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Real estate building on foundations

Released at: 07:55, 29/04/2018

Real estate building on foundations

Photo: Viet Tuan

Real estate is among the leading sectors in foreign investment attraction though long-standing issues linger.

by Linh Ngoc

Foreign investors had poured a total of $53.7 billion into Vietnam’s real estate sector as of March 20, accounting for 16.7 per cent of total foreign investment capital and ranking it second in terms of capital-intensive sectors, according to a report from the Foreign Investment Agency (FIA) at the Ministry of Planning and Investment (MPI). The construction industry saw a successful 2017, with most figures exceeding development targets, Deputy Minister of Construction Le Quang Hung told a conference held by the Ministry in Hanoi on January 16 that reviewed the sector’s performance in 2017 and discussed plans for 2018, while also noting it grew 8.7 per cent last year. This reflects the fact that the reform of administrative procedures and other improvements are changing the face of the country’s business and investment environment.

Busy year 

An impressive number of prestigious foreign firms invested via partnerships or mergers and acquisitions (M&A) last year. 2017 was considered something of a boom year for M&As in real estate and totaled $1.5 billion, and 2018 is expected to be another record year, according to a recent report from real estate consultants JLL Vietnam. 

Among notable deals, the cooperation between Japan’s Nishi Nippon and Hankyu and the Nam Long Investment JSC to build the Mizuki Park residential area on 26 ha in Ho Chi Minh City’s Binh Chanh district had total investment of $351 million. Last September, VinaLand Limited, one of the two real estate arms of VinaCapital, sold its entire stake in Vina Square, a 3-ha development in District 5, to the Tri Duc Real Estate Company for $41.2 million, including repayments of shareholder loans. Once completed, the project will supply over 1,000 residential apartments to the market, together with retail and office space. The US-based Warburg Pincus also signed a $300 million deal with VinaCapital to establish a joint venture specializing in hotel investment and management in Vietnam, while Singapore’s Mapletree took over Kumho Asiana Plaza Saigon from the Kumho Industrial Company and Asiana Airlines. And Keppel Land plans to develop land plots in the Thu Thiem Urban Area.

Real estate is considered one the most important sectors in the economy and the government has adopted a number of policies to support its development and to mitigate the risks associated with a rapidly-growing market. Experts said that the government now allows 100 per cent foreign ownership except in certain key fields, meaning foreign investors can buy a small State-owned enterprise (SOE) and take advantage of its land.

Ms. Dang Phuong Hang, General Director of CBRE Vietnam, told VET that the government maintaining a stable macroeconomy by keeping inflation low and cutting the discount and refinancing rates in mid-2017 resulted in high credit growth and a favorable business environment for real estate developers and buyers. Agreeing, Ms. Lew Yen Ping, Country General Manager at The Ascott Limited (Ascott), said that interest rates and exchange rates have been kept relatively stable over the past two years, helping to sustain investor interest in the real estate sector.

Many significant infrastructure projects are currently in progress in Vietnam’s major cities, especially in Hanoi and Ho Chi Minh City. They are expected to enhance connectivity to previously-considered remote areas and significantly benefit the development of the real estate sector. 

Transparency has been improved in recent years following a great number of initiatives being introduced, ranging from clearer and more accessible planning information to more project information provided to buyers. 

Moreover, there has been a reduction in the administrative procedures required for developing real estate projects, which certainly benefits developers. Minister of Construction Pham Hong Ha told local media that decentralization in project appraisal, cost estimates appraisal, and design has improved in recent times. 

Meanwhile, measures have also been taken to ensure market stability. The State Bank of Vietnam (SBV) recently required commercial banks limit capital invested into the real estate sector in an effort to ensure long-term sustainability. 

Furthermore, proposals on increasing taxes on second properties are being revisited, which if happen will have a major impact on the future development of the market. Property taxes can act as a government tool to control the market, with economic and social aims. A proposal on the Law on Special Administrative-Economic Units, which will be submitted by MPI to the National Assembly, also creates a premise for foreign capital inflows into resort real estate.

Tackling obstacles

Vietnam attractiveness among foreign investors remains thanks primarily to improvements in its business environment. But there is still much to be done to secure its longer-term position and foreign-invested enterprises (FIEs) do indeed face ongoing challenges with their investment in the country. 

Mr. Stephen Wyatt, General Director of JLL Vietnam, noted challenges such as the lack of cleared land, complicated procedures involving many different agencies, the difficulties involved in foreign investors transferring money to and from Vietnam to purchase property and in acquiring legal title, and the legal framework in Vietnam in general remaining unspecific and creating misunderstandings among foreign investors.

In fact, many real estate project investors were unable to complete their project on time and the land was or will be withdrawn. The cause of many such cases is investors being bogged down in administrative procedures and a failure to reach agreement on site clearance and compensation. CBRE found from interviewing foreign developers that the approval process for documents such an investment certificates and construction licenses still takes more time than expected. 

At the same time, real estate investment projects must be in line with land use planning, while urban planning and rural construction planning must be line with plans approved by the competent State agency. Experts have noted that this creates difficulties for foreign investors because they do not fully know Vietnam’s land regulations and related administrative procedures, and this affects their investment activities.

For example, regarding the development of tourism real estate, Mr. Nguyen Tran Nam, Chairman of the Vietnam Real Estate Association, told local media that condotels and villa resorts are new types of real estate in Vietnam but ownership is yet to be regulated by law, making such investments difficult to manage. Agreeing, Ms. Hang said confusion over the ownership of new types of real estate products such as condotels and vacation villas presents difficulties for developers when selling products to foreigners.

Ms. Lew pointed out other challenges as being traffic infrastructure, the environment, and the quality of human resources and services. Though it is clear that policy makers have put tremendous effort into creating a favorable business environment in Vietnam, there is still room for improvement. 

Getting it right

At a conference to review the sector’s performance last year and discuss plans for 2018, Prime Minister Nguyen Xuan Phuc set requirements to 2020, including building most essential infrastructure, ensuring quality, aesthetics, and competitive prices, and addressing wasted investment, inefficiency, corruption, and the influence of special interests in construction investment, especially projects using State capital. “It is necessary to apply advanced and modern science and technology to improve workplace productivity, quality, and efficiency and construction progress in the context of Industry 4.0,” he said.

In order for the real estate market to develop in a transparent, healthy and sustainable manner, Mr. Nam has proposed to the government, the Ministry of Construction, and other ministries and sectors a number of suggestions on credit policies and social housing development policies and the recognition of the legality of resort real estate. Ms. Hang has also proposed that clearer ownership policies and more transparency in the process of issuing ownership certificates, especially to foreign buyers, would be of great help in improving confidence in the market.
The Ministry of Construction also plans to amend certain provisions of the Law on Housing and the Law on Real Estate Business and these are expected to attract more foreign investors.
Finally, M&A is a good means for foreign investors to enter Vietnam. Mr. Wyatt said the primary investment strategies adopted by foreign investors are contributing capital to or acquiring shares in good quality local enterprises. “While local groups have advantages in understanding the local market and legal framework and in securing good land sites, foreign investors have advantages in capital resources and ‘know how’,” he said.

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