Vietnam can offer good returns for the cautious

PUBLISHED : Wednesday, 12 December, 2007, 12:00am
UPDATED : Wednesday, 12 December, 2007, 12:00am

Giant global investors are beating a multibillion dollar path to Vietnam in search of supercharged returns, and Hong Kong's small property investors could profit from going along for the ride, according to fund manager Horst Geicke.

Now was a great time for Hong Kong retail investors to buy an apartment or home in Vietnam, said Mr Geicke, executive chairman of VinaCapital, a fund specifically set up to invest in the country's real estate market.

'Vietnam is starting to have a very organised and promising domestic economy,' he said, and this was largely due to the process of market liberalisation and the privatisation of state-owned enterprises.

Other commentators urged caution, however, warning that shopping unaided for property in a marketplace that was not yet fully transparent could be a trap for the unwary.

At the big end of town, however, no such concerns are evident and attracted by the opportunities on offer and Vietnam's progress towards joining the World Trade Organisation, investors poured more than US$10.2 billion into the country last year and will invest another US$15 billion this year.

Foreign direct investments this year into a country with a population of just 85 million will match flows into India, with 1.1 billion people.

Fuelled by these massive investment inflows, Vietnam's economy has expanded at an average annual rate of 7.5 per cent over the past decade, the second highest growth rate in Asia after the 9 per cent expansion recorded on the mainland.

The influx of leading foreign companies such as Intel and Microsoft, as well as the growth of local enterprises, has stimulated demand for premium office space. In the country's capital, Ho Chi Minh City, average monthly rent for grade A premises jumped from US$23 per square metre in the first quarter of last year to US$32 per square metre in the first quarter of this year, and continue to climb another 41 per cent to US$45 per square metre in the third quarter.

Demand has ensured that occupancy levels are firm at 100 per cent, according to property consultant CB Richard Ellis.Prices of residential housing have also risen significantly, driven in part by rising demand from expatriates. In Ho Chi Minh City, the monthly rent for a one-bedroom serviced apartment is about US$35 per square metre while a studio flat will cost more than US$40 per square metre, according to CBRE - up from US$30 and US$32 per square metre, respectively, a year ago.

Prices of upmarket property have also shown impressive growth in the last 12 months, with asking prices in the luxury sector up twofold from US$2,200 per square metre to US$4,500 per square metre, according to VinaCapital.

Some Hong Kong buyers had already joined the bandwagon by investing in beachfront villas in Danang, said Don Lam, chief executive of VinaCapital. He said the port city on Vietnam's south central coast was just a 11/2 hour flight from Hong Kong, making it a shorter hop than flights to Phuket or Bali.

Meanwhile, enormous internal consumption power continues to drive the country's economic expansion. 'Of the 85 million people in Vietnam, over 70 per cent are below 35 years of age,' said Nicholas Brooke, chairman of Professional Property Services (PPS). 'The young profile of the population means that many are at an age where they wish to marry and have their own home, and it is estimated that there is a need for 60 million square metres of urban residential space - almost double the current stock.'

With prices ranging from US$900 per square metre upwards in the mass market and US$1,200 upwards in the luxury sector, Mr Brooke expects there will be no shortage of buyers. Also, growing remittances from over three million overseas Vietnamese as well as the availability of mortgage lending with 75 per cent loans over 15 years, will underpin the market.

Some commentators urged caution when it came to small investors following the big institutions into Vietnam's market. PPS's Mr Brooke said now might not be the best time for individual investors to shop without guidance in the property market, given the absence so far of a completely transparent market.

A safer course of action, he said, would be to buy from developers with track records and reputations, to focus on high-end product to play safe, or to start with a property fund. 'Once you are familiar with the market through your investment in your fund and feel comfortable with the market, maybe after two or three years, then you could possibly invest directly in the market,' he said.

Marc Townsend, managing director for CBRE (Vietnam), echoed the warnings and said small investors should examine every detail with great care before buying. That meant insisting on answers to such questions as: what facilities and amenities are provided in projects, whether there are international schools and hospitals in the vicinity, monthly service charges and property management issues, and leasability and resale potential - all of which would affect the yield and growth potential.