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On solid ground

Released at: 21:38, 18/02/2018

On solid ground

Photo: VET Magazine

Real estate continues to exhibit stability and strong performance is seen in all sectors.

by Mr. Neil MacGregor / Managing Director, Savills Vietnam

In light of various integration opportunities, economic reforms, and booming economic growth over the past few years, Vietnam’s economy has welcomed consistently increasing flows of foreign investment which, in turn, have helped secure its sustainable growth. In hosting the year-long APEC 2017 meetings, the country enjoyed a great opportunity to showcase its investment potential in the years to come. 

Residential, hotel and office - A booming market

Vietnam’s property market has shown strong performance, with the number of apartment transactions in the first three quarters of 2017 reaching more than 32,000; higher than the figure for 2016 as a whole. The market remains healthy going into 2018, with strong demand from owner-occupiers, as well as a strengthening buy-to-let market, supported by some of the highest rental yields in the region. We are also particularly pleased with the performance of the landed property market, which has performed in line with our forecasts at the end of 2016, with very strong absorption rates driven by the completion of new infrastructure and the country’s rapidly growing middle class.

In addition to the strength of the residential market, we have seen excellent performance in the office market, with occupancy rates reaching over 95 per cent in Ho Chi Minh City and accelerating rental growth, particularly for Grade A product. The hotel segment has also performed well, particularly in Hanoi, driven by strong visitor growth of 26 per cent in 2016 and 28 per cent in 2017 as at December. In 2018 we are anticipating new excitement around the various integrated resorts that are being developed, notably Hoiana, which is located only moments away from the historic old town of Hoi An and will boast Vietnam’s largest casino when it opens in 2019.

The residential market is evolving towards more owner-occupiers and less speculation, which is all healthy and a positive sign for the market going forward. Although the formation of a significant affluent class is creating opportunities for mid- and high-end products, the mass market is benefiting from the rapid growth of the middle class. The demand for affordable housing continues to increase rapidly in megacities like Ho Chi Minh City and Hanoi. In Ho Chi Minh City, the number of Grade C transactions accounted for approximately 60 per cent of the total in the first nine months of 2017. The figure for 2016 was just 48 per cent. The availability of bank finance for the growing middle class, accompanied by a stable mortgage rate, will encourage the continued rise of the affordable segment in 2018 and beyond.

Why Vietnam now?

The market has seen a significant number and value of transactions made by foreign investors, adding to an already impressive amount of investments made over the years since Vietnam opened its doors to global integration. As the economy thrives while other parts of the region are slowing down, the market will continue to see further interest in all real estate sectors, with a focus on office and hospitality, driven by increasing foreign direct investment (FDI) and booming tourism, and more recently, industrial and logistics real estate developments.

The macroeconomic environment in Vietnam remains strong and is likely to continue to support a strong residential market in 2018. Urbanization, a rapidly growing middle class, and an expanding mortgage market all help to support higher demand for housing. The shortage of land available to developers helps to cap future supply, resulting in healthy market dynamics and steady price growth. Short-term corrections are inevitable, but over the longer term Vietnam’s property market is set for sustained growth.

According to figures from the Ministry of Planning and Investment, Vietnam’s newly-registered FDI reached approximately $25.5 billion in the first nine months of 2017, an increase of 34.3 per cent year-on-year, while FDI disbursement rose 13.4 per cent year-on-year, totaling $12.5 billion. By country or territory, South Korea leads, with close to $6.3 billion, followed by Japan and Singapore with $5.9 billion and $4.1 billion, respectively. 

By sector, real estate has always been among the sectors attracting the most FDI in Vietnam. This has confirmed the interest of foreign investors in investment and business opportunities in the country’s real estate market. With increasing government incentives, a better legal framework, and stronger competitive advantages, Vietnam’s real estate market has attracted a significant influx of capital from both local and foreign investors in recent years. South Korea, Japan, Singapore, Taiwan, and Hong Kong are some of the leading names in foreign investment and are all member economies of APEC, proving the importance of this forum to Vietnam. They have brought to Vietnam not only capital but also expertise, knowledge, and global experience. Their investment and business expansion has played a key role in helping Vietnam reform into one of the fastest-growing economies in the region. 

Singaporean investors were among the first to recognize Vietnam’s market potential. CapitaLand, who has been present in Vietnam for over 20 years with many residential projects, has set up a $500-million fund targeting commercial assets in the country and made disbursements to close one of the most significant deals of the year: the acquisition of a 0.6-ha site in a prime location in Ho Chi Minh City’s CBD to build their first Grade A commercial project in Vietnam. Keppel Land, another Singapore-based developer, has launched many successful projects over the last few years. 

Japanese investors, with a long presence in Vietnam, have also been very active recently. Last year, the Creed Group entered into a $500-million deal to form a partnership with Phat Dat Real Estate Development and An Gia Investment, to develop The River City, a large-scale residential project in Ho Chi Minh City’s District 7. In early 2017, together with An Gia Investment, it acquired five apartment blocks of the La Casa project in District 7 from Van Phat Hung for approximately $40 million. Nishi Nippon Railroad and Hankyu Realty have joined hands with well-known listed local developer Nam Long in developing the 26-ha Mizuki Park, a residential project in Ho Chi Minh City with total estimated investment of approximately $351 million. AEON Mall, the renowned Japanese retail group, opened their fifth mall in Vietnam last year and has entered into a joint venture with local partner the BIM Group to develop their second mall in Hanoi on a 16.7-ha site. 

More than ever, opportunities are there to be grasped and acted upon strategically. Vietnam should take full advantage of all the international attention that it has seen on the back of the APEC meetings and turn the potential into realized tourism, economic, and social development. As investors are coming in, the government should support them by creating a healthy business environment with clear investment policies in order for the market to grow sustainably over the years to come.

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