VIETNAM FDI REAL ESTATE REPORT – STREAMLINING EFFICIENCY PART 1
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| FDI in real estate |
Southeast Asia is a region that is encountering solid
growth with little road blocks in terms of political instability which has
gripped northern Asian economies in recent months. This is manifesting in
blanket risk considerations for new capital projects across the potentially
imperiled region. One economy in particular is what some call the new China. I
am of course talking about Vietnam. As per Xinhua, Vietnam is currently leading Southeast Asia this year in real GDP,
with an expected GDP post of 6.8 percent for the year of 2017.
Despite fast paced growth, rapid privatization of
state-owned enterprises, and swift reforms to investment laws under the
pro-business and investment focused PM Nguyen Xuan Phuc, Vietnam’s economy
continues to present a unique market situation with specific opportunities and
challenges.
One such issue lies in Vietnam’s legal framework
surrounding real estate. Legacy structures in the country’s regulations can at
times present an investment bottle neck- for example, only US$1.15bn in FDI registered real estate investment capital mobilized
in the first half of 2017 in Vietnam. This is not because of
the lack of real estate opportunities - quite the contrary.
However, the current pathways for investment and
development in Vietnam are time consuming- so much so to the point that the
Vietnam government during recent meetings has definitively identified the need to streamline investment processes in
order to facilitate greater investment flows into suitable projects in the
country.
This revamping of the investment laws is being done in
order to achieve targets of not only standalone real estate projects, but also
of integrated townships such as from VSIP as well as entire
new additions to Ho Chi Minh City. For example, the now-widely promoted
flagship Thu Thiem Urban Area project, slated to replace Ho Chi Minh City’s
District 1 as the new downtown area of the city, has a total investment target
of roughly US$50 billion in total, which is approximately a whopping 25 percent
of the country’s GDP (albeit to be registered and disbursed over a number of
years in order to realize the scale of this critical national project).
Further coverage and details are available from our early investor alert back
in 2015. This is particularly crucial for the coming infrastructure
investment boom, in which Vietnam’s infrastructure investments will exceed
those of neighboring countries, while also requiring a heavy proportion of FDI investment into these
projects.
A surge in tourism has also been very supportive of
Vietnam real estate projects, particularly ones that are poised to benefit from
such a surge in tourism. During the first four months of 2017, tourism arrivals spiked over 30 percent from last year,
making Vietnam Southeast Asia’s fastest growing tourism destination. Airlines,
airports, and the government are all making preparations to increase this
number further to expand Vietnam’s tourism potential to the fullest. And in
Danang, the “Las Vegas” of Vietnam is starting development, with the flagship
project Cocobay Danang leading the initiative to transform the city into the
entertainment hub of the country.
Indebted consumer or public debt in a market typically
does its part to take the sheen off an otherwise glossy market, and we
certainly see this in developed OECD markets with high debt levels weighing
down on future gains. However, in Vietnam’s case, the debt situation is quite
sustainable and is not at levels that would trigger a slow down in the capital
markets or the real estate markets as a whole.
Vietnam’s household debt stands at just 20 percent GDP at the end of
2016, while regional peers such as Malaysia and Thailand have clocked in about
80 percent of GDP, which has acted as a brake pad for the growth of
various sectors in the Thai and Malaysian economy respectively. While Vietnam
as a whole was thrown a bit off-kilter from the US withdrawal of the TPP upon
Donald Trump’s selection, Vietnam has a whole gotten back on their feet and
maintains the target of 6.8 percent GDP for 2017. This is a comparatively far
better situation than not only Southeast Asian peers, but also from China
grappling with its own debt issues.
With neighboring China’s fixed capital investment at
nearly 90 percent of GDP, the search is on for unsaturated markets with plenty
of room for growth such as Vietnam. Public debt to GDP as well as the
investment component to GDP are currently at sustainable levels. We are
currently seeing this search for Chinese investor yield abroad in the form of a higher proportion of total sales coming from China, as well as
our observation of increased Korean investment in real estate projects in
Vietnam in general. Furthermore, consensus agrees that Vietnam real estate is a
safe bet for the foreseeable future. Jones Lang LaSalle forecasts 8 to 10 percent annual growth in residential
values in the country’s major cities this year. This consensus
indicates a solid trajectory for the 2017-2018 period and the foreseeable
future. The nation, however, does have a debt banking issue, which is a
double-edged sword that leads us to the next point, which in coordination with
Dezan Shira we will release Part 2 shortly.
"Source: Vietnam-briefing.com"
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