Photo: Duc Anh
JLL research notes Singaporean investment approaching $2 billion in last two years and is set to continue rising.
Emerging markets like Vietnam are a promising investment destination for Singapore’s property investors.
The JLL Capital Markets Singapore Advisory & Research team estimates that Singaporean developers have invested S$1.2 billion ($836 million) in property projects in Ho Chi Minh City in the last two years, with the bulk of investments focused on residential developments.
CapitaLand has recently announced it will establish a $500 million fund next year to invest in commercial property, primarily in Ho Chi Minh City and Hanoi, while it has invested over S$400 million ($278.7 million) in Vietnam this year, including the recent acquisition of a residential development site in Ho Chi Minh City’s District 1 for $51.9 million - the first by a Singaporean developer.
Mapletree Investments also increased its assets under management in Vietnam to more than S$1 billion ($696.8 million) by investing over S$400 million ($278.7 million) in Kumho Asiana Plaza in July.
In the first nine months of this year foreign direct investment (FDI) increased 12 per cent year-on-year to $11 billion. Just behind South Korea, Singapore is the second-largest investor, with $1.85 billion, or 16 per cent.
The trend is not only set to continue but signals good news for the real estate industry, according to Ms. Regina Lim from the JLL Capital Markets Singapore Advisory & Research team. “After the manufacturing and processing industries, the real estate sector in Vietnam is the second-biggest recipient of foreign investment and in the last two years Singaporean real estate companies have pumped close to $1 billion into the country,” she explained.
Favorable investment conditions
In June 2015 the government eliminated the 49 percent limit on foreign ownership in many listed companies, to spur investment inflows and provide good opportunities for foreign developers to take on a majority stake in residential projects in partnership with local groups.
The change signaled the government’s receptiveness towards foreign investment while providing foreign investors with greater flexibility and choice when investing in property.
Infrastructure developments are also a contributing factor in the strong long-term potential in Ho Chi Minh City. Metro lines now under construction in the city and in Hanoi will improve connectivity, linking suburban districts to bustling city centers.
The elevated sections of Ho Chi Minh City’s metro line are slated for completion in 2017 and underground works are expected to be completed in 2019. One of the fastest-growing countries in Southeast Asia and with about 60 per cent of its 90 million-strong population under 35 years old, Vietnam is coming into a demographic golden age.
While the economy is still immature, employment in the manufacturing and services sectors has increased substantially in the last two decades and is expected to continue to rise in the next ten years, boosting income growth. “Annual disposable income per capita has risen steadily over the past decade at a compound annual growth rate (CAGR) of 11 per cent and we expect incomes and the purchasing power of the Vietnamese consumer to grow,” said Ms. Lim.
Furthermore, regulatory changes implemented in July last year have made it easier and safer for foreigners to own property, stimulating strong residential sales in 2015 and the first half of 2016, when developers sold 24,000 and 16,800 units, respectively, 250 per cent higher than sales from 2011 to 2014. “Vietnam’s residential supply is expected to grow 74 per cent over the next three years but we’re confident the market will be able to absorb the increase,” Ms. Lim said.
Despite the strong sales volume, premium apartment prices have risen by just 9 per cent in the last six quarters. This is in sharp contrast to between 2005 and 2007, when prices rose 106 percent as foreign capital flowed into Vietnam in anticipation of a recovery in the economy and the property market.