International confidence in Vietnam’s economic recovery has seen $1.69bn of FDI (Foreign Direct Investment) ploughed into the country’s real estate market during the first half of the year.
Gateway Thao Dien apartment in District 2
The figures are a 50% increase on the equivalent period of the previous year. The first half of 2014 saw $1.13bn FDI enhance the market, itself seen at the time as an encouraging figure.
This new money coincides with wider investment trends in construction of new property and infrastructure, particularly in areas around the country’s economic capital, Ho Chi Minh City. The construction of new retail and commercial units, on top of transport developments such as the new Metro line, are said to be worth close to $9bn dollars – with even better figures expected in the latter half of the year.
The figure of $1.69bn, released by the Ministry of Planning and Investment, covers the year until the end of June. Crucially, this was the period immediately before legal changes, allowing foreign individuals and companies to buy property in Vietnam, were enacted on the 1st of July – an act expected to dramatically increase the inward flow of overseas capital.
With pre-changes FDI accounting for around 19% of the year’s new money, experts are predicting an even greater upsurge in interest from overseas buyers.
Asset ownership opportunities
Industry leaders are suggesting that foreign businesses – already attracted to Vietnam due to lower labor costs and capital investment requirements – will be further enticed by the prospect of fully owning production units such as factories and warehouses.
CBRE Vietnam is one such leader backing the claim of Vietnam’s increasing appeal to overseas enterprises. Mrs. Nguyen Hoai An, VP of research for CBRE, says “The potential ROI (return on investment) for businesses taking root in Vietnam is substantially higher than key regional competitors. Such large-scale expansion and economic repurposing, as is happening in the east of HCMC, just isn’t possible in space-restricted island-states like Hong Kong or Singapore. Additional asset ownership opportunities simply sweeten the deal for wavering speculators.”
Residential property benefit
The $1.69bn in FDI is focused 22 new or extended projects. These include Empire City in District 2, a collaboration involving the Government, local investors and the UK’s Denver Power Ltd.
Sala apartment, opposite to Empire City in District 2
In addition to increased interest from foreign and Viet Kieu individuals, attracted by law changes allowing their legal ownership of property for the first time, developers are also banking on increased buying power from the growing number of upwardly-mobile locals.
“The volume of new entrants into the Vietnamese middle-classes is continuing to grow”, said Mrs. Nguyen, “and the luxury segment of the real estate market is expected to become even more profitable. The relative stability of the economy in the face of regional turbulence – buoyed by closer economic ties to the West through TPP – is facilitating more local entrants into the high-end sector. Even those wealthy enough to purchase in competing cities, like Bangkok or Kuala Lumpur, are choosing HCMC instead because the initial investment cost is just so much lower in Vietnam.”
As the first figures from the second half of 2015 – the period following changes allowing foreign property purchases in Vietnam – emerge, we’ll be offering exclusive coverage. Keep in touch with us to hear all the latest news and commentary on the Vietnamese property market.
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