Real estate has potential but faces obstacles

Despite great volatility this year, the Vietnamese property market is still considered one of the most attractive in Asia, a seminar that ended in HCM City on Wednesday heard.

Delegates from more than 70 domestic and foreign property companies told the two-day seminar held jointly by the city's Foreign Affairs Department and the Singapore-based International Quality and Productivity Center that the market in Viet Nam has many advantages, one of them being the relentless rise in foreign direct investment.

FDI worth US$45.28 billion was committed in the first seven months, almost five times the figure for the same period last year. Of this, $21.4 billion, or 48 percent, was in the real estate sector. HCM City attracted the second-highest amount among all provinces and cities with US$7.9 billion, 90 percent of it in the property sector.

A new trend has emerged, with Vietnamese and foreign property companies either signing co-operation contracts or entering into joint ventures to develop projects, delegates said.

This has brought benefits to both sides - it eases Vietnamese companies' capital-related problems while foreign companies get easier access to projects.

Demand up

Do Thi Loan, secretary general of the HCM City Real Estate Association (HoREA), said Viet Nam's WTO entry has brought in more multinational companies seeking long-term investment opportunities.

"This has increased demand for industrial and office space, housing, shopping facilities, hotels, restaurants, resorts, hospitals, and international schools."

"It also means that the country needs more investment in infrastructure, " she said.

The Government has done its part by drafting policies to encourage the real estate market, she said.

They include a decree in May allowing foreign investors in real estate to lease their products for 50 and 70 years with free extension, and a National Assembly resolution in June allowing foreign organizations and individuals living in Viet Nam to own apartments.

Bradley Lalonde, general director of BIDV-Viet Nam Partners Investment Management (BVIM), said: "Viet Nam has achieved high economic growth for a sustained period of time. GDP growth exceeded 8 percent in 2005-2007, after five consecutive years of annual growth above 7 percent." Housing demand was very high, he said.

"Urban residents accounted for approximately 30 percent of the population in 2007 and will reach 40 percent in 2010. Over 13 million young people are at the family formation age. About 100 million sq.m of housing needs to be added in cities to reach the norm of 15sq. m. per person, which is the target by 2010."

"Highly leveraged developers will be in financial distress, which creates opportunities for foreign investors to acquire clean projects. Rising material costs will mostly affect local investors by causing construction delay, which may lead to a shortage of supply in the medium term," he said.

"The office and retail sectors will still have high occupancy rate (especially Grade A) in the medium term owing to the fast-growing economy and construction delays."

"Following the correction, the current land and apartment prices imply that the value-creation engine is still offering attractive valuations for real estate developers. More investment solutions have been developed or discussed in the market to invest in the real estate sector."

Hurdles

Many foreign investors told the meeting that though they find plenty of opportunities in the Vietnamese property market, they face lots of difficulties in availing them - such as lack of information and red tape.

Adam McCarty, an economist with the Mekong Economic Company, listed some of the advantages and disadvantages in investing in the real estate.

The country is developing and dynamic and so investors have opportunities to make plenty of profits. But they often have to spend more time on paperwork and procedures than in other countries.

To ensure the stable growth of the market, the Government has to usher in more drastic administrative reforms to create favourable conditions for investments in property projects, he said.

Truong Trong Nghia, president of the city's Investment and Trade Promotion Center, said that the country has a sound legal framework thanks to many hew laws and regulations, but was still seeking ideas to improve real estate companies, trading floors, and the tax regime.

But he too admitted there are still many problems like tortuous administrative procedures, lack of or conflicting regulations, high land prices, sluggish and bad planning, slow administrative reform, low public service spirit, and corruption.

HoREA's Loan said that the legal system had shortcomings while some regional and international practices were yet to be adopted.

"To solve the law-related difficulties, the Government plans to amend and supplement some Land Law provisions approved by the National Assembly in 2003 and a Government decree to guide implementation of the Law on Residential Housing," she said.

"Surely, the legal system will soon become clearer, making the real estate market even more attractive. "

The Ministry of Construction has drawn up a strategic development scheme for the real estate market, and plans to develop a Viet Nam Real Estate Market Index in Ha Noi and HCM City.

Source: Vietnam News