Along with positive signs on the stock market, the real estate market also seems about to prosper. Besides the return of the domestic investors, the investment plans of foreign investors are bringing a new vitality to the real estate market in Vietnam. Vietnam Business Forum had an interview with Timothy Horton, General Manager of the Cushman & Wakefield about this issue. Luong Tuan reports.
Industrial zones will be a high potential segment
What do you think about the prospects of the real estate market of Vietnam from the present to the end of the year? What segment will prosper and attract investors in the near future? What segment will recover soon?
At the first half of 2014, the market had many positive reactions because market confidence gradually recovered and the government has enacted many supporting policies for the real estate market. The number of investors who show interest in the real estate market of Vietnam has increased markedly. Many investors are looking for office buildings to rent or acquire buildings for investment. Besides, industrial zones are a strong segment of real estate. Last year, Japanese investors have made intensive investment in industrial zones, developed factories and manufactured high technical content products. Thanks to these contributions, Vietnam's economy has better conditions for development.
I recognize two current favourable trends of the real estate market in Vietnam. First, China is currently a world of factories. Recently, due to the increase of the real estate prices and labour costs in China, many manufacturers desire to move their factories to other markets like Vietnam. In Vietnam, the property prices and labour costs are cheaper. Second, many investors from Korea and Japan have been active investors in Vietnam for many years. In the recent 12 months, both South Korea and Japan have taken steps to recover the economy. Because of this, the conditions and opportunities for investors from both countries are increasing.
Again, I think that the residential segment, namely luxury apartments and affordable apartments, will recover. Two segments are prospering and will continue to be better in the future. One other segment, real estate located in the central areas of Ho Chi Minh City and Hanoi, will be the first priority for foreign investors.
As you said, Vietnam is now attracting the interest of Japanese investors. However, many raise concerns that the amount of investment in the industrial zones started to slow down. What do you think about this?
In fact, in the industrial market, I have not seen the downward trend of investment and investors are approaching and taking solid steps to review the investment processes. To explain this trend, the first reason comes from the recirculation of investment flows from China to Vietnam. The second reason is the Japanese investors are investing in only a certain sector but also infrastructure system of that sector.
Vietnam has a young population with skilled workers. With this main advantage, Vietnam has attracted many investors. One of the highlighted projects is Vietnam-Singapore Industrial Park (VSIP) I and II, in which land rents have increased far more than twice of US$150 per square metre, while the rents by region 5 years ago only range from US$70 to US$80 per square metre. Strengths of the VSIP project is that they improve the quality of investment in infrastructure such as bridges, roads, railways and aviation. Here, the quality of all industrial zone infrastructure is being enhanced to attract investors in general and Japanese investors, which account for the majority of the number of foreign investors to Vietnam.
What shortcomings in the industry should the investors consider?
Besides the above advantages, many industrial zones still have shortcomings in management. Management plays an important role in the process of building and developing the industrial zone there. VSIP is a good example of successful management of industrial zones. However, in some cases, the major industrial zones are managed by those who have less management experience, which negatively impacts the whole process of industrial operation.
Many positive signs of recovery
Currently, the Vietnamese market is experiencing many mergers and acquisitions. What do you think about this trend?
This is a positive sign, indicating the market has evolved to sophisticated levels and more rules. After the M&A activity, market reflects the actual relationship of supply and demand, helping shorten the gap between supply and demand in the market. In my opinion, the M&A activities contribute to addressing the backlog projects which have been left at only 30-50 percent complete, and help with funding on-going projects. The completion of this project naturally is a positive signal for the market.
Currently, in Ho Chi Minh City, office space is in high demand. After the merger and acquisitions, many office leasing projects are being converted into housing projects. Will this cause a supply shortage in the office leasing projects?
This depends much on either office or public housing segments. Since 2010, in the real estate market, there has been a tendency the office building projects with limited areas of less than 10,000 m2 are converted to the housing projects because the demands for housing is higher than the demands for office leasing. The facts show that there is still less demand than supply for the office segment in in Ho Chi Minh City. Currently, this market still has enough supply to meet the office leasing demand in the future. From now until the end of the year, there will not be any new office projects, but from early 2015 onwards, the market for office leasing will welcome many new projects, which meet the demand for the office tenants.
After the first quarter, what advice will you give for the foreign companies that are investing in real estate in Vietnam?
For other areas such as securities, the investors will have short and medium-term vision. However, for the real estate, the vision should be long-term so investors should not buy to resell the property quickly, like stocks and bonds. The vision for real estate investment usually ranges between 5 to 10 years. Therefore, investors will not change their investment strategies on a quarterly basis. In the recent two quarters of the year, the economic situation and the real estate are now developing sharply; and more importantly, it will bring a positive trend for the economy. Therefore, I believe that the confidence of investors is returning; I do not see any change in their investment strategy, but positive signs are returning.
My advice for investors is that they should learn more about market in terms of both microeconomics and macroeconomics. In terms of macroeconomics, the investors should consider the overall economy, government policy, stability of the exchange rate and profitability of the project. In terms of microeconomics, the investors should look at the projects more specifically, assessing the reliability of the local partners as well as the profitability of the projects in a long term. In addition, the investors should consider the investment plans to withdraw from the project not as effective as originally planned. All real estate investors should have back-up plans to decide whether they should terminate their investment and withdraw from the market. Because the real estate cycle lasts for the long term, the decision on how to withdraw or issue the stocks requires a thorough plan.
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