There has been something of a real estate “fever” in recent times at the Thu Thiem Urban Area, the proposed new CBD and mixed-used urban area in Ho Chi Minh City’s District 2 and which is set to become the largest inner-city development in Southeast Asia.
Investment into the urban area has been strong over the last few years, with a host of both local and foreign real estate developers seizing the opportunities on offer.
Vietnam’s real estate market attracted $5.54 billion in FDI in the first half of this year, accounting for 27.25 per cent of total investment into the country, according to the General Statistics Office (GSO). 2018 marks ten years since the last real estate downturn and nearly five years of recovery. “Given that monetary policies are expected to stay neutral-to-accommodative to support growth when FDI inflows in the hundreds of millions of dollars are poised to enter the real estate market, the market is expected to continue stabilizing and growing,” said Mr. Steven Wyatt, Country Head at JLL Vietnam. “M&A activities and other forms of direct investment will also continue to reach record levels.”
Considered Ho Chi Minh City’s future business hub, Thu Thiem enjoys great transport links to other established urban areas around town. The new CBD has promising prospects, and foreign developers have taken note. South Korea’s Lotte Group last year signed an investment contract for the Thu Thiem Eco Smart City project worth some $884 million, excluding site clearance and compensation.
Singaporean developer Keppel Land has reinforced its brand in Vietnam with the Empire City project in Thu Thiem. Located on a prime 14.6-ha waterfront site, the project will yield about 3,000 luxury high-rise residences, Grade A office space, prime retail space, and an iconic 88-story integrated mixed-use tower complex.
Keppel Land, meanwhile, sold a total of about 5,480 units in Asia last year worth more than $2.06 billion, including 1,110 in Vietnam, which contributed almost 10 per cent to profits. “We are confident about Vietnam’s long-term prospects, which are supported by increased foreign investment, continued urbanization, and a growing middle class,” Mr. Linson Lim, President of Keppel Land Vietnam, told VET.
In March, through its subsidiary Oil (Asia) Pte, it acquired the remaining 10 per cent stake in Saigon Sports City from Jencity Limited, in order to secure a full holding. The 64-ha township is strategically located in An Phu ward in District 2, where there is a growing middle-class and increasing demand for high-quality urban space. The project is being developed in collaboration with Keppel Urban Solutions, which is a new business unit under the Keppel Corporation and an end-to-end master developer of urban developments.
Last year was also fruitful for CapitaLand, with it marking a record year of growth, posting the highest value in home sales, and ranking among the Top 5 developers. It launched three new projects: Feliz en Vista, D’Edge Thao Dien, and D1MENSION. “This is testament to customers’ confidence in the CapitaLand brand and underscores the strong demand for quality projects in Vietnam,” said CEO Mr. Chen Lian Pang. “Beyond the residential market, we have made strategic inroads and expanded our footprint in the country, with prime assets in gateway cities. To scale up quickly and be nimble in seizing opportunities, we are also working with reputable capital partners who want to invest through CapitaLand, given our deep local insight and execution know-how.”
In the first half year of this year, CapitaLand Vietnam has continued to be a leader in residential sales; not in terms of size but in terms of project quality. It’s currently developing an exclusive landed development called “d2eight”, which features 28 shophouses and the residential De La Sol project in Ho Chi Minh City’s District 4. It has already developed its tenth residential project in Ho Chi Minh City and second in Hanoi and is currently focusing on the mid- to high-end and luxury property segments.
Residential projects in Vietnam will remain in good shape this year, according to Mr. Chen. “Vietnam is a key growth market for CapitaLand and we are seeing strong demand for vibrant, quality live-work-play spaces with rapid urbanization and the evolving lifestyles of young and mobile Vietnamese,” he said. “I am optimistic about the property market over the next five years, as it is backed by strong underlying factors that support increases in property prices and the rental market.”
As at the end of the first quarter, cumulative apartments launched in Hanoi and Ho Chi Minh City stood at more than 450,000, nearly 52 per cent of which are in Ho Chi Minh City, according to JLL Vietnam. Of this, the affordable and mid-end segments dominated the market, with shares of 46 per cent and 38 per cent, respectively. The mid-end segment in both cities has experienced stable growth in recent years, with overall improvements in construction and service quality. New apartment launches in Hanoi and Ho Chi Minh City in the first quarter totaled 22,537 and increased 27 per cent and 98 per cent, respectively, year-on-year. The market will welcome a wave of project completions over the course of this year, due to the considerable number getting underway in 2016 and 2017.
The high-end real estate market remains the top choice for foreign investors, according to Mr. Wyatt. The market now bears names of foreign investors such as Hong Kong Land, Frasers Property, and Mapletree. None are new to Vietnam but have been seeking to expand their residential portfolio outside of traditional investments in the construction or ownership of leading Grade A or Grade B office buildings in Hanoi or Ho Chi Minh City. There are also other prestigious investors from Japan such as Daiwa House, Nomura, and Sumitomo investing in projects in Ho Chi Minh City’s District 7, while South Korean corporations such as the Lotte Group and GS Investments are investing in the Thu Thiem New Urban Area.
CapitaLand, meanwhile, plans to scale up its operations in the residential segment and targets acquiring more office and commercial buildings and serviced apartments, perhaps even building a Raffles City, the name of its mixed developments, in Vietnam. “Designed by internationally-acclaimed architects, the Raffles City brand has garnered international recognition as a mark of excellence,” Mr. Chen said. “CapitaLand has built nine Raffles City developments internationally to date, and hopefully we will see the next one in Vietnam. We are working with various sources in order to acquire more land to bring us a step closer to achieving this goal.”
Demand outstripped supply in Ho Chi Minh City’s residential market last year, where some 32,900 apartments were sold and 31,100 new units were launched. The high-end segment accounted for 20.5 per cent of sales, with average prices up 4 per cent year-on-year, according to Mr. Lim. “With rising affluence, homebuyers are becoming more discerning and are on the lookout for quality properties with strong value offerings in prime and upcoming locations developed by reputable developers,” he said. “We will continue to capitalize on the strong economic growth and positive market sentiment in Vietnam to launch projects for sale over the next few years.”
Looking ahead, Keppel Land will continue to uphold its unwavering commitment to quality and innovation. The company aims to develop Saigon Sports City into a bustling hub, combining high-quality urban living with vibrant and healthy lifestyle concepts that could be a model for other urban developments in Asia. “In tandem with Keppel Land’s strategy to expand its commercial portfolio, we have also completed the development of the Saigon Centre Phase 2, meeting demand for prime office and retail space in the city, and will embark on subsequent phases of the project in due course,” he added.
Limitations in place
The “Emerging Trends in Real Estate Asia Pacific 2018” report jointly published by the Urban Land Institute (ULI) and PwC ranked Ho Chi Minh City among the highest in terms of rental value growth, reflecting confidence that economic strength will spill over to property values. The report noted that Vietnam remains very much a development story, although the number and size of opportunities tend to be relatively small. Bureaucracy remains an issue, but restrictions are slowly being eased and Vietnam today offers probably better market access than other developing Southeast Asian economies.
The government has adopted effective tools in management and monitoring in order to ensure the stable development of the real estate market. According to JLL Vietnam, however, Vietnam still lacks “clear” land ready for development, while there are bureaucratic and complex procedures to be completed at many different agencies and limited high-quality infrastructure can curb accessibility. There is a two-tier market for investors, with domestic groups having first-mover advantage, contacts, and access to land compared to their foreign counterparts.
Housing saving funds haven’t yet fully developed due to a lack of seed capital and inconsistent implementation, Mr. Can Van Luc, Member of the National Financial and Monetary Policy Advisory Council, told the “2018 Real Estate: Impacts from Policies” conference held in May in Hanoi.
Financial institutions are also not diverse, he went on. For example, Vietnam doesn’t have and is not developing real estate investment trusts or housing mortgage agencies. “It’s necessary to have common housing savings funds, as in other countries like Thailand and Singapore,” he believes.
Another policy that will impact on the market is the draft law on property tax recently prepared by the Ministry of Finance. Mr. Luc said the draft should be considered carefully because it will impact on people, enterprises, and, in particular, the interest of foreign investors.
FDI flows into three special economic zones – Van Don (northern Quang Ninh province), North Van Phong (south-central Khanh Hoa province) and Phu Quoc (the Mekong Delta’s Kien Giang province) – are increasing significantly, but Mr. Luc noted that planning is unclear and so it is difficult for developers to seize opportunities and set up their own clear investment plans.
As a foreign developer, CapitaLand sees one of the challenges as being acquiring a new land bank with favorable parameters. Another is the recruitment of local talent with the skills and expertise to manage projects and communicate effectively with the team. After more than 24 years in Vietnam, however, the company has learned to overcome issues and challenges to steadily develop its projects and continues to do so as a long-term real estate developer.
JLL Vietnam said the government should continue to improve the legal framework surrounding the real estate sector, as the process for foreign investors to obtain necessary approvals can be very time-consuming and involves navigating numerous government agencies. Some cases can take up to two years, which is why Vietnam ranks 68th in the world in “Ease of Doing Business”.
According to Mr. Lim, it is important for investors to understand Vietnam’s business culture, forge strong relationships with local authorities and partners, and take a long-term view of their investments. Proactive macro-prudential measures from the government, such as Circulars No. 36, No. 06, and No. 09 on credit for real estate loans, should help dampen any potential extremes in the real estate cycle while reducing the probability of another crisis, according to Mr. Cameron Joyce, Research Manager at Viet Capital Securities.