Nguyen Tri Huan, Manager, Research & Advisory Services Apartments, Colliers International in Vietnam
All real estate sectors are expected to be lucrative for investors, while industrial real estate will likely receive the most attention thanks to the relocation of factories from China and Vietnam’s recent signing of multinational trade agreements. With property prices still much lower than in neighboring countries, the luxury segment presents investors with great upside and opportunity for long-term returns as Vietnam continues its remarkable growth.
Another asset class that has been drawing interest from foreign investors is public infrastructure. Most notably, Ho Chi Minh City has recently called for investment in 85 projects in transportation infrastructure and 36 projects in public infrastructure worth more than $40 billion.
At the other end of the spectrum, Japanese investors are also investing in a range of residential properties in the affordable and mid-end segments to capitalize on growing demand.
However, it’s common for foreign investors to encounter a lot of bureaucracy and lack of transparency when they do business in Vietnam. There is often an overlap in jurisdiction by many government ministries and agencies, which most often leads to a lack of consistency in government policies.
In Vietnam, individual provinces can select and implement their own infrastructure projects, but they lack certainty in the availability of investment funds from year to year. This results in the inefficient selection of projects and the areas to receive investment. On the bright side, this presents ample opportunities for foreign companies to pursue investments in the form of public-private partnerships (PPPs).
The majority of buildings today will not be fit for purpose in ten or 20 years. Developers should therefore consider how their buildings can be adapted as occupier demand and needs change with time, and how to integrate new technologies as they become available.
Tenants will develop the need to scale up or down quickly as their business evolves and transforms, which can have an impact on the way lease structures are designed and implemented.
Industry 4.0 is blurring the lines between traditional sectors, and real estate developers must work with technology and infrastructure providers to ensure they can satisfy the modern time-poor tenant.
As buildings become more connected, and more customer data is collected, great care must be taken to ensure data is protected and that companies are compliant with information technology regulations. Connectivity is more important than ever, and real estate developers must provide reliable wi-fi access to tenants at all times. In the foreseeable future, IoT-equipped office space, stores that can print personalized products on-site, and fully-automated warehouses and vehicles will become mainstream staples. They will deliver value for money, convenience, and an elevated customer experience.
Duong Thuy Dung, Senior Director, Head of Professional Services, CBRE Vietnam
Given the great number of positive signs regarding economic development, Vietnam’s property market is expected to further expand across sectors in 2019. Domestic investors still dominate in terms of transaction volumes thanks to advantages in access to land sources as well as market insight. Foreign investors are more active in the market, however, especially those from China, Singapore, Hong Kong (China), South Korea, and Japan.
Vietnam is fast becoming a new technology hub in ASEAN in the era of Industry 4.0 and the trend towards digitalization is now entering every corner of the country’s economy. Digitalization can be seen in different markets, from personal online retail shopping, virtual residential walkabout marketing, and automated features in serviced apartments / hotels, to a growing integrated logistics industry that requires more high-tech systems, as well as modern manufacturing / warehousing areas.
For local real estate developers, there are opportunities and challenges to stand out in the game. It is recommended that local developers joint-venture with foreigners, who may be ahead of us in terms of technology and experience in developing / operating new types of products.
Local developers always have a better understanding of market demand and local customers’ preferences and can utilize this knowledge to their advantage. For example, in designing new condominiums or a new hotel, local developers can combine digitalization by adding smart automated features with local design or themes, so they can create unique characteristics for products and attract both local and foreign buyers or tenants.
Given the large supply of similar offerings, these unique projects can breathe new life into the market and make a good impression. Local developers should always keep in the back of their minds that real estate is becoming more and more competitive with the help of technology and the trend towards modernity is a big wave they can’t afford to miss.
Ben Gray, Director of Capital Markets, Cushman & Wakefield Vietnam
Q1 2019 showed GDP growth falling to 6.8 per cent from 7.3 per cent in Q4 2018. This is hardly catastrophic, but is an indicator that headwinds coming from the perceived / anticipated China slowdown when combined with the less-than-exciting global growth story are creating a drag on Vietnam’s external-orientated sectors. FDI is still the main driver of growth, with newly-licensed enterprises at the highest level for the last five years.
A noticeable difference compared to Q1 2018 is that we are seeing sustained, consistent interest from regional investors seeking high yields. Managers whose strategies mandated the buying of core properties in prime markets are moving into secondary and regional markets and higher up the risk curve. This means that appetite for investment-grade yielding assets in Vietnam has become stronger and will continue to do so over the short term. The challenge for sellers is keeping valuations realistic; there is a limit to how much investors can stomach as prices are pushed higher and higher.
Specifically talking about developers, we are still seeing most offshore groups being heavily weighted into residential and they will continue to be in this position as they work to unlock their current pipeline. If I were new to the market, I would be considering de-centralized commercial projects and leaning more towards pure office with limited to zero retail exposure.
The number one challenge we are seeing and being asked to explore is what happens when a Land Use Regulation Certificate (LURC) expires and when there will be clarity from the State by way of a legal framework and valuation mechanism around this.
Investors need confidence that when they buy a project or property there will be some form of renewal mechanism over the ground lease. It is becoming a live issue and one that will need addressing in the not-so-distant future, as it is having an adverse effect on property values.
