Vietnam Property

Ho Chi Minh City Vietnam

Vietnam’s property market was once one of Asia’s hottest.  But in recent years it has cooled and officials blame both speculation and banking practices for the constriction of the sector’s financial arteries.

Vietnam’s property market is the country’s most popular sector for foreign investment, according to online newspaper VietnemNet.  Data released by the National Finance Supervision Council showed $9bn of foreign money invested in Vietnam in 2011, and 52% of this found its way into the property sector.

However, Vietnam’s economy has not remained immune from the events of the outside world.  Low demand has resulted in weak liquidity, and high inventories continue to restrict economic activity by holding investors back from paying their debts.  Many businesses faced bankruptcy or closedown due to issues concerning high inventory and debt, and the industrial index declined markedly in 2011-12, falling 21% between January 2012 and January 2013.  Although Vietnam’s long-term outlook remains bright, with the country tipped by HSBC to become the world’s 41st largest economy by 2050, the immediate future is problematic.

As far back as August of 2012, Vietnam’s property sector experienced a crash one official compared to the 2007 crash in Thailand.  Hua Ngoc Thuan, chairman of the People’s Committee of Ho Chi Minh City, layed the blame at the feet of property speculators who he said had ‘pushed the prices so high.’

The bad debt issue is also a major worry for the Vietnamese economy as a whole.  Jonathan Pincus, an economist in Ho Chi Minh City, warned the Economist that the banking crisis ‘is going to constrain growth for a serious amount of time unless it’s dealt with.’

The seriousness of the bad debt problem in Vietnam is underlined by the State Bank of Vietnam’s upwardly-revised estimate of the bad debt in the country’s banking system, at 8.8%; that’s already the highest in South-East Asia, but the bank Standard Charter puts the figure at between 15% and 20%, perilously close to the 20% national credit cap and consequently posing the danger of paralysing the banking system.  After Dr Tran Du Lich of the National Financial and Monetary Policy Advisory Council used the phrase in 2012, the combination of bad debts, poor liquidity, inappropriate regulations and long-lasting large inventories is now commonly called Vietnam’s ‘blood clot.’

For foreign buyers Vietnam presents several unusual obstacles.  It’s impossible to own land there, it must be leased from the state, and the mortgage rate is 13%, set deliberately high to cool a roaring market and combat Asia’s steepest inflation rate.  Additionally, property purchases will usually be conducted not in dollars or in the Vietnamese Dong, but in gold.

With the difficulties mounted against them it might seem no wonder that foreign investors are less involved in the Vietnam property market than they were recently, but it’s unlikely to be the peculiar regulatory environment that has deterred them.  More probably it’s a property bubble that has just burst, with such overinventory that Nguyen Duy Lam, director of construction and real estate company Pacific Real, told the New York Times that ‘everyone wants to sell, but they can’t even if they lower the price.’

The State Bank of Vietnam (SBV) is trying to use injections of foreign capital to rescue banks it thinks worth saving while urging others to merge.  Some Japanese banks have taken an interest and the SBV has submitted a draft decree to allow foreign investors to take up to 30% interest in Vietnamese banks, up from the 20% limit at present.  Following a European lead, the Vietnamese government has also announced plans to set up a ‘bad bank’ to handle all the sector’s bad debts.

However it comes about the property market in Vietnam is not expected to recover without reform of the Vietnamese banking sector, and this will take time.

Photo credits: Marcel via Flickr

PetroVietnam-Hanoi-Tower-2nd-Tallest-building-Asia

Hanoi, the Vietnamese capital is to become home to the second largest tower in Asia, material proof of the growing economic prowess of Asia’s brightest emerging markets.

The design of Nikkei Sekkei, a Japanese architectural firm was chosen for the 102 storey, 528 meter tower to be built in the Me Tri commune in Hanoi’s outlying district of Tu Liem. The est. 1.2 billion dollar tower, financed by the Petro Vietnam Construction Joint Stock Corporation (PVC), the Vietnam National Oil and Gas Group, the Ocean Group and the real estate developer SSG Group, will comprise trade centres, offices for lease and apartments.

The tower is phase 2 of a massive complex being built by the corporation, with phase 1 comprising 3 150m hotel and apartment towers. Construction of phase 2 is due to start in 2011 and take 30 to 36 months to complete. When complete, the tower will be second only to the Burj Dubai Tower in the United Arab Emirates.

This is a big deal for Vietnam. As China and India become global economic superpowers, one would expect them to be coming out with towers like this, for Vietnam the structure will be a symbol of how far the nation has come, and something that all Vietnamese citizens can be proud of.

During the recent global construction and property market boom, Vietnam became known as one of the hottest emerging markets in the world. As the recession crossed from America to the UK and rumours of a global crisis began to emerged, Vietnam was talked about as one of the few markets with a chance of escaping recession.

Unfortunately it suffered a recession, but is thought to be rebounding strongly. The International Monetary Fund is forecasting growth of 6% this year, and 6.5% next year.

There is also undeniably a great deal of wealth in Vietnamese corporations like PVC, and developments like this will not only bolster economic growth, by providing jobs from the lowest level to the highest, but also by growing merchant companies who supply materials for its construction. We will be watching this development very closely and keeping our readers apprised of its progress.

Vietnam’s luxury property sector has been surprised by a rise in local Vietnamese buyers, filling the void left by the exodus of foreigners at the tail end of 2008.

Last year saw locals buy into the Hyatt Regency Residence and Ocean Villas in Danang or Sanctuary Ho Tram Resort in Ba Ria Vung Tau province where an apartment is priced at at least $180,000 and a villa up to $1.7 million.

Trung Hoa Nhan Chinh Residential in Hanoi
Trung Hoa Nhan Chinh Residential Towers in Ho Chi Minh City

Vietnam is facing yet another invasion, this time from foreigners armed with capital.

Local Vietnamese investors are currently experiencing difficulties obtaining finance from Vietnam based banks tightening their lending criteria. This has created “Golden opportunities” for foreign investors according Vietnam based news website VietNamNet Bridge.


Ha Noi, Viet Nam

A State Bank of Viet Nam official said, ” Ho Chi Minh City’s real estate market is accounting for around 35 trillion VND or 10 percent of the total loans offered by commercial banks operating in the city”.

Ho Huu Hanh is a director of the State Bank of Viet Nam’s Ho Chi Minh City branch. He also said that since early this year, despite the fact that commercial banks have raised their lending interest rates by 0.05-0.15 percent a month, they have also seen an increase in the number of clients queuing for loans to invest in the property market.

By the end of 2007, the An Binh Commercial Joint Stock Bank had lent property developers 1.2 trillion VND, which accounted for 20 percent of its total lending. The rate was also similar at Sacombank, Techcombank and ACB.

As Singapore’s property market begins to slow, many Singaporean property investors are beginning to cast their eyes over to Vietnam as the next likely boom market.


Ha Noi Opera House

Vietnam’s political issues seem to be well in the past now and the country has experienced steady, stable growth for the past few years. Recent statistics suggest demand heavily outstrips supply at present, as the Vietnamese standard of living is rising, whereas the property supply is low. Apartment and office rentals are experiencing an average of 95% occupancy, suggesting room for expansion.

CB Richard Ellis’ recent report states that Hanoi has only 4,934 hotel rooms rated at three to five stars, which is extremely low when compared to Bangkok at over 20,000.

Demand for property has increased dramatically in Vietnam since the government issued new laws that allow the lease of land for 70 years and then extensions without any payments. Thai developers are looking to bid for land plots in Vietnam for development. The Hanoi government’s issue of Decree 84 earlier this year brought Vietnam one step closer to opening up its real-estate market to foreign ownership, effectively leveling the playing field for international developers.

At the end of July we briefly mentioned Vietnam as an example of industrial development as an indicator to spotlight possible real estate opportunities, noting that the government were relaxing the rules on foreign direct investment in property to a limited extent. While there certainly seems to be a lot of opportunities in investing in Vietnho+chiam generally, the picture regarding real estate investment remains relatively obscure.

Vietnam has been liberalising it economic system since the mid 1980s when the government embarked on its programme of ‘renovation’. Growth in recent years has been rapid and compared to India, China or the Philippines there has been greater success in removing extreme poverty measured by the numbers of people living on less a dollar a day. However, investors need to remember that Vietnam is a one-party state and the country’s rulers seem to be taking a cautious attitude to opening property investment to foreigners, in the interests of maintaining their own ability to influence economic development.

Ho Chi Minh landscape
Ho Chi Minh City landscape [photo credits to waa on flickr]

Vietnam’s real estate market is picking up steam as the country moves towards admission into the World Trade Organisation (WTO), according to industry insiders.

The number of real estate transactions in the third quarter of the year increased 20% over the first six months of the year, and 25% over the same period last year. The trend indicates that the domestic real estate market is recovering from its long slump.

The prospect of a WTO safety net has inspired new waves of foreign investment in Vietnam, reviving the dormant property market.

“The news of Vietnam’s upcoming WTO membership has spread both at home and abroad,” said Tran Trong Hieu, director of the International Urban Development and Investment Co. “This has helped wipe out many foreign investors’ doubts about the country’s legal system.”

“Those of us involved in investment brokerage began to feel a higher comfort level from foreign
investors after Vietnam’s likely WTO accession was announced,” said Vu Quang Hien, director of the Property Management and Consulting Joint Stock Co (Citiplus).

As real estate investment requires large volumes of capital, investors want the government to ensure the security of their investments and protect their interests, Hien explained.

“When Vietnam joins the WTO, the country will have to abide by international rules that make investment safer,” he said.

Do Thi Loan, general secretary of the Ho Chi Minh City Real Estate Association, said that her association alone had received more than 20 delegations this year from such countries and territories as South Korea, the US, Australia, China, Singapore, Hong Kong and Taiwan.

Most were highly interested in real estate in Vietnam, particularly in major cities, said Loan, and many memoranda of understanding have been signed to develop office buildings, luxury apartments, shopping centres and housing for low-income earners.

Many foreign-invested real estate development projects that have been stalled for some years during the recent slump in the market have recovered on the new foreign investor confidence.

Nguyen Duc Kiet, deputy general director of Hong Kong´s Larkhall Group, said the group received an investment license from the Vietnamese Ministry of Planning and Investment (MPI) in 1997, and planned to set up a joint venture with a Vietnamese partner to build an office building in HCM City.
Following the 1997 Asian financial crisis, the project stalled and did not resume until 2005, Kiet said, at which time Larkhall became the sole investor.

“Investment in the project has grown from US$62 million in 1997 to US$125 million at present,” he said. “The scheduled completion date is now in 2008.” Truong Ngoc Dieu, administrative director of the Happy Square project of Taiwan’s Fei Yeul Group, said the group was licensed by the MPI to set up a joint venture with a Vietnamese company in 1995 to build a $468 million complex which would have included an office building, a hotel and a shopping centre, but the project was postponed.

Development resumed in mid-2006 solely under the Fei Yeul Group without the participation of domestic partners.

Many new projects were also being developed, including the Gold Sai Gon Plaza, a joint venture with a Taiwanese company, and Sai Gon Sport City, fully funded by Singapore’s Keppel Lang. The Phu My Hung joint venture also planned a $16 million project to build an additional million square metres of apartments by 2010.

Real estate market experts believed that demand for office and apartment space would mushroom following WTO accession.

“We have received many investors from Tokyo, Singapore and Malaysia who have come to us expressing their desire to invest in Ho Chi Minh City property,” said MarcTownsend, CB Richard Ellis (CBRE) managing director.

Retail shopping centres have also attracted the attention of many investors, said Richard Leech, director of CBRE’s Hanoi office. Many new retail centres such as Hon Ngoc Viet in Nha Trang, the Opera in Hanoi and Hum Ho-Sai Gon in Ho Chi Minh City were under construction, he noted.

Market experts said that land suitable for the construction of large projects has become rare, creating opportunities for some domestic investors to sell or lease land use rights initially obtained for now-failed projects. Sensing the demand, the Asian Commercial Bank’s real estate company last week opened a property transaction floor in Ho Chi Minh City.

Source: Asia Property Report

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