Frantic interest not reflecting land value

April 29, 2021 | 08:00
Vietnam’s real estate has been at the forefront of attention in recent times with wild increases in land prices and plans outlined to rezone major cities. Hoang Nguyet Minh, director of Commercial Leasing for Savills in Hanoi, told VIR’s Hoang Oanh about the impact of the land price hike on attracting foreign investment in the real estate market in the capital.
1541 p36 frantic interest not reflecting land value
Hoang Nguyet Minh, director of Commercial Leasing for Savills in Hanoi

Recently, Hanoi issued some planning projects at the same time that land prices in some surrounding areas soared. Is there any connection between that and the rental price of office space and industrial land for lease?

For office space and industrial land for lease projects, all fees are paid annually, unlike housing projects with one-time advance payment. Therefore, the change in planning or the increase in prices for commercial projects will have a minor impact and will not have too much influence on the rental price.

In essence, the increase or decrease in rental rates of retail offices or industrial zones depends more on the supply of the market and the products than on the increase in land prices.

The zoning plan for four inner-city districts of Hanoi focuses on the relocation of people mainly from the Old Quarter. If the plan is implemented, how do you assess the fluctuations in the price level as well as the difficulties that Hanoi will face when planning this area?

Many companies, regardless of their relocation trend, still want to keep offices in the Hoan Kiem area and they will open more branch offices in other areas. But that is because businesses want to keep offices in the central area. However, the supply of offices in Hoan Kiem will not be too much in the future due to limited land fund and if any, the construction density is also limited to 4-5 floors as planned.

Savills predicts that office rental prices in Hoan Kiem will not decrease, but the rental real estate market will have an adjustment in customers in each area. Many businesses will consider moving to the districts of Ba Dinh or Tay Ho, or west of Hanoi instead of staying in the Hoan Kiem area.

Currently, office rent in the western area of Hanoi fluctuates at an average of $20-25 per square metre, which is a reasonable price to ensure sustainability in the future.

Does the sharp rise in land prices affect the attraction of foreign investors to Hanoi and Vietnam?

When deciding whether to invest in Vietnam’s real estate market, foreign investors spend a lot of time researching and evaluating actual land prices through specific pricing, rather than relying solely on personal transactions.

The buying and selling does not reflect the real value of the transaction. Investors also cannot use these numbers to evaluate, but will base on price information from previous projects, sale speed, and projects under parallel supply. Therefore, land bubbles will not affect investors’ decisions too much.

Which segment is seeing increasing foreign investment inflows?

Currently, many foreign investors still assess Vietnam as a potential market. In Hanoi and surrounding areas, the land bank is still quite large for exploitation, while the biggest strength of foreign investors is the construction of the project complex, which includes the provision of all amenities in addition to apartments for sale.

Asian investors are leading in completing investment transactions in Vietnam and Singapore is still the country with the most transactions in Hanoi.

Previously, foreign investors were interested in hotels but due to COVID-19, offices for rent and houses, including villas and apartments, are now seeing increasing interest.

In the housing segment, Japanese and Singaporean businesses are much more aggressive in seeking investment opportunities and are much more flexible in terms of transaction structure such as being able to cooperate with Vietnamese investors who have a large land bank but have not been able to begin exploitation and implementation.

Investors from South Korea used to be very interested in this segment, but due to the influence of the pandemic and some restrictions on being able to enter the Vietnamese market, it is more difficult to make investment decisions.

The office for lease market has been a strong point for foreign investors. Both South Korean and Japanese financiers have a very large number of companies operating in both Hanoi and Ho Chi Minh City, so they focus on the construction of office buildings.

By Hoang Oanh

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