Positive prospects

A report from real estate consultants JLL earlier this year noted that Vietnam has been a rising star in terms of real estate investment, with handsome opportunities available in the office, residential, and retail segments. Occupancy in Grade A office space in Ho Chi Minh City exceeded 95 per cent in the fourth quarter of 2016, while retail occupancy in the city’s CBD was over 92 per cent. In the residential sector, the number of new apartments launched rose 46 per cent in 2016 against 2015.

There has been a wave of foreign investors from Japan, Singapore, South Korea, and Hong Kong, which have increasingly enhanced their portfolios of local property assets over the last few years.

Initially known as a logistics investor when entering Vietnam in 2005 with a logistics project in southern Binh Duong province, Singapore’s Mapletree Group has now become one of the largest Singaporean real estate developers in the country. As at March, it owns and manages more than $1.2 billion worth of real estate assets, comprising mixed-use, office, retail, industrial, residential, and serviced apartments in major cities.

In June last year, Mapletree acquired Kumho Asiana Plaza (since renamed mPlaza), a prime mixed-use development comprising Grade A office space, serviced apartments, a hotel, and a food and beverage (F&B) podium in Ho Chi Minh City’s CBD. This was its largest acquisition of a completed, income-producing property in Vietnam. “The project has continued to perform well,” Ms. Wendy Koh, Regional CEO, Southeast Asia, at Mapletree Investments told VET. “Occupancies for the office and serviced apartment components, as well as the F&B podium, have been consistently above 90 per cent.”         
Mapletree is also now developing the third phase of the Saigon South Place complex in the city’s District 7. At the end of 2016, the company opened its first office block in Vietnam – the Mapletree Business Centre – within the complex. The 17-story office tower, designed to Grade A specifications, is a 4.4-ha mixed-use development with total investment of $360 million and includes a large retail mall, SC VivoCity, an upcoming residential block, RichLane Residences, as well as Oakwood-branded serviced apartments. SC VivoCity, after opening in September 2015 within Saigon South Place, recorded occupancy of 95 per cent as at the end of last March.

The company has clearly targeted high-end projects and been trying to diversify its portfolio by apportioning cash flows to different types of projects, not only logistics but also a range of domestic property assets. “We will continue to seek investment opportunities in completed, quality assets that are immediately yield-accretive in Vietnam’s major cities,” said Mr. Hiew Yoon Khong, CEO of the Mapletree Group. “We are also keen on investing in greenfield opportunities to develop office, retail, residential, serviced apartment as well as mixed-use developments, either on our own or with local partners. All our investments in Vietnam are geared towards broadening and growing our earnings base, to deliver strong and stable returns.”

Seeing Vietnam as a fertile land for real estate development, another Singaporean developer, Keppel Land, has continually bolstered its foothold in the country with a diverse portfolio of properties in major cities, including Grade A office, waterfront homes, retail centers, integrated townships, and serviced residences. As a pioneer and one of the largest developers in Vietnam, having begun operations in the early 1990s, Keppel Land has 20 licensed projects to date, with total registered capital of about $2 billion and a pipeline of more than 25,000 homes.

Capitalizing on the positive market sentiment in Vietnam, Keppel Land launched four residential projects in Ho Chi Minh City last year. “With the early mover’s advantage in the country, we have today one of the best landbanks among foreign developers in the southern city,” Mr. Linson Lim, President of Keppel Land Vietnam, told VET. “We will continue to capitalize on the strong economic growth and positive market sentiment in Vietnam to launch projects for sale over the next few years.”

Keppel Land has also strengthened its presence in Ho Chi Minh City by consolidating ownership in certain local projects. For instance, one of its most successful projects, the Saigon Center retail mall in the CBD, is now fully leased and anchored by the country’s first Takashimaya department store. “The company increased its stake in the project in March 2017,” Mr. Lim said. “This reflects our confidence and long-term commitment to contribute to sustainable urbanization in Vietnam with our quality portfolio of properties.”

CapitaLand, another top-performing foreign developer in Vietnam, has a presence in six major cities and provinces in the country, focusing on the residential and serviced residence sectors. At the end of last year, it planned to establish a $500 million fund within 2017 to invest in commercial property. “We see opportunities in the commercial space in Vietnam so we are prepared to take a position,” President and Group Chief Executive Lim Ming Yan told Straitstimes.com. “I think the general trajectory for Vietnam is favorable and we foresee that this trend will continue for at least the next ten years.”

According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), the significant increase in FDI capital in the first quarter is a sign of the attractiveness of Vietnam’s real estate market. “FDI into property stalled somewhat in 2016 compared to 2015, but 2017 has seen activity by many existing and new foreign developers from Asia, especially Japan and Singapore, which shows the appeal of the local property market,” he said.

FDI inflows into Vietnam’s real estate market this year remain high, according to Mr. David Jackson, General Director, Operations Management, at Colliers International Vietnam. The majority of the FDI this year has gone to infrastructure development and significantly increased from Japan, South Korea, and China. “Companies like Mapletree, Sunwah, and Keppel Land have all been investing in Vietnam for a long time and they are in it for the long run,” he said “They have gained market advantage over the years and are maturing in their property management at the same time. They will continue to lead in the high-end segment due to their global footprint and experience.”

Foreign developers have always sought opportunities to increase land reserves for their long-term development and investment strategies in Vietnam, according to Mr. Su Ngoc Khuong, Investment Director at Savills Vietnam. “There is definitely a chance for them to grow in the years ahead, especially given favorable conditions such as rapid urbanization in major cities and a high rate of return compared to other regional markets, as well as the rising residential demand among the country’s huge population,” he said.

Moreover, “with the rapid expansion of Vietnam’s consumer market and the economy transitioning towards higher value activities, there have been significant levels of FDI and the construction of office, retail, residential, and hotel stock to meet growing demand,” said Mr. Chris Fossick, Managing Director, Singapore and Southeast Asia at JLL. “Vietnam’s real estate sector has been hitting its stride since 2015, spurred in part by recent government reforms, such as stronger financial requirements for property developers and the relaxation of rules on foreign investment.”

There remain certain challenges hindering foreign investors in the local property sector, according to Mr. Khuong from Savills. Foreign developers still meet difficulties in administrative procedures and site clearance and compensation. The local market has also been short of quality products to introduce to investors. Price isn’t really a problem, but the level of risk acceptance among foreign investors is totally different from local developers, he said.

Ms. Nguyen Hoai An, Director of Research and Consulting Services at CBRE Vietnam, said that despite the high volume of FDI having a positive impact, capital flows into real estate have been limited because foreign groups prefer to invest in local companies that are listed on the stock market, which they believe have reached certain standards in business administration. Another important reason, she added, is that foreign overseas always focus on market transparency in operations and property transactions, in addition to the rate of return. But Vietnam is still not considered to be transparent.

In fact, the latest Vietnam Business Forum (VBF) held last month heard concerns from foreign developers on issues in the real estate market. Industry insiders proposed allowing foreign investors to mobilize capital from overseas as well as the issuing of guidelines for land use right certificates to be given to foreign investors buying housing. Mr. David Lim, Head of the Land Sub-group at VBF, told the forum that “reducing barriers to investment and actually expanding access to real estate will make foreign investors more interested in Vietnam. There are still certain issues that make the implementation of new legal documents more complicated and limit the competitiveness of Vietnam compared to neighboring markets.”