Developers return to a booming Vietnam
The country's robust growth and increasingly liberalised laws are encouraging foreign firms to tap into unexplored market
With robust economic growth and increasingly liberal government policies, Vietnam's property market is drawing in developers eager to invest in what they see as an untapped market. Investors who got their fingers burnt in Vietnam's property crash in the 1990s are returning to the country.
Analysts predict that this time around the boom will be more sustainable.
'What we are seeing is a tremendous revival of interest in Vietnam from foreign development companies,' said Marc Townsend, managing director at CB Richard Ellis (Vietnam). 'There is a huge range of development going on in Hanoi and Ho Chi Minh City.'
'There's much more sustainability in the market, because now there's a much wider range of foreign companies that have set up there,' Mr Townsend said.
The influx is attracted by the upbeat economic outlook.
Vietnam is expected to achieve a gross domestic product growth rate of 7 per cent this year, the third highest in the world after China and Thailand, on the back of robust exports and increasing foreign investment, according to a recent World Bank report on East Asia and the Pacific Region. And developers seem to agree with the prognosis.
'The gold rush to Vietnam in the early to mid-1990s was premature,' said Richmond Mayo-Smith, managing director of Vietnam-based investment bank Indochina Capital, which is developing a new project with General Hotels Management (GHM).
Since 2000, Vietnam's socialist government has liberalised its property laws, and in 2001, wrote the right to private property into the constitution.
While foreign investors previously had to go into joint ventures with the Vietnamese government, wholly foreign-owned firms are now granted 50 year leases with 20-year extensions.
Foreign companies are now allowed to finance real estate and borrow more than 50 per cent of total development costs on a non-recourse mortgage basis. However, foreign banks are still not allowed to finance projects in Vietnam.
Mr Mayo-Smith said the country's property market was relatively untapped and looked promising to investors. 'Vietnam is a relatively unexplored market compared to Bali or Thailand,' he said.
Still, there are concerns over Vietnam's high land prices, which were among the highest in Asia after a three-year boom, with analysts predicting a continued rise of 5 per cent to 10 per cent per year.
Many say the main reason for the high rates is a lack of investment options. Vietnam's stock exchange - which opened four years ago and is based in Ho Chi Minh City - lists only 22 companies.
'There's very limited land in the country. The prices have gone up dramatically in the past eight to nine years, but seem to have stabilised this year,' Mr Townsend said.
Analysts have also been concerned about mortgages offered by state-run commercial banks. Mortgages have annual rates of about 12 per cent to 14 per cent, but are collateral-based rather than asset-based, which makes it more difficult for first-time homebuyers. Experts fear the mortgage system is helping to fuel the real-estate bubble, as it encourages speculators but discourages first-time buyers.
Still, developers remained optimistic, Mr Mayo-Smith said.
'In the beginning there was a big rush to Vietnam that was based on a lot of hype,' he said, referring to the early 1990s. 'In 1999 there was a major crash, and in 2000 nothing was happening. But it was a good lesson for the Vietnamese government in that they had to open up their markets to attract investment again.'
