Real Estate is a Top FDI Destination

Real Estate - Vietnam: May 18, 2018

Vietnam is expected to remain one of the world’s most attractive markets for foreign investment in 2018, especially the real estate sector.

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According to the Ministry of Planning and Investment, the total registered foreign direct investment (FDI) is US$5.8 billion, indicating a decline of 25 percent compared to the year prior in the first quarter of 2018. Meanwhile, FDI spending experienced a year-on-year increase of 7.2 percent. This year it was US$3.88 billion.

The real estate sector is one of the biggest FDI recipients. In the first quarter of 2018, real estate was the third-highest attractor of FDI with US$486 million worth of registered capital, equaling 8.4 percent of the total registered capital. FDI inflow in the real estate sector continued to be behind that of the manufacturing and processing sector (US$3.44 billion) as well as the retail and wholesale sector (US$531 million).

A series of major FDI-funded projects conceived last year are expected to be carried out in 2018, such as Dai Phuoc Lotus in Ho Chi Minh City by the China Fortune Land Development; Future Otis Hotel in the central city of Nha Trang by Taiwanese P.H Group; and apartment projects in Ho Chi Minh City by CapitaLand.

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Ho Chi Minh City has been the largest recipient of real estate FDI in Vietnam. According to Ho Chi Minh City Department of Construction, in 2017, the city had attracted US$1.01 billion worth of FDI in the real estate sector alone, equaling 43.4 percent of the total FDI inflows of the city.

The large amount of FDI in Ho Chi Minh City’s real estate market is attributed to improvements in the infrastructure system and administrative procedures, a growing middle-class population, and a stable economy.

In a recent survey by the real estate consulting firm Savills, Ho Chi Minh City has been ranked third out of 50 cities worldwide for property rental growth and fifth in terms of investment prospects.

At the same time, the FDI inflows in the real estate market in Hanoi have been more modest compared to that of Ho Chi Minh City. Only a few number of projects in Hanoi received investment from foreign groups such as Ciputra, Gamuda Land, Hanoi Garden City, Park City, Booyoung Vina, Daewoo Cleve, and The Manor Central Park.

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However, according to real estate company CBRE, many foreign investors have started to pay special attention to the northern real estate market, particularly Hanoi. This year, the US$4 billion smart city project in Dong Anh District, Hanoi, will begin construction. The project is jointly led by BRG Group and Japan’s Sumitomo Corporation Group.

The project involves building a smart city with a modern transport system using the latest technologies. This huge construction project is expected to heat up the real estate market in Hanoi.

The northern real estate market of Vietnam is also expected to experience growth in the coming year. Alex Crane, General Manager of Cushman & Wakefield Vietnam, said in a recent market report that 2018 would carry a significant increase in FDI in the northern market.

Investors from Asian countries, including Japan, South Korea, Singapore, Hong Kong and Mainland China, have been reported as the biggest foreign investors in Vietnam.

Most of the major merger and acquisition deals in 2017 were led by Asian investors. For example, VinaLand Ltd, managed by foreign-owned VinaCapital, sold all of its stake in Vina Square to Tri Duc Real Estate Company.

Hongkong Land signed an agreement to develop Thu Thiem River Park with HCMC Infrastructure Investment. Creed Group from Japan has taken over the Lacasa project that was initially invested by Van Hung Phat Real Estate.

Meanwhile, Western investors seem to be less active in the real estate market. They tend to focus on real estate related services like managing office buildings, resorts, hotels, serviced apartments, and shopping malls.

According to Savills Vietnam, market differences such as local rules and legal issues could prevent these investors from participating in Vietnam’s real estate market.

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