CPTPP deal will prompt interest in real estate

By Neil MacGregor Managing director, Savills Vietnam

According to the Ministry of Industry and Trade, the CPTPP will have a comprehensive and positive impact on Vietnam’s investment and trade as a whole, with garments, footwear, food and beverage sectors to be the biggest beneficiaries, as the majority of import tax rates for these sectors’ products will be reduced to 0 per cent when the deal takes effect.

Despite the failure of the TPP negotiations, investor confidence has been bolstered by the finalisation of the EU-Vietnam Free Trade Agreement (EVFTA). The upcoming Regional Comprehensive Economic Partnership (RCEP) will expand trade routes between the 10 member states of the ASEAN and the six Asia-Pacific states with which the ASEAN has existing FTAs. Investors also await the ASEAN-Hong Kong and China FTA to come into effect, which promises to further deepen trade relations with the largest economy in the region.

We have seen that trade with countries such as Japan and South Korea typically comes together with foreign direct investment (FDI), importantly fuelling finances into infrastructure and real estate.

There is considerable interest from overseas backers in Vietnamese real estate at this time, supported by strong GDP growth, a relatively stable currency, the young demographics, rapid urbanisation, as well as the rapid growth in the domestic consumer market that is driven by one of the fastest-growing middle classes anywhere in the world.

This is fuelling investment across all real estate sectors from industrial to office and residential to retail.

In addition, the rapid growth in tourism arrivals, both foreign and domestic, is creating a boom in the hospitality sector.

On the other hand, some wondered why Vietnam was invited to join the TPP even though its per capita income is under $3,000, much lower than that of other member states. One of the most important reasons is that the member states see a large market of 95 million people, and significant opportunities to invest in and export goods to the country.

Previously, the TPP was often viewed as a potential magic wand for the economy but there are still many aspects that require review to ascertain their real impact and the best means of preparation. In the past, many people wondered if the appearance of the TPP could revive Vietnam’s real estate market after the last crisis, which did not end until as recently as 2015.

Since the time when the negotiation round of the agreement was complete, Vietnam’s economy in general and the real estate market in particular have been exceptionally strong despite the fact the benefits of the deal had never actually come into effect yet.

As these benefits materialise under the CPTPP, the economy should be set for renewed momentum at a time when the global economy is otherwise showing signs of a slowdown. In particular industrial real estate, logistics warehousing, retail and ultimately the office and residential markets should all reap the benefits of renewed investment and interest in Vietnamese real estate.

We expect to see a considerable amount of inbound investment into real estate in 2019, following a very active 2018 for our investment advisory teams. Interest remains strong from Japan, South Korea, Singapore, and China.

However, it remains challenging for foreign investors to identify quality real estate investments with clear ownership, and transactions involving operating assets will remain scarce.

The majority of transactions will involve development projects, with many foreign developers seeking to secure long-term partnerships with local developers.

A renewed focus from the local authorities on land reform in order to ensure that foreign funders are able to participate will be most welcome and ensure a sustainable real estate market over the long term.