Foreign Capital Keeps Flowing into Vietnam Real Estate

 

According to the latest report from the Foreign Investment Agency (FIA) under the Ministry of Panning and Investment, Vietnam attracted nearly US$21 billion of FDI capital, both from fresh projects and added capital from existing projects, in the first 11 months of 2013, up over 54 percent year on year.

 

Notably, the real estate sector ranked third in FDI attraction value in the reporting period. Particularly, 20 new projects were licensed and 10 existing projects were permitted to raise their investment scale, totalling US$884 million.

 

According to foreign investors, the huge potentiality of Vietnam's real estate market is greatly attractive to foreign investors because it possesses certain advantages relative to other countries in the region like very high housing demand, young population, stable economic growth, and slow urbanisation speed.

 

Besides, the Government is making an effort to boost the economy with business support policies, including corporate income tax reduction, short-term deposit rate cut, 50-percent cut in VAT on commercial housing deals with an individual floor of less than 70 square metres and a selling price of VND15 million per square metres, and a social housing support package worth VND30 trillion.

 

However, according to real estate consulting firms, Vietnam's real estate market still poses a plenty of barriers to foreign investors like a 2 percent tax on transfer deals, one-time land-use money collection (in big value).

 

One of the biggest barriers to foreign capital flows is the poor transparency of Vietnamese real estate market and if other market issues such as valuation and investment and cooperation mechanism are not resolved, the Vietnamese real estate will drop investment from foreign investors.

 

In early 2013, Warburg Pincus LLC, the private-equity owner of Neiman Marcus Group Inc, surprised the Vietnamese market when it announced to invest US$200 million in Vingroup's new retail model. Soon after that deal, EXS Capital, an independent investment firm dedicated to the Asia Pacific based in Japan, announced its first investment of US$37 million into domestic real estate firm Son Kim Land.

 

Then, the Vietnamese real estate market saw more remarkable deals. South Korea's Lotte Hotels & Resorts acquired Legend Hotel Saigon for more than US$62 million. Singapore's Mapletree bought Centre Point Office Building for more than US$52 million. South Korea's CJ Group signed a memorandum of understanding on the acquisition of Gemadept Office Building for US$45 million.

 

Recently, Tokyu Corporation invested US$1.2 billion in Tokyu Binh Duong Township project in Binh Duong province. Israel's ALMA Group surprised the market when it announced to invest more than US$300 million to build Bai Rong Resort in Cam Ranh Peninsula, Khanh Hoa province.

 

Most recently, South Korea's Daewoo E&C Corporation and Korean Development Bank (KDB) pledged to pump US$200 million into a super property project in Tay Ho District called Starlake. This funding is an important step for the Starlake project, particularly in the context of lacklustre property market of Vietnam.

 

The Vietnamese property market will continue to catch foreign capital in the coming time. Adam Bury, Deputy Director of Capital Market Division of the CBRE Vietnam, said "Currently, many big investors are seeking returning opportunities in the real estate market. The Vietnamese real estate market is forecast to receive a great deal of new investors."