High rents curb investor enthusiasm in Hanoi’s IPs

“Land leasing fees in Hanoi’s industrial parks (IPs) and export processing zones (EPZs) are 3-15 times higher than that of neighbouring provinces. On average, each square metre is charged at VND15,000 ($0.68) a year, compared to VND5,000 ($0.22) in Tu Son town, and even VND1,000 ($0.04) in other provinces,” Nguyen Van Ngan, an expert on the Hanoi Industrial and Export Processing Zones Management Authority, told VIR.

“Although we have asked the People’s Committee many times to reduce land rentals for enterprises to increase attractiveness for local IPs, the situation remains unchanged,” he added.

With such a high land leasing fee, the authority has so far attracted only a few new foreign investors leasing land for their projects in Hanoi’s IPs. The majority have been small foreign firms leasing workshops at low prices for their projects, Ngan explained.

Pham Khac Tuan, head of the authority, admitted that the situation led to poor results of attracting foreign direct investment (FDI) capital in 2015. The previously set target of attracting $200 million in investment in Hanoi’s IPs and EPZs was trimmed to just $120 million after it was revealed that by the end of the third quarter last year only 30 per cent of the original target had been met.

The authority has set a target of attracting $150 million in FDI this year.

Over the years, Hanoi’s IPs have attracted some large FDI projects including Meiko Vietnam (with the total investment capital of $350 million), Panasonic ($397 million), Canon ($306 million), and Hoya Glass Disk ($230 million). However, over the past two years, there has been a dearth of significant FDI projects.

“The average investment capital of FDI projects licensed over recent years in Hanoi’s IPs and EPZs was around $15 million. This value is far lower than the potential,” Ngan said.

Indeed, together with the increasing labour cost in the capital, the high rental rate has prompted powerful international groups like LG and Posco to pass over Hanoi in lieu of Bac Ninh, Thai Nguyen, and Haiphong for their billion-dollar projects.

Currently, Hanoi has nine IPs covering an area of 1,300 hectares. Six of these have an occupancy rate of over 90 per cent; one 72ha IP is still completing its infrastructure framework, and three others are preparing to be developed with the total area of 703ha.

As of the end of March, the IPs attracted 612 projects, including 320 FDI projects with the total registered investment capital of $5 billion. Among the foreign investors, Japan ranks first with 152 projects and the total registered investment capital of $2.9 billion. The runners-up are China with $570 million, South Korea ($380 million), and Singapore ($291 million). The majority of the projects focus on electronics (36 per cent of total), mechanics (21 per cent), electricity (16 per cent), construction materials (2.88 per cent), and textiles and garments (2.23 per cent).