HCMC Real Estate: Opportunities for Local Investors

The news that Vinacapital sold 70 % of its share in Hilton Hotel to a local business has caused concern to public opinion. Whether foreign investors have less interest in Vietnamese market or they just transfer to a new market?

 

In general, Vietnamese people prefer foreign brands. It is also true to real estate. Each building or project must bear a foreign name. In reality, when the market is open, foreign corporations invested in real estate market and became important sources of capital. However, when the real estate market slows down with decreased payment causing panic among local investors and “freeze” in the market. For foreign investors, with the decrease in interests especially in high quality apartments and office buildings, they withdraw from Vietnamese market and invest in China and Singapore.

 

In 2006-2007, investment in Vietnamese real estate was most profitable, especially in apartment and office buildings. It attracted a big number of foreign investors. Their massive investments cause surplus in apartments and offices for lease. According to Consulting and Real Estate Management Company (CBRE Vietnam), the supply exceeds the demand in some market segments, especially in office buildings. Although the rental is decreased by half, the vacancy remains high.. In HCMC down town, the vacancy is 15 %. The supply is highest in the past 10 years and it will take 4-5 years to harmonize supply and demand. In the past 18 months, HCMC have introduced 46 projects with nearly 15,000 apartments. While in the same period, Hong Kong and Singapore have only one fourth of the number of new apartments. According to a CBRE forecast, by 2010, HCMC will have 44 new projects with 22,560 apartments. With massive supply, the apartment price is much higher than the building cost. With low interest rate, it takes longer time for recovery of capital. Meanwhile, competition becomes fiercer in hotel and office building projects with big number of projects in Districts 1, 2, 7 and 9. posing stronger pressure on late coming foreign investors. It also creates condition for tenants to re-negotiate on high rentals of the past. Commenting of the development, CBRE representative believes that it is the natural outcome of the real estate market in Vietnam. It is understandable that local companies are taking control of the market. Vietnamese investors with advantages of understanding the life style, culture and demand of the market can quickly gain the confidence of the buyers. Furthermore, with their bigger resources, they can build projects of higher quality than foreign investors. It has been shown in such big projects in HCMC as Vincom, Petrovietnam, Bitexco, Times Square and SJC.           

Nonetheless, due to the world economic crisis, Vietnamese investors have more difficulties in mobilizing resources. According to Mr. Le Chi Hieu, Chairman and Director General of Thu Duc House, Vietnamese businesses are very flexible in mobilizing resources for their projects. Currently, they have six solutions including their own capital, company bond, loan, customers’ capital, joint ventures at home and abroad. Mr. Hieu also believes that policy on real estate market must be amended in time, for instance, the issue of company bond remains controversial, the new concept is without legal framework.

Unlike the past of small businesses and unhealthy competition, Vietnamese businesses have now cooperated to expand market and gain confidence of customers. For instance, on September 19, 2009, three major real estate enterprises of Dong Nai (Tinnghia Land, Donaland and Sonadezi) signed cooperation programme to develop real estate market in the province. Ms. Nguyen Thi Thanh Huong, Director of Tinnghia Land said that due to the cooperation the enterprises can help each other in human resources development, mediation and real estate evaluation.

 

For his part, Mr. Phan Huu Thang, Head of Foreign Investment Department, MPI, said that it is a good sign that local investors join hands. It is time for them to show their strength and stand on their feet. Mr. Thang, however, did not deny the cooperation with foreign partners especially in urban planning and development as well as equipment and building materials. Vietnamese real estate market has great potentials. Experts believe that in the future, Vietnamese real estate businesses will be more professional and take control of the market.