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 Vietnammaintained 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 2nd 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 investmentin 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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Sustainable development in Vietnam

Achievement of sustainable development in Vietnam

The sustainable development objectives including economic, social development and environment protection have been integrated into national priority development together with economic growth objective.

With a stable GDP and economic growth, improvement of education, Vietnamese citizens have gained more knowledge about gender quality, environmental and other social issues, thus, creating campaigns to support collective action. For example, the campaign collecting garbage along beaches in Vietnam attracted more than 1000 students to participate in which indicated collective action to mitigate effect of disaster and climate change.

Vietnamese government has significantly improved the rate of hunger eradication, poverty reduction, population, job creation, education and healthcare. Particularly, in 2014, total state budget for hunger eradication and poverty reduction were more than 34 billion VND. Thus, the poverty rate took a nosedive from 14.2% in 2010 to 1.8-2% in 2014, proving average reduction of 2% per year national wide.

The state fund for environmental protection has been increased, thus the policies for environmental protection has put into regular operation. By executing tax exemption for environmental friendly enterprises, businesses in Vietnam have been more aware of coordinating environmental protection policies into long term vision and mission.

Vietnam takes part in international agreement to show commitment to sustainable development such as: WTO, United Nation Framework Convention on Climate Change, United Nation Convention to combat desertification, the convention on International Trade in Endangered Species of Wild Fauna and Flora…

Challenges of sustainable development in Vietnam

There have been some challenges in Vietnam when implementing sustainable development policies. An increase in natural disaster, degenerated natural resource (water and biodiversity resources), wasteful and ineffective production and consumption are causing huge destruction to various local communities.

Even though there have been some supporting policies for enterprises in Vietnam to implement sustainable development policies, they have not obtained full awareness of the link between good environmental, social, and governance performance and the ability of companies to be profitable and survive in turbulent times. Therefore, most of the firms succeeded in promoting sustainable development practices are international businesses.

Sustainable development in business

Since Vietnam takes part in international trade agreements, there will be more international and institutional investors need the information of material environmental, social and governance information about company performance to decide whether to make investment decision.

Sustainable development of the business should be proven by social factors (employee compensation, benefits, staff turnover, safety practices, diversity and local community) and environmental factors (energy efficiency, GHS emissions, biodiversity conservation, water usage, natural resource use, waste to energy and recycling practices). These factors are crucial for investors as they indicates how the company takes into account risks, opportunities, management approach, stakeholder value and long term development.

Sustainability report has been strongly recommended by Vietnamese government. Vietnam Brewery Ltd is one of a few leading companies taking this report seriously. Their report in 2014 stated that the company switched from diesel to biomass as boiler fuel, reducing direct CO2 emissions as a result. In addition to reducing our carbon footprint and mitigating the effects of global warming, the local community has also benefitted from the programme with an additional income from the sale of rice husks. The company also highlighted the code of conduct which allowed the employees to voice their opinions. There have been also other big cooperation taking part in the trend for example Bao Viet Corporation, Vinamilk, Hau Giang Pharmacy…

In conclusion, in order for enterprises in Vietnam to actively engage in sustainable development and voluntarily adopt sustainability as common practice, Vietnamese government should take more urgent actions.

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Potentials of Vietnam Logistics Industry

When Vietnam joins the TPP, Vietnam logistics industry has many opportunities to develop and engage more deeply into the world’s logistics centers…

According to the report of World Bank, the forecasted growth rate between 2015 and 2020 is 12%/year and import export turnover reached 623 billion USD in 2020, Vietnam is a promising destination for investors.

According to the statistics from the Vietnam Logistics Business Association (VLA), Vietnam’s logistics costs accounted for about 25% of GDP per year, much higher than countries such as the US, China or Thailand.

In the coming time when TPP agreement takes effect with many tariffs equal 0%, the export-import operations in Vietnam will promise to develop strongly. This is considered a great opportunity for the logistics industry to “boom”.

As an important link of the economy, the logistics activities help the goods to reach consumers and ensure the materials for the production process.

Despite facing strong competition from foreign rivals, many experts still appreciate the future prospects of the domestic logistics enterprises, especially in the context of free trade agreements (FTAs, TPP) boosted FDI inflows pouring into Vietnam industries.

On the other hand, the increasingly improved infrastructure in Vietnam will strengthen connectivity between logistics facilities and production areas; planning and supporting from the State, along with customs procedures are gradually improving in a positive direction.

In the recent two years, a series of key infrastructure projects have been started and completed as Long Thanh – Dau Giay  highway, Noi Bai – Lao Cai highway, Ha Noi – Hai Phong highway, Ben Luc – Long Thanh highway Highway 51 connecting industrial park with the ports and Soai Rap channel dredging works (in Hiep Phuoc port) and Thi Vai – Cai Mep channel…

In addition, the Government and the Ministry of Transport have launched a number of policies to guide, support and stimulate the sustainable development of the domestic logistics industry such as: policy to control road loading, preferential policies for Vietnam ships on domestic routes, the draft to establish port authorities to develop ports and port services, Decision No. 1037/QD-TTg on the port development plan till 2020…

Moreover, according to the General Department of Vietnam Customs, Vietnam is also actively developing and implementing the ASEAN Single Window mechanism. The implementation of this process will benefit the business community, including logistics businesses such as reducing the time taken for administrative procedures and also cost reduction.

However, in order to develop logistics industry, the State should build and complete the legal framework, standardized service processes, upgrading infrastructure and human resources for the field of logistics.

Government should also take measures to guide and promote logistics companies to link together, formed the company with strong capabilities, able to compete with foreign companies.

With the above subjective and objective elements, Vietnam’s logistics industry still have great potential to develop and first of all, they will have conditions to advance to move towards to same level with foreign logistics businesses in the region.

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Is Apple About to Set-up Company in Vietnam?

In the August 2015 work plan of the Ho Chi Minh City People’s Committee, it has been recently revealed that a section to review the registration of a company named Apple Vietnam company limited. Is it the American multinational teconology company with its famous products i.e. Mac, Ipod, Iphone, Ipad, Apple watch…about to set-up company in Vietnam to promote and distribute its own products i.e. the upcoming Iphone 6s, and Iphone 6s plus?

According to the information from the official dealer of Apple in Vietnam, Apple has already had a representative in Vietnam and began contacting with agents in the country from early 2015. The current business activities of Apple with domestic partners are done through Apple Thailand. Therefore, Apple’s representative in Vietnam will help to smooth out this arrangement because of the better understanding the local market and no language barrier.

Although Apple has not had their representative office or official company in Vietnam but they have many authorized dealers to sell its products. Apple products like the iPhone 6 and iPhone 6 Plus have always led the top 10 selling phones in many domestic retail systems since its launching in late 2014. According to the statistic of IDC, in the first quarter of 2015, Apple ranked 2nd in value in the largest smart phone manufacturers in Vietnam; in the tablet market, Apple accounted for 16.6% of the market – ranked 2nd in the market – but accounted for 29.1%, the highest in terms of market value.

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Please click here to learn more about ANT Consulting or contact our lawyers and consultants in Vietnam for advice via email ant@antconsult.vn or call our office at +84 28 3520 2779

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