Michael Piro, COO of Indochina Capital.
How do you see the real estate market in Vietnam shaping up as of late?
Overall, the market is in fairly good health, considering it has had a relatively strong run. We have seen most sectors grow, especially with strong demand in the apartment market. Apart from that, we have seen the hospitality and retail segments maintain their relatively good performance over the last few quarters.
The market is in much better shape compared to 10-12 years ago, when times were difficult for developers. Now, we see more stable growth in the market based on a fundamentally strong economy, growing foreign direct investment (FDI), inflation that is seemingly under control, and a relatively stable currency. Vietnam is one of the fastest-rising economies in the whole world, and many foreigners have either already picked up on that fact or have begun to. The market is full of potential and I am really interested in finding out where it can go.
What have been the most positive trends in the market so far this year?
It has to be the dominance of local developers, which has really impressed me. Domestic developers have been growing very quickly, increasing the standard of their developments, as well as their professionalism. Their ability to execute projects has also risen very quickly. I would love to see this trend continue, as everyone profits when Vietnamese companies dominate the market, as long as land is not wasted on developments of lesser quality.
Something else that has really impressed me is the strong foreign demand for apartments and other residential products. Back when I was selling units at the Hyatt Regency, selling to foreigners was not an easy task, but things have since been made simpler. We have a brokerage agency, Indochina Properties, which focuses on selling upscale residential products. For every one property we sell to a Vietnamese buyer, three are sold to foreigners.
As you can see, foreign demand, at least in the high-end residential market, is growing incredibly fast and I think the Vietnamese government has made a very smart decision in permitting foreigners to own up to 30 per cent of units in a residential development. It is a great opportunity for both overseas buyers and developers, as well as a great opportunity for consultants and brokerage firms like us. These facts bode very well for the future of Vietnam’s real estate market.
What segments could potentially see the most growth in the future?
We have seen more demand in the logistics sector this year, especially in traditional and model shopping retailers, as e-commerce continues to grow rapidly in Vietnam. Another segment which will see very strong development is logistics services and businesses, and cold storage transportation systems, but these sectors can only grow as fast as the country’s infrastructure will allow them to.
Additionally, overall demand continues to grow the hospitality segment, though it is hard to say if it is keeping up with the supply. We are excited to see a lot of domestic developers who are actively getting involved in hospitality. Namely, I would like to commend BIM Group who have consistently developed resorts and hotels of the highest quality.
Of course, fast development also comes with its disadvantages. There will be both winners and losers in this game and we really need to start a focus on the sustainability of tourism development. Developers who continue to push out products of lower quality will start to realise where they went wrong.
We can use the condotel market as an example. In our estimation, around 50 per cent of upcoming products – about 25,000 rooms – coming to the market are condotels. There will be an oversupply of this type of residential unit in the near-future. Many Vietnamese developers lack originality, which has resulted in this oversupply. Those who bring unique or new types of experiences to the market are setting themselves up best for success.
There is a lot of opportunity in the industrial and logistics sectors, as well as the hospitality segment, but we need better management to avoid oversupply and other negative circumstances in the future.
Real estate made up the largest portion of FDI into the country so far this year. What is your assessment on this heading into 2020?
We continue to see increasing levels of FDI into real estate – a trend I expect to continue into the coming years. If you look at the portfolios of both foreign developers and buyers you can see that the South Koreans and the Chinese make up the largest group of buyers right now and these nationals also dominate the tourism segment in Vietnam. Who is dominating FDI? We get the same answer.
I do not see this trend stopping anytime soon, due to the proximity of these countries and how intertwined the cultures have become. Every day we receive inquiries from East Asian and Chinese groups that express interest in entering the Vietnamese market. This is a shift from what we saw back in 2006 and 2007 when there was a lot of North American interest in the market. That is not to say that Western countries are no longer showing interest – quite the opposite actually. However, the rapid rise of FDI from our Asian neighbours should be highlighted. The whole world wants a piece of Vietnam right now.
Do you expect any significant FDI growth into Vietnam via a flow of manufacturers moving their bases from China to Vietnam? How could this impact the country’s real estate market?
China is becoming more expensive and has some issues related to the tariffs that have caused many manufacturers to move to Vietnam. This factor discourages investors from the country and should be something the Vietnamese government should look to avoid.
What is China’s loss becomes Vietnam’s boon, however, as I have already mentioned, this should push the Vietnamese government to further focus its efforts on improving the country’s infrastructure. This will not only help the industrial sector, but also all segments in the real estate market.
