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ECONOMYREAL ESTATE

Why is Vietnam's real estate a magnet for international investors? (P.2)

Updated at Monday, 14 Jan 2019, 06:12
The Hanoitimes - Geographic advantages are among factors proving that Vietnam is one of the world’s promising lands for global investors.
Geographic advantages
 
A beach in Phu Quoc island. File photo
A beach in Phu Quoc island. File photo
Over the past years, foreign capital inflows have been reportedly increasing in different parts across Vietnam like the capital city of Hanoi, the northern coastal city of Haiphong, the northern province of Quang Ninh, which is home to the world’s natural heritage Ha Long Bay, the northern province of Bac Ninh, which is home to a Samsung complex and hundreds of its Korean vendors, and Japanese Canon. 

The central region becomes attractive destination with the world’s famous beaches of Nha Trang, Phan Thiet, and Danang. Dozens of big domestic and overseas investors namely Vingroup, Sun Group, and French multinational hospitality company Accor have poured money into the aforementioned localities.

In a latest move, Prime Minister Nguyen Xuan Phuc has agreed to double investment in Phan Thiet airport to VND10 trillion (US$435 million) following the approval of the master plan on the national tourism site of Mui Ne. After the investment, Phan Thiet will become one of three biggest airport in the central region and expected to be the leading destination in the Asia-Pacific by 2025. 

 
Part of InterContinental Danang. Photo: IHG
Part of InterContinental Danang. Photo: IHG
Notably, Danang, with the operations of one of the world’s most luxury resort InterContinental Danang Sun Peninsula Resort which is always offering stay for top leaders of the Asia-Pacific Economic Cooperation (APEC), has witnessed a great deal of international property investors over the past years. 

The southern region offers a series of localities, such as the country’s economic metropolis of Ho Chi Minh City, Can Tho – the economic, socio and cultural hub in the Southwestern, Long An and Dong Nai – both destinations for foreign-invested industrial parks, especially Binh Duong – one of Vietnam’s most dynamic localities with the presence of foreign giant corporations thanks to its improved investment environment, and Phu Quoc – listed among the globe’s best islands and well-known for its pristine beaches, verdant mountain ranges and spectacular waterfalls. 

Obviously, favorable policies and a wide range of investment profiles including hospitality and industrial real estate, Vietnam has proved to be one of the world’s promising lands for global investors. 

Supporting factors 

Vietnam’s real estate market is strongly supported by the fast growth of middle-class population, the increasing number of international visitors to Vietnam, and high profit margins.  

Statistics by Nielsen showed that Vietnam’s middle-class population might reach 44 million by 2020. This populous class would result in rising demand for housing in the years ahead, according to General Director Phan Cong Chanh of Phu Vinh Group. 

The number of foreign visitors to Vietnam grows 20% on average annually, reaching roughly 15.5 million in 2018. 

Following the growth of tourism, several international airlines have boosted its presence in Vietnam as the Southeast Asian country’s aviation industry is the world’s top five fastest-growing markets by the International Air Transport Association (IATA). Remarkably, Vietnam is the fastest-growing aviation market in terms of passengers in the 2016-2040 period, according to the Airports Council International (ACI). 

Thanks to Vietnamese regulations that allow citizens to buy and own houses, the country’s real estate market becomes more attractive than in regional countries. In addition, the property prices in Vietnam are lower than the rates in other countries. As a result, the return on sales (ROS) varies among 15% and 20% and more real estate investement trusts (REITs) see the opportunities in this market as stated by Ngo Quang Phuc, general director of Phu Dong Group. 

Su Ngoc Khuong, direcor of Investment Department at Savills Vietnam, said that the government’s open policies on FDI, political stability, and strong economic growth are the grounds for rising foreign investment in the real estate sector. 

Results 

 
Illustrative photo
Illustrative photo
Vietnam saw increasing merger and acquisition (M&A) deals in the real estate sector over the past years. In 2017, the M&A value in this sector was about US$2 billion. 

Dang Xuan Minh, general director of AVM Vietnam and Vietnam M&A Forum, attributed the M&A deals to the determined privatization of state-owned enterprises, the rise of domestic property developers, and a resolution on bad debt settlement. 

Nguyen Thi Van Khanh, director of Investment Department at JLL, bets on a strong M&A movement in the real estate market from foreign investors, mostly those from Japan, South Korea, Singapore, Hong Kong, and Malaysia in the time ahead.  

 
FDI into Vietnam and regional countries. Photo: UNCTAD, HSBC
FDI into Vietnam and regional countries. Photo: UNCTAD, HSBC
In 2018, fforeign direct investment (FDI) into Vietnam’s real estate sector hit US$6.6 billion, accounting for 18.6% of the total foreign investment, according to the Ministry of Planning and Investment. Investment has been channeled to all five major property types namely office, retail, industrial, residential, and hospitality.  
 
FDI into real estate sector in Vietnam in 2017. Photo: MPI
FDI into real estate sector in Vietnam in 2017. Photo: MPI

2018 marked a 10-year period since the downturn of the real estate market and nearly 5 years of market recovery. Given the monetary policies are expected to stay neutral-to-accommodative to support growth when FDI inflows are poised to channeled into the real estate market in Vietnam, the real estate market is expected to continue stabilizing and growing. M&A activities and other forms of direct investment will continue to reach new records, according to JLL. 
Linh Pham
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