Photo: Viet Tuan
VET sought the opinions of real estate experts about FDI in the sector.
- Greater demand for retail real estate
- Japanese investors keen on real estate
- Real estate receives 10% of FDI
The foreign investment wave into Vietnam, particularly in the last year, is testament to the potential of the country in general and its real estate industry specifically into the foreseeable future. Key players that are unlocking this potential are primarily from the local region, with South Korea and Japan accounting for nearly half of total FDI in 2017, with investments from Japan, South Korea, and Singapore reaching $35.6 billion; the highest since 2009.
International sentiment towards Vietnam seems to be warming, in part due to its emerging economy and in part due to the relaxation of government legislation towards foreign investment into the real estate sector. There has been growth in strategic partnerships between foreign (and locally-partnered) developers and local governments for projects of this nature nationwide, and therefore we predict that this recent wave of foreign investment is just the beginning.
Evidence shows that the government is in fact continuing to incentivize FDI through legal changes. It is recommended, however, that this is implemented diligently in order to maintain stability.
Overall we predict a prosperous real estate market in the forthcoming years, particularly from the international community.
We are seeing continued sustained interest from foreign investor groups looking to place capital into the market as they seek to drive returns from our relatively high yielding real estate. Institutional capital has made its mark in the listed and unlisted domain. When these large players come into the market, they do so with long investment horizons, expressing confidence in the fundamentals of Vietnam having made calculated bets on our continued growth and expansion.
The local market will continue to expand, driven primarily by Vietnam’s well-told demographic story. The purchasing power of the middle class is increasing, as is wage growth and job stability. Retail loans are on the increase as banks look to lend more to buyers, which all leads to a positive outlook for the affordable and lower mid-end sector.
It can be argued that capital markets act as an indicator of pressures to come for the real estate market. The market needs greater transparency on land title, ownership, pricing and taxation. The government would do well to legislate and codify the process for the renewal of land title held before or as it tenure reduces below 20 years and it would also do well to complete its review of land transfer pricing, which we hope will be completed this year.
I think demand for real estate in Ho Chi Minh City will continue in 2018. District 2, where our Waterina Suites project is located, is being developed and made more convenient, so the potential of our project remains high. One of the positive signs is improvements in infrastructure. There are, however, also some negative signs for the rapid growth of the real estate industry. The government requires banks reconsider financing to real estate projects by conducting deep screening. This will be a hindrance in the real estate industry. Vietnam’s high-end real estate market will have the main role in the industry, because people chase quality of life with convenience. We can learn the lessons from the process of development elsewhere in Asia.
The possibility of a bubble in Vietnam’s economy is not serious but does already exist. Although many investors tend to believe that economic growth will simply continue without easing, a recession is surely part of the economic cycle. Vietnam needs more developments to reach semi-developed country status, by utilizing foreign investment, so any bursting bubble will not happen in the near future.
I recommend the State set a one-stop service point for FDI, to smooth the completion of procedures. It takes a lot of time to obtain permission from the government, to which we must submit many types of applications to different departments. This makes many foreign companies hesitate before investing.
A good macroeconomy has supported positive domestic growth in Vietnam and FDI continues to be strong. It’s been a very healthy start to 2018 with solid performances across all asset classes. We’re now moving to the next part of the cycle, with lower entry-level investors actively engaging in residential markets. With primary residential stock being low, recent apartment launches have quickly filled their foreigner allocations.
Challenges remain, such as the lack of liquidity and the opaqueness of the market. Greater transparency and better overall health in the market are key variables. Continued reform to the legal system so that domestic and foreign investors have confidence and protection is critical. The continued drive to good governance through effective business and anti-corruption measures promotes international interest.
Vietnam is well positioned to leapfrog traditional markets through fintech platforms that could have great benefits for property markets. Without legacy systems and with a young, savvy and ambitious startup culture, the opportunities to embrace technological advancements are many. The government has a raft of initiatives, decrees, and circulars to support this, but the competition from regional peers is immense.
- real estate