FDI flows remain strong in real estate

October 03, 2018 | 09:00
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The Vietnamese real estate sector has been attracting a large proportion of international investment inflows over the past years and the country is expected to remain one of the world’s most attractive markets for foreign developers in the years to come.
fdi flows remain strong in real estate
FDI flows remain strong in real estate, illustration photo

According to Minister of Construction Tran Hong Ha, the real estate sector in Vietnam commands special attention among foreign investors. So far, Vietnam has attracted 26,646 projects with the total investment capital of more than $334 billion from 129 countries and territories, with the real estate sector consistently attracting the second-largest portion among the Vietnamese economic sectors.

“The government has been highly appreciative of foreign investment and has been working to create more favourable conditions for them to invest in Vietnam,” Ha said at a recent international conference on real estate investment in Vietnam in Hanoi.

Khanh Nguyen, associate director of the Capital Markets Division of JLL Vietnam, said that over the past 10 years, despite the ups and downs of the Vietnamese economy and the real estate market, foreign direct investment (FDI) inflows remained stable.

According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, between January and September 20 this year, FDI capital in the manufacturing and processing sector jumped to $11.3 billion, representing 44.6 per cent of the country’s total registered FDI. Real estate was the second-most heavily invested sector with $5.8 billion, or 23 per cent of the total registered capital, followed by retail and wholesale with $2.1 billion or 8.3 per cent. Over the years, FDI inflows into the real estate sector consistently ranked second, trailing manufacturing.

According to Khanh, Vietnam’s strong and stable growth performance over the past decade has been attracting foreign investors, especially those from Asia such as Japan, South Korea, Singapore, Hong Kong, Taiwan, and China. Their market share accounted for 73.9 per cent of total FDI, followed by EU member states with 15.2 per cent.

“Most investors from the EU invest in fields like design, electronics, home appliances, and furniture. However, with the need to expand their footprint in Vietnam, these European companies have also been looking to ramp up investment in commercial real estate through acquiring buildings for their headquarters or showrooms in non-central business district areas. US investors are also key players in Vietnam as they ranked third in FDI capital. Although there is no country-based breakdown of real estate FDI, it can be seen that there has been increasing interest from private equity firms,” Khanh said.

One of the most notable US investors is New York-based private equity Warburg Pincus, which has committed over $1 billion in Vietnam, the majority of which was allocated to set up real estate platforms including retail, hotel, industrial, and logistics properties.

Matthew Powell, director of Savills Hanoi, said that the real estate sector has always been attracting foreign investment flows. “In the first half of this year, we saw strong investment from foreigners in residential areas, while another strong wave of investment will also reach the industrial real estate segment, which is now at its peak in Vietnam. Other attractive segments should be offices for lease, hotels and hospitality, and retail properties,” Powell said.

“The Vietnamese real estate market has been more attractive than neighbouring markets like Japan, South Korea, Singapore, Hong Kong, and China both in potential and yield, and leads us to believe foreign investment flows will remain high in the coming time, with expanded types of asset and segments,” he added.

According to Dexter See, ASEAN managing director of the Royal Institution of Chartered Surveyors, the Vietnamese real estate market is one of the hottest markets in the region. “Along with Singapore, Malaysia, and Indonesia, Vietnam is one of the top priorities for foreign investors in infrastructure and real estate development, due to the high demand and the potential for higher yields compared to other countries,” See told VIR.

Vietnam, according to See, is now a destination for many developers and investors from Singapore, Hong Kong, Taiwan, South Korea, and especially Japan and China, which have recently emerged as top developers on the Vietnamese real estate market.

A highlight was Japan-based Sumitomo Corporation, along with other local partners such as BRG Group, which received approval from the Hanoi People’s Committee to develop a $4 billion smart city project in the capital’s Dong Anh district.

Lotte also pledged to invest $600 million in a high-end, international-standard complex in Hanoi, including shopping centres, offices, and hotels.

Foreign investment flows into the Vietnamese real estate market are also becoming increasingly diversified, with different types of transactions, such as joint ventures, and mergers and acquisitions transactions. Among the most prominent cases was the Singaporean sovereign wealth fund GIC announcing its investment of about $1.3 billion into leading Vietnamese property developer Vingroup and the related entities for its real estate arm.

Similarly, Warburg Pincus and Becamex IDC Corporation, one of the largest industrial real estate developers in Vietnam, announced the launch of their joint venture BW Industrial Development JSC.

As billions of dollars of foreign capital are poised to enter the Vietnamese real estate market, the sector is expected to continue stabilising and growing in the coming time.

By Bich Ngoc

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