Can you provide a brief analysis of the movements of the Asia-Pacific real estate market during the past 12 months?
The real estate market of the Asia-Pacific region at the moment is showing increasing transaction volumes. In fact, we have seen more money pouring into commercial real estate and investment appetite is higher than ever before. This is based on the strong fundamentals of the whole region and especially its very strong growth drivers.
The main driver of the real estate market in the Asia-Pacific is urbanisation. The high population density in urban areas and cities poses a huge demand for real estate. We have a dynamic, youthful population that embraces e-commerce and in Asia, e-commerce drives real estate in the form of logistics and data centres.
A lot of money is trying to find real estate opportunities in the Asia-Pacific. However, the whole region is quite competitive and securing an asset is becoming more difficult. The same applies to Vietnam. Capital looks to diversify in this region, they are looking at mature markets like Japan, Australia, and other emerging markets like Vietnam and China. I think there remains strong international demand for real estate into Vietnam.
You have been in Vietnam many times. How do you see the local real estate market at the moment?
Despite the huge interest from foreign investors, according to my understanding, it is very difficult to secure an asset in Vietnam. Even though the demand for Vietnamese real estate is always very high due to the strong fundamentals and steady support from the government, foreign investors still struggle with securing products. This happens in all emerging countries and Vietnam is no exception.
As the market is still quite local, many international investors prefer to enter it by setting up joint ventures with the local partners. Most investors take part in joint ventures and M&A type of deals rather than pure real estate transactions. So there is money to invest, there are just difficulties in finding opportunities.
One of the critical things for international investors is transparency. The more transparent the market, the more foreign investors will be interested. If the market is not transparent enough, there is not enough information and data available, transactions are slow, and land titles are unclear – all causing foreign investors challenges.
Obviously, Vietnam is seen as a market with heavy capital constraints. Foreign investors have a lot of capital, waiting to be invested in real estate. They want to partner with local investors but they need deals to happen quickly. Investing in emerging markets like Vietnam takes you further on the risk curve but it has high returns. Obviously, the fundamental shift of Vietnam toward a more industrial manufacturing focus would help improve the real estate market and lead to the growing potential for a mature supply chain and infrastructure system.
A mature infrastructure system is crucial to the success of foreign manufacturing companies in Vietnam. This sector needs government support to help grow infrastructure and a mature supply chain with advanced technologies. Government support is especially critical to the maturation of an emerging market.
It is clear that investing in the real estate sector in Vietnam is very exciting but the question is how to overcome traditional challenges in this emerging market. If foreign investors co-operate with local companies to develop real estate projects, they will not only find a way to invest but local investors could be enhanced with the best international practices.
I think that it is critical for the success of any real estate market that they have a healthy balance of international and local capital and more transparency in a more mature real estate market.
How would you comment on foreign direct investment (FDI) flows into real estate sector of Vietnam? Is there any chance for the country to increase FDI in the coming time?
FDI in Vietnam is improving slowly but the most encouraging factor that I have seen is that 10 per cent of the total FDI is poured into real estate. The sector is also the second-biggest FDI recipient following the manufacturing sector.
Vietnam has been entering many free trade agreements (FTAs), which are critical to the development of the country, to country-to-country and investor-to-investor level deals and co-operation.
The free trade zones of the FTAs are improving transparency and comfort for partner countries to trade and co-operate or to set up operations.
Vietnam is a country with skilled labour that can take manufacturing higher up the value chain with these FTAs. In reality, we have seen many joint ventures set up, such as BW Industrial and some other investors who are working with us right now. We have seen a very strong demand from foreign investors coming to Vietnam because they have seen lots of benefits generated by the industrial sector. More importantly, the industrial sector is helping to improve the whole real estate chain such as supply chain, logistics, data centres, offices, and residential property.
What opportunities do you foresee for the Vietnamese real estate sector in the coming time?
We remain very optimistic about the prospects of the Vietnamese real estate market in all asset classes, as Vietnam’s fundamentals are very exciting and they all point to growth in the real estate sector. We think it is an opportunity for both local and international investors who have more opportunity to invest because the potential returns are huge.
The challenges we talked about before – that it is difficult to find and acquire land – remain, but these challenges are quite common in other emerging markets. The critical point is, if you want to grow the industrial sector, you have to provide land to serve logistics.
Everyone wants to sell their land at the highest value, but that is where the government will need to step in because it is not always about maximising profit. It is about setting up the right infrastructure to attract more foreign investors.
The Vietnamese real estate market continues to be one of the fastest developing markets in the Asia-Pacific for JLL. We remain very optimistic in all asset types.
Vietnam Investment Review