Who dares wins in property

VNRE - In the current economic situation new foreign investors hoping to invest in Vietnam are cautious about entering the fray, but those who are already here and savvy with the local market are not afraid to expand.

Unlike in 2008 and 2009 when multiple foreign investors flocked to Vietnam and poured tens of billions of dollars into real estate projects, this year is witnessing a contrary trend. Foreign investors are now sizing up the market from a cautious distance.

By the end of October 2010, foreign investors had committed to develop only 19 new real estate projects in Vietnam, capitalised at $2.7 billion, compared with 182 projects registered by the same period last year, according to the Foreign Investment Agency, under the Ministry of Planning and Investment.

The modest number of newly registered projects this year reflects foreign investors caginess regarding investments in Vietnam.

Peter Dinning, general director at real estate consultants Colliers International Vietnam, said it was not just the availability of financing, which is the major issue here.

“While Vietnam is rebounding quickly compared to other countries around the world, it takes time for new investors to analyse and study the local market,” he said.

Weighing down the market

Though Vietnam is one of the few countries that continued to grow strongly despite the global economic downturn, the property market has been dampened by other factors, such as the constant high deficit to gross domestic product level, inflationary pressures leading to high interest rates and an unstable exchange rate. The cyclical property market has also been sluggish compared to previous years.

Alex Loh, chief representative in Vietnam of Malaysia’s leading property developer SP Setia, said the market was going through a “not exciting” phase of the property cycle “with sentiment being flattish to slightly on the down side”

“In general, both the macro and micro environments, here in Vietnam are not particularly conductive to commit into real estate investments,” he said.

Many foreign real estate investors, who announced plans to invest in Vietnam one or two years ago, are now stalling. Taiwan’s Foxconn, the electronic outsourcing manufacturer, is also delaying its property projects in Bac Ninh province, Bac Giang province and Haiphong city, which were unveiled in 2007.

Investors biding time

This atmosphere of caution has affected foreign investors, who have gained license for developing projects, too. Malaysian Berjaya Corporation, for example, gained licenses for developing a $3 billion international university and township project and a $930 financial tower in Ho Chi Minh City in 2008, but construction has yet to start on either project.

Nguyen Hoai Nam, chairman of Berjaya in Vietnam, said the investor was not in financial trouble and explained that the projects’ construction plan was based on the recovery of local property market.

He said the construction of the financial tower project could start in July 2011, while the international university and township project is undergoing site clearance.

Like Berjaya, other investors such as US-based Galileo Investment Group, which registered to invest $1.6 billion into the Creative City project in Phu Yen province in Central Vietnam and Winvest LLC, which is planning a $4.1 billion tourism property project in Ba Ria-Vung Tau on the southern coast, have also delayed construction.

A shift away from property

Phan Huu Thang, director of the Foreign Investment Research Institute at National Economic University, and also formerly employed by the Foreign Investment Agency, said property was not the most attractive sector to foreign investors this year. He said investors were cautious about making investment decisions as well as pushing development of registered projects as they faced difficulties mobilising funds from international and domestic markets.

But while new foreign investors are waiting outside for clear business opportunities, those who are already in Vietnam for a long time keeps on expanding their investments. CapitaLand has announced plan to double total investment capital in Vietnam to $2.5 billion from $1.2 billion, raising CapitaLand’s current assets in Vietnam from 1 per cent of the group’s total assets to 10 per cent within five years by focusing on building affordable housing, serviced apartments and shopping malls.

Chen Lian Pang, chief executive of Southeast Asia for CapitaLand, said his group remained confident of the outlook in Vietnam underpinned by the country’s strong economic growth and pro-growth regulatory environment - rapid urbanisation and a huge, young population were also encouraging factors. SP Setia this year also strengthened its presence in Vietnam by launching a 10 hectare project called Eco Xuan in southern Binh Duong province.

Old hands in Vietnam

All of these investors have been present in Vietnam for a long time, relatively speaking. While CapitaLand and Kepple Land have been in Vietnam for about 15 years, SP Setia entered the market in 2007 after signing a joint venture with the local firm Becamex IDC Corporation to develop EcoLakes township in Binh Duong province, about 60 kilometres from Ho Chi Minh City.

According to Colliers International Vietnam’s Peter Dinning, for those investors who are already in Vietnam it was easier to expand a business as they had firsthand knowledge of the market place and knew what was happening.

“As a result they are able to make quicker decisions and have the teams in place already to fast track additional investments. Those developers from overseas without a presence here in Vietnam find it difficult to understand the market and are still cautious and as a result slower to react to changes which may result in projects being more profitable than before,” he said.

Loh said seeking out sites to develop a project in Vietnam was a major challenge for new investors entering the market, for a combination of reasons, ranging from status of clearance and compensation to the nature of land ownership or the pricing structure for land.

But while new foreign investors face difficulties in finding a good location for developing a project, the developers already in Vietnam found their own way. Instead of developing real estate projects by themselves, CapitaLand and Kepple Land joined hands with Vietnamese partners to establish joint ventures for investments.

In October, while CapitaLand joined forces with domestic firm Nova Land, Kepple Land entered into joint venture agreements with local developers including Tien Phuoc Company and Hung Phu Real Estate Corporation to develop two prime sites in Ho Chi Minh City.

“We have been working successfully with local reputable partners on all our projects in Vietnam. Local partners add a great deal of value to the joint venture companies and the projects as they are familiar with the local culture, local requirements and business environment. Together with our strategic local partners, we aim to contribute towards the country’s growth through transfers of knowledge and expertise,” said Chen.

Reported by Ngoc Linh | VIR