Cashstrapped market still offers deals

Ministry of Planning and Investment figures revealed a fall in foreign investment flow in real estate, but this is likely to change as Vietnam still offers long-term gains

The real estate sector was the third largest attractor of foreign direct investment in 2013, with 25 newly registered and expanded projects totalling more than $951 million, according to the Ministry of Planning and Investment’s Foreign Investment Agency.

Among those, the largest project by capital was Sembcorp Gateway VSIP in the southern province of Binh Duong, which received almost $200 million from VSIP JV and Singapore’s Sembcorp Development.

Keppel Land, one of the biggest Singaporean developers in Vietnam, has revealed its newest project - Westgate in Hanoi with total investment of $140 million.

Indochina Land, another big developer in Vietnam, also set up a joint venture with a domestic developer to develop E-Home West Saigon with a total investment of nearly $70 million.

Meanwhile Pruksa, one of the biggest real estate developers from Thailand registered its first investment in Vietnam with $50 million project in northern Haiphong city.

The $950 million the industry attracted in 2013 represents a steep fall from 2012, when foreign investors registered to pour a remarkable $1.97 billion into Vietnamese real estate.

Yet in terms of numbers of projects, foreign contributions were more positive, as the volume of new projects was more than double the previous year.

Last year was generally difficult for developers. Many foreign developers had difficulty implementing projects in Vietnam due to troubles in getting loans from banks, while slow economic development resulted in low liquidity.

The reality is that new investors are very reluctant to put their money into Vietnamese real estate.

However, the recovery of FDI flows are still expected in the near future. According to Troy Griffiths, deputy managing director of Savills Vietnam, the quality of FDI in the real estate market cannot be calculated by the number of projects or the registered capital, but via the disbursed capital.

“If we look at the figures of disbursement in this sector, the picture is more positive,’ Griffiths said.

In the near future, Griffiths believes that Singapore and Korea will not be the biggest developers in real estate in Vietnam, but that Chinese companies will emerge.

Meanwhile Japanese investors are still interested in the Vietnam market and it is expected to remain an investment destination in the medium to long-term.

While the investment performance of commercial real estate worldwide is showing signs of decline, the Ho Chi Minh City and Hanoi markets are showing signs of bottoming out which shows that a recovery is on the cards. This brings greater cost advantages for international investors than they can expect in neighbouring markets such as Indonesia, the Philippines and Malaysia.

New names appear

Although the real estate market has experienced a slump in the past few years, the general sentiment of international investors seem to be moving in a positive direction as the pre-crisis period approaches.

Last year also marked the entrance of a number of new investors.

In the early years, Warburg Pincus investment fund, the developer of high-end commercial chain Neiman Marcus, invested $200 million in a new retail format of domestic Vingroup. It was also the largest ever  investment poured into a domestic developer in Vietnam to date by a global fund.

According to Joseph Gagnon, CEO of Warburg Pincus, the agreement with Vingroup marked the fund’s first foray into Vietnam and added the country to Warburg Pincus’s Asian-Pacific portfolio.

EXS Capital Group, an independent investment company based in Hong Kong and Japan targeting the Asian-Pacific market, also announced plans to pour $37 million into Son Kim Land, a domestic real estate developer.

According to Kiyoshi Hirasawa, chief executive officer of EXS Capital, the country is an emerging location for the manufacturing sector and transport logistics in South East Asia, so the real estate market is bound to grow.

“The real estate sector in Vietnam is suffering from financial difficulties, but in the long-term, Vietnam will be able to take advantage and  achieve high growth,” said Hirasawa.

Vietnam is also where Israeli billionaire investor Igal Ahouvi has chosen to develop a luxury resort project.

After several trips to Vietnam, Ahouvi chose Nha Trang to develop the Alma resort project with an investment of $300 million.

Ill fated projects

Although many experts and developers in the real estate sector have a positive outlook on the recovery of the market, the great majority of projects continue to stagnate.

The Malaysia Berjaya Corporation has invested in many large scale projects, but work has stalled on their $900 million complex in Ho Chi Minh City. Another urban project in Nhon Trach city of Dong Nai province with registered capital of $2 billion faces seeing its license revoked due to long delays.

Meanwhile, the Booyoung project in Hanoi, invested by Booyoung Vina with $171 million, has been halted since 2007, due to the economic crisis and real estate slump. Recently, Booyoung Vina asked the Ministry of Construction to permit it to restructure the apartments. However, no active work has seen on the site to date.

In the central city of Danang, Blooming Tower and Daewoon Da Phuoc have been delayed for many years. A source from the Danang Investment Promotion Centre said that the developers of the two projects show no signs of restarting in the near future.