The Vietnamese property market is one of the fastest growing in the region, due in large part to greater foreign investment and higher household incomes, but not everything is rosy.
Marc Townsend, director of CB Richard Ellis Vietnam, attributes the real estate boom to Vietnam’s entry to the World Trade Organisation (WTO) and rapid stock market growth.
WTO membership has encouraged more foreign companies to invest in Vietnam, pushing demand higher for mid- to high-grade office space, and hotels, with an increasing number of business travelers.
CB Richard Ellis also predicts shopping center retail space demand will rise with more and more companies competing in the liberalized economic environment of the WTO era.
As a result, domestic and foreign property developers plan to inject millions of US dollars into the market to build five-star hotels, entertainment and shopping complexes, and office buildings in major urban centers.
These new construction projects, though, are years from being completed, causing a short-term shortage in available space.
According to HCM City Real Estate Association (HOREA), many high-end office buildings in Hanoi and HCM City are fully occupied and cost about USUS$35–38 a sq.m per month.
A booming stock market has also contributed to real estate growth.
The money earned from securities trading is being redirected to the more stable real estate market, said Townsend. This has led to greater domestic demand for high-rise apartments and villas.
Fund managers are also flooding the market.
VinaCapital controls 70 per cent of Hilton Hanoi after acquiring an addition 50 per cent stake earlier this year. The company also owns 70 per cent of Sofitel Metropole Hanoi, and operates two property funds expecting returns of 25-30 per cent.
Moving forward, the property market is expected to continue strong growth well into 2008, says Tran Thanh Tan, director of Dragon Capital’s securities investment fund.
The downsides, though, are a lack of transparency and over-regulation that could stem property development.
In a Jones Lang LaSalle report released earlier this year, Vietnam was dead last in a global transparency index, below regional competitors like Thailand and China, an indication of limited access to information and complicated legal procedures.
Analysts have noted several specific problems with the local market including redundancy in real estate and construction laws with too many ministries involved, and officials’ insufficient understanding and inexperience in dealing with property regulations.
For example, a company may have to visit the Ministry of Natural Resources and Environment, Ministry of Construction, Ministry of Agriculture and Rural Development, and the Ministry of Fisheries to get final approval for a project.
Companies are urging the Government to develop a more unified legal framework to make investing in real estate easier.
The Jones Lang LaSalle report also pointed out that poor management has negatively affected how officials determine land prices.
Julien Sausset, a sales manager at the Asian Mipim group, said during his recent visit to Viet Nam that transparency has not met investor expectations.
He said recent surveys showed the Vietnamese real estate market was very attractive but also very complicated, because many factors in the market were not as transparent as expected.
He noted difficulties with licensing, administrative procedures, acquiring land rights and capital withdrawal procedures.
In a recent seminar on HCM City’s real estate market organized by HOREA, executives fingered administrative procedures as the biggest hindrance to the market.
HOREA Deputy Director Le Hoang Chau said the Government’s inflexible legal framework limits management efficiency. In addition, there are as many as 600 relevant legal documents involved with getting a building erected.
“We are very confused with legal documents and procedures. When we want to invest in a land plot, we take a lot of time learning about procedures and we don’t always know exactly which State body to approach,” said Nguyen Phu Huong, director of Phu Hung Gia JSC. (VNS)
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