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- Green Growth
|Some developers are looking outside the typical project locations due to lack of space or high costs. Photo: Le Toan|
“The pandemic caused many projects to be delayed or not implemented at all,” said Hong Sun, vice chairman of the Korean Chamber of Commerce in Vietnam. “Now, flights from South Korea to Vietnam are all full.”
About 9,500 South Korean companies have invested in Vietnam, while many others are promoting new plans. A large tech project is being negotiated, according to Sun, saying that if the government allows implementation, it “will be the number one investment in the digital sphere in Vietnam”.
However, Sun is concerned that the shortage of land for large-scale projects in Hanoi and Ho Chi Minh City, paired with high land leasing rates, will negatively affect South Korean investors, saying that many are now also looking to the central provinces and the Mekong Delta.
Trinh The Truyen, director of Phu Tho Department of Planning and Investment, found that land acquisition and compensation policies are the main bottlenecks in site clearance.
“In Phu Ha Industrial Zone, some households are demanding compensation prices higher than prescribed by the state. Others have received compensation but are not handing over the land, slowing down construction progress and throwing projects behind schedule,” Truyen said.
This year, the northern province Phu Tho expects to attract up to 30 big investment projects, of which foreign-funded ones could account for around $480 million of the new coming capital.
Truyen pointed out that the application of land-price adjustment coefficients is not yet provided with detailed instructions for each project. Meanwhile, the price of agricultural land is differentiated by location and administrative boundaries, leading to different compensation rates in towns and rural areas, despite some plots being right next to each other.
“This is the reason why people in many projects sites do not accept compensation plans when acquiring land,” he said.
The lack of clean land also has a negative impact on attracting foreign direct investment (FDI) to other cities and provinces nationwide.
Ho Van Ha, director of Dong Nai Department of Planning and Investment, said the southern province had missed out on a number of large-scale, high-tech projects, ranging from a few hundred million US dollars to over $1 billion as the designated land plots were not clear.
“If the procedures and compensation are conducted quickly, it will still take 4-5 years for these industrial zones (IZs) to have land for lease. In 2022, Dong Nai intends to change its direction to attract investment to remote IZs that still have land plots available, such as Tan Phu, Dinh Quan, Thanh Phu, and Ho Nai, as the planned high-tech park in Long Thanh will take another 2-3 years to complete its land acquisition and infrastructure construction,” Ha said.
At the end of 2020 and the beginning of 2021, the government approved an additional plan for Dong Nai for nearly 7,000 hectares of industrial land. However, the plan’s execution is still in the process of preparing documents for ministries for comments on building IZs.
Data from Dong Nai Industrial Zones Management Authority highlights the province’s limited supply of clean land. Currently, Dong Nai’s 32 IZs have a total leasable area of more than 7,000ha. By the end of March, nearly 6,000ha had been leased. The unleased area is mostly uncleared, and a fraction of this that could be sub-leased is scattered in remote IZs, which are unattractive to investors.
Industrial real estate has been a hot development sector since 2018, reflected in the sudden increase in leased land that led to a shortage of supply and pushed up land rents.
Data from the Housing and Real Estate Market Management Department under the Ministry of Construction shows that land prices in early 2021 increased by 15-20 per cent compared to five years ago. The increase in land prices causes many concerns for investors who want to develop IZs and related infrastructure.
Vu Thi Thu Hang, sales director at TNI Holdings Vietnam, commented, “The lack of clean land has had a great impact on companies leasing IZs in the country.”
TNI Holdings is managing, operating, and trading over 3,000ha of land in 14 IZs in eight cities and provinces in Vietnam.
Hang warned, “The costs of renting premises in IZs may further increase in the near future.”
On November 13 last year, the second session of the 15th National Assembly approved a resolution on the national land use for the next five years and another one for the next decade. The planned land for industrial areas will thus reach almost 211,000 hectares by 2025, an increase of over 120,000ha compared to 2020.
As of March 20, the total registered foreign direct investment (FDI) into Vietnam was estimated at $422.83 billion. Foreign investors have participated in 19 of Vietnam’s 21 economic sectors. The processing and manufacturing industry spearheads total FDI accumulation with a total of $250.72 billion, accounting for 59.3 per cent of all registered FDI into Vietnam, as stated by the Foreign Investment Agency under the Ministry of Planning and Investment.
Among the 139 countries and territories with valid foreign-invested projects in Vietnam, South Korea was the largest investor with $78.56 billion, accounting for 18.57 per cent of the total registered capital, followed by Singapore with $67.56 billion, accounting for 16 per cent.
Prof. Dr. Nguyen Mai - Chairman, Vietnam Association of Foreign-Invested Enterprises
The prices for industrial land in Vietnam are rising, but remain lower than in China. The price of industrial land in Hanoi equals only 40 per cent of the rental price in Beijing or Shanghai. Many investors have realised this comparative advantage of Vietnam.
Moreover, there are more than 350 industrial zones and about 18 economic zones in the country, with the amount of vacant land estimated at 45 per cent.
However, finding enough cleared land that is large enough for certain industrial developments remains an issue. Also, like in many other markets, Vietnam’s input material prices remain high, with rising compensation costs pushing up land leasing fees since 2020.
Meanwhile, regional competition in the attraction of FDI remains strong as the trend of shifting production facilities out of China continues to be driven by major economies and geopolitical incidents. A long-term policy and stable land leasing fees with reasonable alterations could help Vietnam to retain its competitive advantage in attracting FDI.
Assoc. Prof. Dr. Nguyen The Chinh - Environmental Economic Policy Institute, Vietnam Association of Environmental Economics
When considering an foreign-led project here, a locality must first determine the investor’s land requirements, which is the most important factor. These must then be considered and compacted with other factors to calculate the actual capacity. The current land-use plan has three groups: agricultural land, non-agricultural land, and unused land, in which industrial land can only be developed from non-agricultural land and unused land.
Currently, the available land for industrial projects in many localities is gradually limited, such as in Bac Ninh. If a locality does not meet a project’s requirements in terms of scale, it can seek territorial links to create spaces large enough to meet the needs of investors. Small provinces, such as Hung Yen, can link with neighbouring Hai Duong and then begin negotiating with investors.
Industrial land is strictly managed by the state. In principle, when localities join territories, there should be a central agency to take charge of state management, which should be the Ministry of Natural Resources and Environment for land. Meanwhile, for investment-related issues, the Ministry of Planning and Investment should act as an intermediary.
Trang Bui - General manager, Cushman & Wakefield Vietnam
Vietnam is developing its industrial zones according to different models to promote growth. Cushman & Wakefield sees an increasing number of core funds that are accessing the industrial and logistics markets, thereby increasing the likelihood of more large-scale leasing transactions.
To attract more investors to Vietnam, the country needs to complete the legal framework on industrial property development and support niche projects. For example, eco-industrial zone, zones dedicated to supporting industries, and combined urban and industrial areas, among others, will matter more and more. Further, infrastructure and traffic need to be improved. Compared to other countries in ASEAN, the quality of Vietnam’s infrastructure is still lower than the ASEAN average.