FDI property figures just a mirage

While foreign direct investment (FDI) commitments in urban and residential apartment projects from 2012’s January to April accounted for one-third of all registered capital in Vietnam, real estate remains a turn off for many foreign developers.

The Ministry of Planning and Investment’s Foreign Investment Agency reported that $1.576 billion in FDI was committed for real estate developments this year, accounting for 36.9 per cent of total FDI commitments. This proportion in real estate, 36.9 per cent, is much higher than the 5.8 per cent in 2011.

However, the figures are misleading.

Only two new and two expanded real estate projects were registered by foreign investors during the period. Japan’s Tokyu Group, through a joint venture with domestic Becamex Corp, registered to build a $1.2 billion new urban project in southern Binh Duong province. The rest, $376 million, was registered by three other developers.

Phan Huu Thang, director of Centre for Foreign Investment Studies at Vietnam National University, said that foreign investors recognised that real estate was still a ‘risky sector’. “The modest number of projects registered implies a lack of confidence in real estate,” he said.

The price of residential apartments in Hanoi in 2012’s  first quarter dropped 7.1-12.8 per cent on-year according to CBRE and at the same time, prices in Ho Chi Minh City dropped 2.1-9.4 per cent.

About half of the apartments in Hanoi are being sold for less than $1,000 per square metre, the lowest price since the 2007 residential market boom, CBRE said. Singapore’s Keppel Land said that a subdued sentiment continued to affect residential sales in Vietnam.

Alex Loh, chief resident representative of SP Setia in Vietnam, said the gloomy market and current economic challenges were eating away at homebuyers and developers’ confidence  in Vietnam.

Even when Malaysia’s SP Setia sought opportunities to acquire  stakes in existing projects with domestic developers, Loh said: “[This is still] not a good time to start a new project in Vietnam.”

Thang said foreign developers would invest more in real estate when the market rebounded. But, based on economic growth, a tightened monetary policy for property and a drop in homebuyer confidence, he said developers would sit on the fence.

From 2007-2010, a large proportion of FDI in Vietnam was in real estate, but most for tourism property projects that cost billions of dollars. Since early 2011, there have been no multi-billion-dollar property projects registered in Vietnam, except for Tokyu Group’s project.

Lloyd Nathan, chief executive officer of Asian Coast Development - the developer of the $4.2 billion Ho Tram Strip project in Ba Ria-Vung Tau province, said making a profit from such big projects was difficult.

“At a macro level, the 2009 global financial crisis obviously presented a challenge for developments around the world, as does the current instability in the global economy,” he said.