Additional foreign investment inflows in real estate went up during 2019 while credit in the sector bucked a downward trend, signalling its reduced heavy reliance on bank loans.
Slowdown in bank credit
Bank credit in the domestic real estate market was estimated to reach VND300 trillion (US$12.927 billion) in 2019. Meanwhile, the remaining four capital inflows into the sector, including domestic private firms, foreign direct investment (FDI), corporate bonds, and stocks, aggregated to VND240 trillion (US$10.341 billion).
Bank credit has overwhelmed the total capital inflows into real estate in the past years but this year saw a slowdown in real estate loans which accounted for 60 percent of the total capital inflows into the sector, while the rest came from other sources.
Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam (BIDV), said many raised concerns about the Circular No. 22 recently issued by the State Bank of Vietnam. In fact, Luc himself urged for the issuance of such a circular to lead real estate loans to meet practical needs instead of speculation.
“The real estate market is expected to make healthy performance in the long term as the circular is believed to encourage loans for building, buying, and repairing houses, which would be adjusted to make up less than 50 percent of the total credit in real estate and half of the total commercial loans. Such loans normally occupy some 67 percent of the total real estate loans,” Luc said.
Nguyen Manh Ha, chairman of Landora Group, noted that the credit policy has still posed shortcomings, adding that the most concerned inadequacy is related to make proper adjustments to the room for credit growth in real estate.
“In 2020, the latest circular continues to limit real estate credit, but I believe that the performance of real estate firms will remain stable. There exist bottlenecks regarding the grant of investment permits and the realisation of administrative procedures for real estate projects. To be honest, what we have high hope on is to simplify administrative procedures, especially those related to tax calculation and set forth a mechanism aimed to leverage businesses’ collaboration with regulators rather than bank loans,” said Ha.
Increasing foreign investment expected
Nguyen Hong Van, the real estate service provider JLL Vietnam’s Director of Markets, assessed that the increasing foreign capital flows in real estate would result in a string of positive impacts for the domestic market.
A slew of foreign real estate developers have been eager to make bold investment in the Vietnamese market through acquiring projects and making alliance with domestic partners.
“The increasing penetration of foreign real estate developers always gives a push to the domestic market as these developers could tap into their experience in executing projects in Vietnam. Domestic enterprises could absorb foreign investment flows as well as learn from foreign partners’ experience in implementing real estate projects,” said Van.
Foreign investors tend to enlarge their investment portfolios across many segments, especially commercial houses and apartments.
Vietnam managed to attract high-quality investment inflows from Japan and the Republic of Korea with a focus on shopping mall and row house segments, while most of the Chinese FDI in real estate centred on industrial park projects.
Real estate was the second largest receiver of FDI inflows into the country during 2019 while there was a drastic change in the structure of FDI inflows in real estate. In particular, real estate developers from Japan and the Republic of Korea stepped down from their throne as Hong Kong (China) grew into the largest foreign real estate investor in Vietnam.
In Hanoi, the apartment segment shone bright on investors’ radars during 2019. A vast number of apartment projects have been developing in Hanoi since 2010, spreading from central business districts (CBDs) to suburbs which are some 50 minutes away from the inner city.
By September, as many as 270,000 apartments had been offered for sale while the average selling price increased by 6.5 percent on year. The supply saw an increase of 11,000 apartments in the fourth quarter of 2019 which made the market more bustling with increased transactions.
Foreign investment and remittance inflows into the real estate market is forecast to soar in the time to come while M&A deals in the sector are also believed to maintain the upward trend. Foreign investors tend to team up with Vietnamese partners to create quality real estate products to enlarge their footprints in the market. VOV
Vietnam has been extremely successful at attracting high-quality FDI, with this investment primarily going into manufacturing and real estate projects, according to Neil MacGregor, managing director of Savills Vietnam.
The US-China trade war has led toChinese wooden furniture manufacturers moving production to Vietnam, bringing risks to the domestic woodwork industry.