Foreign investors drawn towards real estate sector

SGI

In 2019, the real estate sector was at number two position in attracting Foreign Direct Investment (FDI) into the country, which trend is expected to continue and even increase sharply in 2020.

The coastline of more than 3000 km is a favorable condition to attract FDI into the real estate sector.

The coastline of more than 3000 km is a favorable condition to attract FDI into the real estate sector.

Real estate draws foreign investors

In 2019, FDI investment in the real estate sector was more than USD 2.7 bn, accounting for 17.8% of total capital investment, ranking second after the processing and manufacturing industry. Notably, in 2019, the number of foreign investors looking to explore investment opportunities in Vietnam increased by 30% compared to the same period in 2018. Among which, many delegations sought opportunities to shift their investments from China to Vietnam. The investors were mainly from Japan, Korea, China, Hong Kong and Singapore. This shows that the real estate sector has always been an attractive option for foreign investors.

There are many reasons for FDI inflow into the real estate sector in Vietnam. First, Vietnam has political stability, macro-economic growth, and an active investment environment which all helps the real estate market to retain growth and stability. In addition, with the current fast growing economy, people's rising income, especially that of the young labor force, has led to a rapid increase in housing demand in big cities such as Hanoi, Ho Chi Minh City and other central industrial areas.

Besides this, Vietnam has a vast coastline of more than 3,000 kms with many beautiful landscapes and beaches, and many mountainous and river areas that are conducive for the construction of tourist resorts. This diversity of historical and cultural sites has brought about many real estate investment projects and this new driving force will continue to attract many foreign investors to Vietnam in coming times.

Along with growth in the economy, the process of economic integration is also accelerating. Demand for offices, apartments for rent, hotels and commercial buildings are growing rapidly, especially the demand for apartments and hotels for domestic and international tourists in big cities as well as tourist resorts in the country.

In particular, Vietnam has signed many free trade agreements, and Vietnam's economic stability is expected to continue to attract many foreign investors. Therefore, the demand for investment and development in industrial real estate will be the basis to create a strong belief in the growth of industries in Vietnam that will bring in more foreign investments.

Selecting strategic investors

According to the Ministry of Construction, the annual demand for housing has increased by more than 100 million sq.m. Besides, the low-cost segment, tourism, resorts, hotels, industrial and infrastructure projects that require high-quality architecture, vast amounts of capital, and complex technology are on the rise. With limited resources, domestic real estate investors really need more foreign investors to raise capital, technical capabilities, and higher standards of management.

However, in order for FDI to flow into the real estate market and contribute greatly to the socio-economic development of the country, the process of attracting FDI should be conducted carefully and with consideration and in accordance with detailed planning. First, detailed and specific socio-economic development plans are needed. On that basis, a real estate plan to suit short-term, medium and long-term development needs must be designed. Reasonable planning of real estate investment will help fully and promptly to meet the infrastructure for socio-economic development, avoid accumulation, uneven distribution and stagnation of projects.

Second, it is necessary to complete all the legal mechanisms and policies related to the purchase, sale, ownership and use of different types of real estate. In principle, the purchase and sale are only made when there are actual goods. However, due to high value and long construction time in real estate projects, Vietnam has allowed investors to "pre-sell" the products. But due to lack of specific regulations, that are not strict, many disputes occur. Moreover, the type of condotel serviced apartments being built do not have specific definitions and legal regulations, so it is an ongoing issue in the market.

Third, it is necessary to create clear standards for investors and FDI projects, with a mechanism to consider and appraise financial sources, design, cost estimates, ability to build and manage projects. Thereby, Vietnam can select good investors, that are experienced, capable, and able to connect international tourism and real estate markets in the country.

Fourth, domestic real estate enterprises need to prepare for all financial conditions, land use rights, programs and projects to invest in business quickly, precisely and definitely for each project. In business, ambiguity, lack of goodwill and commitment must be avoided. The contracts must be clear, meticulous and have specific responsibilities based on the laws to ensure enforcement and legal efficiency.

Fifth, we need to strengthen joint ventures, associate with foreign investors to attract capital, and familiarize with customers in developed countries, ensuring a long-term investment for lucrative projects.

It is necessary to identify ways and means of joint ventures and co-operations and the real estate sector must be careful in choosing the right foreign partners. Investors with resources, skills in construction and real estate business experience must have long-term commitment plans before the implementation of any joint venture project.

Translated by Mathew Hùng

Asso. Prof. Dr. Dinh Trong Thinh, Economic Expert at Finance Academy

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