Through JVs and M&As, FDI persists into realty

2018 looks to continue the trend of foreign investors buying into the local real estate market Photo: Le Toan

Pham Thanh Hung, vice chairman of Cen Group, believes that 2018 will be an even more prosperous year for the local real estate market when Vietnam integrates further with the global economy.

“In 2018 we will see a substantial trend of globalisation in real estate, with both domestic and international firms acquiring each other, and also Vietnamese buying overseas properties alongside foreigners buying properties in Vietnam,” Hung said.

“Vietnam, therefore, will be at its highest level of global integration particularly when it comes to the real estate market. This will definitely make the domestic market stronger and more competitive with powerful financial foreign investors,” Hung told VIR.

There is a new wave of foreign investors from Japan, South Korea, Singapore and China coming to the Vietnamese real estate market.

“The participation from foreigners and wealthy buyers from Germany, the UK, Singapore, Japan, South Korea and China will make a strong impact to the price of properties in Vietnam, especially to the high-end and luxury segment,” Hung said.

Meanwhile Dung Duong, senior director of CBRE Vietnam, expected the residential sales sector will continue to be the focus of the Vietnamese real estate market in 2018, especially when many affordable and mid-range units are expected to be launched next year.

“If just some years ago, buying an apartment unit used to be a hard-to-reach target for low- to middle-income earners, it is now a lot easier with the assistance of bank mortgages and favourable payment terms from developers. Some luxury projects which were delayed in 2017 are expected to be launched next year too,” Dung said.

However, she added that the residential sector may not be in the limelight for M&As in 2018. “It would not be easy for investors to persuade project owners to sell projects which are already under construction. Currently local developers are a lot more confident and stronger financially than before, especially those who have gone through the challenges of the crisis period. Therefore, instead of M&As, joint ventures and equity investments would be the preferred method for foreign investors to enter this sector,” she added.

Neil MacGregor, managing director from Savills Vietnam, added that Asian investors are much more familiar with the emerging nature of Vietnam’s M&A market.

“For example, many South Korean developers have been through the same evolution of development in their home market, over the last 40 years or so, that Vietnam is going through today. While for Japanese investors, they are attracted by Vietnam’s young population as their population at home is aging fast,” MacGregor commented.

Financial expert Dr. Can Van Luc affirmed that a stable financial history in 2017 would be a good foundation for the real estate market of 2018. “A stable market, together with the growth of real estate enterprises and listed companies, will bring about a brighter future for the property sector,” Luc said.

He further added that the total outstanding loans for the whole real estate market was at VND400 trillion ($17.6 billion) in November 2017, accounting for 6.5 per cent of total national outstanding loans. Outstanding loans for real estate and construction was at about 15.5 per cent of total outstanding loans for the same period. “This is an acceptable percentage and reflects the appropriate level of control from the government,” Luc said.

In 2018, Luc said, the real estate market will continue to receive positive focus – particularly considering the government’s establishment of three special economic zones in Quang Ninh, Khanh Hoa and Kien Giang, as well as special incentives set up for Ho Chi Minh City. All of which will certainly make a strong impact to the country’s real estate market.

Foreign investors will be more active in 2018

Japan’s Mitsubishi Corporation was the latest foreign investor to pour $30 million into a residential development project in Ho Chi Minh City during 2017’s latter days.

Mitsubishi Corporation and its domestic partner will initially pour in $30 million into the Diamond Lotus – the first green project certified by LEED in Vietnam. The total investment capital of this new project would be increased to over $500 million in the future.

Prior to this development, Mitsubishi was already engaged in Vietnamese real estate, with projects in Ho Chi Minh City’s suburb of Binh Duong, and Hanoi.

According to the latest 2017 report from the Foreign Investment Agency, under the Ministry of Planning and Investment, property was the third biggest sector receiving foreign direct investment capital (FDI), with total capital of more than $3.05 billion, or 8.5 per cent of the total registered FDI.

Up to the end of December 2017, the property sector had attracted a total of 630 projects with a total registered capital of $52.7 billion.

Lieu Nguyen, a representative from the US Real Estate Association, stated that apart from foreign investment, the overseas remittance also are pouring into Vietnam with remarkable volume, to purchase properties in their homeland.

Opportunities for proactive investors

A great number of investors are still hoping for a market that can offer more transparency and sustainability, despite the prospect of a lucrative year ahead.

However, Dung Duong from CBRE cited that a market without risk-takers is no market at all. “Many developers and investors might have regretted the decision of when to re-enter the market while the economy was trying to get back on track,” Dung said.

In Vietnam, success is a combination of patience, luck, financial capacity, knowledge and insight, and a good sense of the market’s cyclical nature. The biggest rewards would not come to those who wait for a full market recovery in order to place a safe bet. When it comes to investing in an emerging market like Vietnam, one simply has to take risks to stay ahead of the competition.

MacGregor also added that more than ever, opportunities are there to be grasped and acted upon strategically – with a stronger legal framework and a rapidly growing economy set to aid investors in their decisions.

He noted that Vietnam should take full advantage of all the international attention that it has seen on the back of the APEC Vietnam 2017 and turn the potential into realised tourism, economic and social development. Indeed, the real estate market would benefit from clear and transparent investment policies from the Vietnamese government to encourage sustainable growth over the years to come.

By Bich Ngoc