Korean Construction Enterprises Seek Opportunities in Vietnam

The government of Korea has made an announcement to spend about 5,000 billion Korean won (equivalent to US$3.78 billion) from its state budget on purchasing inventory land and apartments with an aim to recovering the real estate market of the country. Ten years ago, a similar plan was implemented in order to save domestic construction enterprises and it really worked. The construction and real estate sectors of Korea are encountering heaps of obstacles. Everything even seems worse when credit conditions are tightened, which means that many houses fail to seek for owners. According to statistics from the Korean government, construction sector makes up around 18 percent of the nation’s GDP.

 

Though the business area in the construction sector of Korea is not operating smoothly, Korean enterprises are accelerating their investment into Vietnam market with lots of optimistic assessments. Market observers also reveal that apart from the fast development of Vietnam market, Korean companies’ massive entry to Vietnam is due to weakening business of the domestic construction sector.

 

Increase in projects from KoreaMr Park Yong Seok who works for Korean Research Institute of Industry and Construction judges that the Middle East and Asia witness a very fast development pace of the realty market. Orders from these two markets reach a value of US$26 billion in 2007. Asia is the biggest construction market, reaching an annual growth rate of 6.5 percent. The value of this market is estimated to increase to US$2.3 billion in 2010. Vietnam is assessed to be the country with the highest rate of market scale expansion. Thanks to the endeavours of Vietnam government made in issuing stable articles of law, focusing on constructing industrial parks and developing the infrastructure system in order to attract foreign investment, Vietnam market has undergone continuous expansion.

 

The reason for Korean investors’ interest in Vietnam market lies in the fact that Vietnam’s economy has reached an average growth rate of over 7 percent per annum since 2002, ranking the second in Asia, only trailing after China. This leads to a boom in the construction market, especially in the two biggest cities of the country and the area around Hanoi capital.

 

This boom becomes a great attraction to Korean construction companies when they are seeking for a new source of profit given the current stagnancy of the domestic construction industry.

 Since 2006, investments made in Vietnam real estate market have witnessed a fast growth. Up to now, 109 construction companies have penetrated into Vietnam market and 79 works are being processed. Recently, there have been some big investments in real estate projects. For instance, Amco and Mibaek co-invest to construct Vietnam’s largest Resort Complex in Haiphong City. Daewoo Company builds and trades apartments in Hanoi. Daewoo – Phong Phu – Thu Duc Housing Development Company has a registered capital of US$19.56 million, making a total investment of US$94.3 million. GS Construction Company has accepted to develop real estate after the traffic route from Tan Son Nhat airport to Xuan Hiep gets completed. After receiving the project, the company has started constructing a complex of buildings for office, commerce purpose and accommodation for some 6,000 households on an area of over one million square meters. The project gets started in September 2008.

 

If large works invested by Korea earlier are named, it is necessary to mention the complex of five Korean construction companies which won the contract from Vietnam government to participate in constructing a new city in Hanoi. They are Daewoo, Kolon, Keangnam, Daewon and Dongil.

 

Many other Korean construction companies are also making every effort to penetrate into the housing market of Vietnam. Lee & Co Corporation has won the contract to build apartment blocks in Ho Chi Minh City. Daewon has started its joint-venture project with Thu Duc Housing Development Company to construct apartment blocks in Ho Chi Minh City since 2004, etc.

 

Developing the housing fund in cities Making investment in Vietnam is among activities in the trend of expanding investments overseas of Korean enterprises. Orders in construction area saw a speedy increase in 2004-2007 period. September 2008 witnesses US$39.5 billion poured into the realty area and 473 projects overseas. This shows the importance of construction works conducted overseas of Korea. Due to the influence of the stagnant domestic real estate market, the penetration of small construction companies into overseas market is very potential. In 2007, orders of these companies doubled that of 2006. Increased investment leads to increased co-operation among Korean realty enterprises.

 

However, the construction circle of Korea has only taken interests in investing in and constructing tall buildings and luxurious apartments. Meanwhile, Vietnam desperately needs to develop the housing fund for urban citizens, especially those ones with low income. Mr Nguyen Duc Hung, Deputy General Director of Housing and Urban Development Corporation (HUD) shares experiences in investing in and trading real estate property in Vietnam market. The urbanization trend in Vietnam combined with the strategy to boost industrialization and modernization of the government, and the fast increase in industrial labour and service structures leads to a big demand for housing in urban areas. The population in urban areas by 2010 is estimated to double that of 1995, accounting for 33 percent of the country’s total population.

 

According to Mr Hung, apartment blocks which are obsolete and annexed are out of control. The technical systems of such blocks have failed to function well, if not to say heavily out of order. In recent years, large cities of Vietnam have started making investments in developing new urban towns. However, demand for accommodation of the citizen has not been satisfied. Low – income people encounter heaps of difficulties in settling down in new places. The government is also having plans to build social housing funds for such people. The programme is being urgently implemented.

 

Mr Nguyen Duc Hung also analyses the construction scale and appropriate selling price for low – income citizens in Vietnam. He proposes that the social housing projects be attached to the commercial housing projects so that technical infrastructure and social infrastructure can be supported and the economy can thereby be developed. According to his proposal, living conditions of low – income people will be improved by living in a space compatible with scenery structure, public space and the technical infrastructure system.

 

Vietnamese investors have also introduced to Korean partners the pilot project of housing block for lease in Hanoi. The block consists of 940 apartments, ranging between 32 square metre and 60 square metre wide. Social houses are designed basing on the research on demands of users who are small households. 40 percent of the land in the project is allocated to housing construction. The remaining area is for public works, green parks and roads. Blocks are designed in a flexible structure, creating a lively space.

 

Minh Chau