Vietnam Real Estate in Whirlpool of U.S.-China Trade War

10:31:25 AM | 10/25/2019

U.S.-China trade war escalation deeply affects not only the two prime actors, but also has strong impacts on the world economy. Vietnam has strong trade and investment relations with both countries and is advancing deep integration into the world economy. Therefore, there will be strong economic interrelation. In particular, real estate, considered the foundation of many other economic sectors, will also suffer certain effects.

Industrial property before redirected investment wave

According to economic experts, in the context of globalization, the U.S.-China trade war will bring many opportunities to Vietnam's real estate market as capital flows from many countries, including the U.S. and China, will flow more into Vietnam in the coming time. Meanwhile, Vietnam’s securities market has been better than its peers in the past years. So, when investors decide to redirect their investment flows, they will choose Vietnam’s stock market for their portfolio investment. A significant part of portfolio investment is channeled into real estate businesses.

Jones Lang LaSalle (JLL) Vietnam recently released a report on Vietnam property market development amidst the escalating U.S.-China trade war and pointed out three popular strategies for investors in this market. Over the past 20 years, Vietnam has gradually become an industrial bright spot in Southeast Asia, from a market with only 335 ha of land dedicated to industrial production in 1986 to a market with more than 80,000 ha for this purpose in 2018. The spectacular growth and the signing of free trade agreements have contributed to creating a favorable business environment for investors.

This unit also said that the recent U.S.-China trade tensions caused experts to believe that Vietnam will benefit because manufacturers will shift their supply chains from China to Southeast Asian countries with lower costs and abundant labor resources.

According to the Ministry of Planning and Investment, in the first half of 2019, the industry received 1,723 newly registered foreign direct investment (FDI) projects with a total registered fund of US$7.41 billion. This capital source mainly comes from Hong Kong, South Korea and Japan, and adds new vitality to Vietnam's industrial property market.

In particular, the northern industrial property is most vulnerable to the trade war because of its proximity to China, which is convenient for factory relocation. Some northern provinces such as Hai Phong, Quang Ninh and Bac Ninh have become destinations for relocated investment flows. This wave will result in higher housing demands of businesspeople. Hence, not only industrial property is benefited from the trade war but the demand for large-scale housing projects will also increase in the coming time and this will become a key product of the market.

In the south, Warburg Pincus LLC, an American private equity firm, and Becamex IDC, an industrial real estate developer based in Binh Duong province, launched a joint venture BW Industrial Development Joint Stock Company. With over 200 ha of ongoing projects, BW Industrial is currently the largest developer of industrial leasing and logistics services in Vietnam. Singaporean investor Boustead is developing ready-built factories and demand-built factories in Nhon Trach, Dong Nai.

A representative from the Handicraft and Wood Industry Association of Ho Chi Minh City (Hawa) said that the redirected production investment trend from countries to Vietnam will first heat up industrial real estate. In the past year, industrial property prices have risen sharply and affected other manufacturing industries, including wood industry, which often uses large production ground.

Opportunities and challenges of other segments

The U.S.-China trade war seems to escalate, not only fueling their tensions but also destabilizing the world economy. Mr. Tran Dinh Thien, former Director of the Vietnam Institute of Economics, said sinking into the war will send China to a dilemma. Meanwhile, tourist arrivals to Vietnam will tend to decrease as Chinese visitors accounted for one third of nearly 15.5 million international visitors to Vietnam in 2018, according to the Vietnam National Administration of Tourism (VNAT). A significant income from Vietnam’s tourism and tourism property from this neighbor will be greatly affected.

Mr. Nguyen Tri Hieu, a banking and finance expert, said that the U.S.-China trade war will push the world into a crisis, thus affecting luxury products such as vacation property. In recent years, the foreign investment wave into vacation property in Vietnam has mainly come from strong Asian economies such as China, South Korea and Japan, so this trade war may be causing tourism and vacation property to affect tourist sources and capital flows to a certain extent.

Some other investors believe that the market will see a redistribution, not only growing vigorously in Hanoi and Ho Chi Minh City but also spreading to satellite cities and surrounding areas. Housing property and upmarket segment for foreign customers, midmarket segment for office workers, cheap for workers and down-market segment for migrant workers will be invested more strongly.

However, investors also recognize that the market is facing a huge challenge due to rising land prices. This reality makes supply development more difficult and riskier. Therefore, taking advantage of opportunities and selecting lawful projects is obviously the optimal method for investors.

With the above-mentioned trade diversion trends, not only residential real estate products but also industrial property such as industrial parks, logistics, infrastructure and offices also have development opportunities.

Luong Tuan