development and management with market capitalization of about 3.4 billion USD. Vingroup’s investment portfolio includes 45 real estate projects spread across many sectors of the real estate market, including Vinhomes luxury apartments and villas; Vincom Center and Vincom Mega Mall; Vincom Office; 5 star Vinpearl resort; Vinpearl Luxury resort....

Novaland Group has participated in the real estate market in 2007 with the first project is Sunrise City with investment capital of 500 million USD located on Nguyen Huu Tho road, district 7. The real estate business of Novaland focused on the apartment complex segment from mid to high classes and the segment of house land with 25 projects that are being implemented throughout the downtown districts.

Vietnam is becoming an attractive place for foreign investment in the medium term than many other countries in Southeast Asia. Data from Real Capital Analytics (RCA) recorded that there are more attention from a number of private investment funds that are allocated foreign capital into Vietnam in an attempt to increase their market presence in Vietnam.

In the 2^nd quarter of 2015, a joint venture of Warburg Pincus - a US investment fund, has invested 100 million USD into Vincom Retail, the Vietnam’s largest trade center ownership and management in Vietnam. Also in this quarter, Gaw Capital Partners has received the transfer of 4 real estate projects under various segments from Indochina Land with a total value of 106 million USD. Gamuda Land has also receive the transfer of 40% shares (equivalent to 64.1 million USD) in the Celadon City project, a modern urban area with initial investment by a joint venture between Sacomreal, Thanh Thanh Cong (TTC) and An Phu Gia.

The current real estate profit margin is high

JLL's analysis shows that investors are now enjoying 6 - 7% profitability rate for residential real estate and 9 - 11% for commercial real estate, depending on location, completion time, quality of the project and the signing time of the tenants.

According to General Director of JLL Vietnam, real estate investment in emerging markets has always been seen as risky investments but with higher potential profits. Investors are willing to engage in joint venture projects in these markets, where they will combine with local investors who wish to have capital supporting - in order to have a foothold in the market before and also experience the exponential growth in the future when the economy of these market growing fast.

Moreover, the emerging markets such as Vietnam will have the potential growth factors, including population growth and high urbanization rate. Investors and project developers can take advantage of these factors.

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Vietnam Real Estate Sector Review

  Real estate is one of the sector with important position and role for the national economy, have a direct relationship with the financial and monetary market, the construction market, building materials market and the labor market... The sustainable development and effective management of this sector will contribute significantly to promoting economic-social development, creating the ability to attract investment capital, contributing to the development, industrialization and modernization of the country.

There have been more favorable developments for the country's economy in 2015 and 2015. The prices of oil continued to fall; GDP grows at stable rate around 6%. The inflation rate was controlled at 4.09% average; reduced deposit rates, lending rates were adjusted down to 10%. Foreign direct investment in Vietnam reached US $ 20.23 billion, exceeding 19% compared to the target (17 billion dollars) and expected in increase in 2016.

Mr. Nguyen Tran Nam, Former Deputy Minister of Construction, president of the Vietnam Real Estate Association, said the real estate market has been recovering, particularly in 2015. There were 40,000 successful transactions, increased 75% compared to 2014 in only Hanoi and HCM. In addition, the Vietnamese laws have changed which allow foreigners and Vietnamese people living abroad to own real estate in Vietnam from January 7/2015. The metro construction projects in Hanoi and HCMC, modern road system construction suchas Nhat Tan Bridge,  Long Thanh - DauGiay highway ...  are also factors contributing to boost the real estate market.

Along with these positive factors, the volatility of the financial markets due to the impact of political issues and global movement (the gold market, securities, forex have reduce the lending rate) has turned the property into a safe place for investment at the moment.

In the current favorable environment, the property becomesa channel to attract investors who want to own property not to live but to invest in. This is an appropriate time for investment after nearly 7 years. In a report, Mr. Marc Townsend, Managing Director of CBRE Vietnam, saidthat ” in 2015 the real estate market will witness the spectacular comeback of property speculators”

According this report, if in 2014, cheap apartment was considered as the hottest segment of the market, in 2015, the segment of medium and high-end apartments returned to be the hottest attraction. According to data from CBRE, yielding from investing in luxury apartments in Vietnam is quite high compared to other countries in the region (7- 8% compared to 3% in Singapore, 4-6% Bangkok and 4% in Hong Kong). With a minimum profit margin of 7-8% a year and the highest one at 15-20%, this segment is attracting the attention of real estate speculators.

The project with big scale which delayed during freezing period such as Goldmark City, Sapphire Palace, Gemek Tower in Hanoi, Vista Verde, the Park Residence, Le Meridien, City Gate Towers, has been released to sell up.

As reported by CBRE, in the quarter 4/2014, in HCM, it was recorded that 6670 apartments were offered, increased 117.8% from the previous quarter and 150.2% over the same period last year. For the whole 2014, it was sated that 60% of 14 807 apartments from 37 projects were offered while this figure was 47% in Hanoi of total 16,200 units from 31 projects.

In terms of price, the projects inside the city and surrounding areas with developed infrastructure continue to attract buyers and tends to keep the price high. The average selling price luxury apartments in Hanoi and Ho Chi Minh City are in the range of US $ 1500-1700 / m2, apartment Range US $ 1,000 / m2, the budget - US $ 700 / m2.

The companies with foreign investors are allowed to sublet the property which has been leased or acquire buildings which has been built. This contributes to dynamic of office properties in Vietnam. According to CBRE’s report, in 2014, many office buildings have adopted methods of long-term lease or buy off the area. In 2015, this trend will be more popular in terms of office building.

In the segment of real estate retail, restructuring the dynamics of retail businesses such as Parkson Hanoi Co. and the close of Parkson shopping center in Keangnam Landmark Tower Complex (Hanoi) showed very strong pressure this segment due to increase in supply and competition. With more than 90 million people, Vietnam is a leading nations in the Asia - Pacific region in terms of growth of retail market (9.3% versus 6.3% in Hong Kong, 4.5 1.7% of Malaysia and Singapore). Thus, the segment of retail market is still promising.

A series of big brand to expand the retail network such as as Aeon Group (Japan) plans to open 20 hypermarkets in Vietnam. Vinmart plans to build 9 shopping center, 100 supermarkets and 1,000 Vinmart convenience stores in 2017. Lotte Group (Korea) announced that it would open 60 supermarkets in Vietnam in 2020...

However, in 2015, the new game will be very intensed. According to the CBRE, in 2015-2016, the market will welcome nearly 800.000m2 retail space from 24 projects. Therefore, retailer market will be faced a new challenges. Rising operating costs, the development of electronic commerce and improved knowledge of consumer in purchase decision will be the factors that led to high level of market competition.

Also in 2015-2016, villa projects seem to become very attractive investment in Vietnam. In 2016, Vingroup will launch the resort in Da Nang, Nha Trang, Quy Nhon, PhuQuoc that combines financial investment to attract investors. Especially, at the beginning of March, the Group will launch VingroupVinpearl Resort & Villas project in Long Beach - Nha Trang.

Finding the right business partner in Vietnam is also important. We recommend doing research on the reputation of the company and individual shareholders, corporate or individual, gathering publicly available company information, and performing background checks on key personnel to find potential risks in cooperation. Working with a reliable partner can help achieve economic benefits, saving time and money in business.

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TPP Will Create Breakthrough for Vietnam’s Commercial Real Estate Sector

  On October 5^th, the TPP agreement has finished negotiation. According to experts, the signing of TPP will expand the opportunity for Vietnam's economy in general and real estate market in particular.

It seems that foreign real estate investors are more sensitive hearing than domestic investors in the anticipation of macroeconomic policy. The most recent example, funds from Japan and the United States are massively investing in the real estate market of Vietnam. These includes Creed Group (Japan) committed to invest 200 million USD into the An Gia Investment or the Global Emerging Market - GEM (US) has recently committed to pour 20 million USD into Hoang Quan real estate company.

Currently, there is a capital inflow from Japan landing in Vietnam. Many Japanese firms have invested in clean agriculture in Japan and some areas in the Northern of Vietnam to grow fresh vegetables and then export back to Japan. The Japanese are very closely following the TPP negotiation process so they also have investment plans in advance.

After the TPP was signed then what people expect the most is the commercial real estate market will develop better, which include industrial park, office, retail space...as a result of the shift of investment capital flows.

In order to leverage the special tax incentives and cheap labor cost in Vietnam, a lot of businesses in Japan, US had planned about moving factories from China to Vietnam and exported to Japan, US... The main industries that are shifting include textiles, phone manufacturers, automobile manufacturers.... The capital flow shifting will push up demand for commercial real estate.

When the foreign enterprises arrived in Vietnam, they will have to build factories, warehouses. On the other hand, they would create jobs, generate demand for ancillary and service industries. Thus, the system of services like hotels, trade centers, office rental and other services will develop as a result.

Thus, we can also expect M&A in the field of hotel, office, retail, including resort real estate will thrive in the future. Moreover, after the success of TPP, it will push up the industrial real estate market to develop.

We, ANT Consulting company, support you with the service of set up a company in Vietnam, Risk management in Vietnam, Employee background check in Vietnam... to help you shorten the implementation time.

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Japan Pouring Capital into Vietnam Real Estate Market

   Vietnam real estate market has seen a growing funds poured into the real estate market through signning partnership agreement with Vietnam partners or direct foreig own investment in setting up company in Vietnam.

Since 2011, Tokyu Corp of Japan has already had cooperation agreements with Becamex IDC Corp to invest USD 1.2 billion to develop the urban area project of 71ha in Binh Duong new city.  Other real estate business as Thanh Dong has also signed cooperation with many Japanese investors to mobilize capital for investment in a range of real estate projects. Accordingly, Thanh Dong is negotiating with a private equity fund in Osaka to cooperate investment in 3 major projects of this company in Hai Duong. Besides, Thanh Dong has also reached agreement with Handa Global (Yokohama) on contributing capital to build a 5 star hotel complex in Nha Trang - Dien Khanh urban area and a sea villa complex in the urban area of trade, tourism and financial services in Nha Trang city center. The total committed value between Thanh Dong and Handa Global reach 200 million USD.

Earlier, Japanese investors are willing to invest in golden lands at Le Duan - Hai Ba Trung (District 1 - HCMC) to construct a building for the Japanese investors which are growing fast in numbers in Vietnam. In addition, Sumitomo Corporation is exploring the investment projects in Thu Thiem commercial and financial center in the area of 20ha.

In the segment of industrial real estate, industrial park in Dong Nai was developed by Donafood Vietnam and three Japanese partners: Sojitz Corporation, Daiwa House Co., Ltd and Kobelco Eco-Solution. With the 88% joint-venture cooperation, the Japanese companies and local partners will invest USD 100 million in this segment.  In HCM City, Vietnam – Japan industrial zone with an investment of USD 31 million has just been inaugurated phase 1.

In particular, the Mekong River Delta (MRD) is a new target of Japanese businesses, not only in the field of real estate but also logistics and seaports. Japanese investors are looking forward to be introduced by Can Tho’s authority agencies the position that they can invest in an industrial zone exclusively for Japanese businesses to invest in tourism, trade and services. It is reported that the Saporo Japan Corporation is also exploring opportunities to cooperate and invest in a golf course and ecological urban area in Can Tho and cooperative investment in some other areas of the group's strengths in some provinces in the MRD.

Commenting about this trend, Japanese investors said that Vietnam's economy continues to have the prospects and potential for development, and Vietnam will become an important destination to attract more business delegations and Japan’s leading investors in the coming years.  The according to Mr. Toshihiko, the chairman of Creed Group said: "This is just the first step in cooperation, if the real estate market of Vietnam developed well, we will pump hundreds of millions of USD to not only An Gia Investment, but also into many other partners". He further said, Vietnam's economy is integrating deeper into the world economy. The Vietnam government is interested to complete the negotiations of TPP agreement, which will open huge opportunities for the economy; attracting major international investors. Besides, Vietnam has young population, mainly concentrated in urban areas however modest housing fund will be huge growth opportunity for the real estate sector. Meanwhile, the law on land of Vietnam is becoming more transparent and open to foreigners to buy houses, create purchasing power and investment opportunities for domestic and foreign enterprises.

Finding the right business partner in Vietnam is also important. We recommend doing research on the reputation of the company and individual shareholders, corporate or individual, gathering publicly available company information, and performing background checks on key personnel to find potential risks in cooperation. Working with a reliable partner can help achieve economic benefits, saving time and money in business.

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Vietnam’s Tourism Real Estate Sector

   According to forecasts, in the next 5-10 years, Vietnam will remain as an attractive destination for foreign investors. In which the tourism real estate sector is preparing to welcome a new wave of investments with large-scale projects.

A report of Capital Partners Group Vietnam shows that in the next 5-10 years, GDP per capita of Hanoi and Ho Chi Minh City will be equivalent to those of some large cities in Southeast Asia. Therefore, beachfront apartments will become the new growth segments.

Mr. Kenneth Atkinson, CEO of Grant Thornton Consulting Group Vietnam claiming that the living standard of people in general are more advanced, the demand for tourism is growing and a lot of foreign investors are heading their attention to resort projects. The demand for hotels, luxury resorts in the long term are remains high, therefore the number of projects in the hotel and resort sectors will continue to increase with more luxury resorts to meet diverse customer demand.

Recently, many localities have also implemented plan and urged local and foreign investors to invest in tourism real estate projects.

For example, recently, Quang Ninh is calling for investors to set-up business and invest in Vietnam for the period from now till 2020, including projects: coastal resorts, tourism, casino...There are some huge projects: Casino and entertainment complex with scale up to 2,000 hectares in Van Don with a total investment of 4-5 billion USD, Phoenix resort projects (Van Don) 250 million USD; Dam Nha Mac Service Industrial Park with 3,170 hectares and 530 million USD…

In Binh Dinh province, Vingroup has built the Hai Giang tourism project, with a total of more than 650 hectares, a total investment of nearly 3,500 billion VND. In 2015, it is expected that Vingroup can supply over 830 seaside villas to the market from three locations: Phu Quoc, Nha Trang and Da Nang.

FLC Group is also preparing to launch the complex project of golf course, resort, villas and high-end entertainment named FLC Nhon Ly in Nhon Ly Commune, Quy Nhon city. The project has a total investment of 3.500 billion VND.

Most recently, M.I.K Company has introduced the Sol House luxury resort project in Phu Quoc. The project is expected to be launched in early 2016, with a total investment of over 40 million USD, including 260 hotel rooms and villas, spa, indoor and outdoor entertainment areas, two restaurants, beach bar...

Mr. Than Thanh Vu, Deputy Chairman of Tourism Real Estate Association also said that recent moves of the Government on reducing the administrative procedures will provide ventilation for the real estate business, real estate market in general and tourism real estate in particular. In the next phase, tourism real estate sector will have a rapid growth.

Furthermore, Mr. Nguyen Nam Son, Executive Director of Capital Partners Vietnam said that: "If in the future, Vietnam can minimize the troublesome administrative procedures, increase Government budget on promoting tourism of Vietnam on international channels, travel trade fairs, open representative offices in foreign countries..., that will help Vietnam tourism industry and tourism real estate sector to grow fast".

"Because investors are lack of information about the policy, project planning therefore they do not know where to invest in, which specific projects, for how long... so the local governments should organize more meetings, dialogues for domestic and foreign investors to exchange with each other and discuss with the leaders of the provinces and thereby make the appropriate investment decisions, "said Mr. Jonathan Tizzard, Department of hotel and resort, Cushman & Wakefield Vietnam.

According to Mr. Jonathan, the coastal localities like Nha Trang, Da Nang, Hai Phong, Binh Thuan, Ninh Thuan will become the most attractive destination in the next 5 years. In particular, the island of Phu Quoc (Kien Giang) has great potential to become a “hot” destination. Phu Quoc is not soon becoming an attractive casino center and tourism in Southeast Asia if the open policy of Government that enterprises can invest in resorts include casino soon to be widely implemented.

Finding the right business partner in Vietnam is also important. We recommend doing research on the reputation of the company and individual shareholders, corporate or individual, gathering publicly available company information, and performing background checks on key personnel to find potential risks in cooperation. Working with a reliable partner can help achieve economic benefits, saving time and money in business.

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