Foreign developers wary of red tape

illustration photo

Ministry of Planning and Investment (MPI) figures show $7.2 billion in registered foreign direct investment (FDI) capital in  the nation’s property sector in 2009. In 2010, this was $6.84 billion, equivalent to 36 per cent of total registered  FDI capital in Vietnam for the year. In the first quarter of 2011, there was $427.7 million registered  FDI capital in 57 property projects.

The newly registered FDI capital in 2010 in Vietnam’s property sector derived mostly from just two large-scale property projects comprising South Hoi An resort in central Quang Nam province and Skybridge Dragon Sea in southern Ba Ria – Vung Tau province, with combined total registered investment capital of $4.9 billion, according to MPI statistics.

Similarly, 2009’s registered FDI capital in the nation’s property sector came from three other large-scale developments with a combined total registered investment of $5.9 billion. Those projects were the Dragon Beach ecological tourism area in Quang Nam province, the Nhon Trach New City project in southern Dong Nai province and Creative City in Phu Yen province

However, the $4.2 billion Dragon Beach and $1.68 billion Creative City have just had their licences officially revoked.

Meanwhile, other large-scale registered FDI property projects including the $500 million Lotus Hotel in Hanoi and the $200 million AJ Vietstar Apartment project in Ba Ria- Vung Tau province were forced to hunt for new owners.

Many of the new registered property projects funded by FDI  were actually kicked off by established foreign developers with many years’ experience in Vietnam – players such as Malaysia-backed Berjaya Corp, Singapore-backed Keppel Land, Capital Land and VinaCapital Group.

William Towne Baker, general director of City Garden Co. Ltd, developer of the $150 million City Garden high-end apartment project in Ho Chi Minh City said that foreign investors still saw huge potential in the nation’s property market but unclear investment licencing procedures were making it tough for them to participate.

Peter Ryder, CEO of Indochina Land agreed that completing all the licencing procedures for a property project in Vietnam was an arduous task.

Developers wanting to build a property project in New York can get information about 90 per cent of the necessary procedures but foreign developers who wants to build in Vietnam are lucky if they have information on 15 per cent of total procedures, said Ryder.

Unclear investment licencing procedures is the main reason why established foreign developers expand their business in Vietnam so quickly and why new developers are so slow to join the market, Ryder added.

Savills Vietnam’s national director of research and valuation Troy Griffiths said that there was still significant interest in the Vietnam’s property market from new foreign developers in Singapore, Thailand, Korea, Malaysia and even Japan. However, they were adopting a “wait and see” attitude.

“Doing business in other countries’ property markets like America and China is very hard at this time. Vietnam is still considered as a standout. However, directly investing into the market is not easy,” said Griffiths.

“Most new comers need a lot of time for surveying and assessing their chances of investing into the country. In the first half of this  year, there seems to be no more new foreign developers joining the market. However, the picture will change for the better in the final half of the year,” he added.