Vietnam’s building industry gains momentum

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Changes to legislation and a recovering real estate market in Vietnam are helping lure investors back to the sector, bringing renewed opportunities for the building industry as several landmark skyscraper projects kick off this year.

In the wake of a property market bubble that led to the collapse of Vietnam’s real estate market four years ago, signs of a recovery are now at hand. According to Vietnam’s Foreign Investment Agency, the property market attracted $1.7bn in foreign direct investment (FDI) across 15 projects in the first seven months of the year alone, accounting for 19.3% of total FDI. In contrast, the sector made up just 12.6% of FDI last year.

Transaction volumes are also on the rise. According to data from the Housing and Real Estate Market Management Agency, the number of residential property transactions in Hanoi and Ho Chi Minh City rose 3% month-on-month in July to 3550.

Residential boom

One of the key factors behind the surge in demand is the amended Housing Law and the Law on Real Estate Business, both passed in 2014 to remove restrictions on foreign ownership of residential and commercial properties.

According to the new Housing Law, foreigners may now purchase residential property in Vietnam, while the Law on Real Estate Business grants foreign organisations and individuals the ability to not just acquire real estate for use as offices or production facilities, but also sell and lease out residential properties that have yet to be constructed.

Effective from July, the laws are expected to act as catalysts in cities such as Hanoi and Ho Chi Minh City, particularly in the luxury segment, according to real estate consultancy CBRE Vietnam. Units launched in Ho Chi Minh City and the capital Hanoi in the first half of the year surged 174% and 91% year-on-year (y-o-y) respectively, CBRE reported.

Interest in the property sector is being compounded by weakness in other investment channels, such as gold, securities and savings.

New to market

Against the backdrop of a stabilising market, a number of showcase real estate developments in Ho Chi Minh City were rolled out this year. Construction began this summer on Vincom Group’s Landmark 81 – an 81-storey skyscraper located on the banks of the Saigon River – while the 86-storey Empire City Tower project was approved in July, with construction expected to start later this year.

At the same time, the government is looking to encourage greater private sector participation in Vietnam’s mass housing projects. In July the minister of construction, Trinh Dinh Dung, called for more favourable conditions for private investors, such as providing land parcels with essential infrastructure, streamlining bureaucratic processes and providing access to low interest loans for firms operating in the mass housing sector.

The minister admitted that financial incentives were lacking for social housing projects, which, due to higher costs and lower returns, are traditionally less popular than developments in the high-end segment.

Materials in demand

The booming property market is having a knock-on effect on the construction and building materials sector. Figures showed cement production in the seven months to July rose 10% y-o-y to 41m tonnes, with overseas sales up 13% at 9.8m tonnes, according to a mid-August report by the Ministry of Construction, while cement consumption grew 6% in the first half.

The ministry’s building material department said the rise in consumption of materials was due to an improvement in the real estate market, alongside a ramping up of infrastructure development. Forecasts from the ministry put year-end cement consumption at 72m-74m tonnes, up by around 2% over last year’s volumes. Approximately 54m is expected to be used locally, with the balance to be exported.

Infrastructure drive

Urbanisation and rapid industrialisation have also boosted demand for construction and engineering services in Vietnam, according to research by the Hong Kong Trade Development Council. “With a considerable number of foreign manufacturers setting up production bases in the country, demand is also on the rise for industrial properties, including industrial parks, warehouses and logistics facilities,” the group said in March.

In conjunction with growth in the industrial sector, the demand for public infrastructure is increasing, with authorities planning a number of new transportation and utilities projects. According to the Ministry of Planning and Investment, the country needs to invest $200bn in infrastructure development between 2010 and 2020, which has prompted a raft of infrastructure projects to be rolled out.

Foreign investment will likely play a crucial role in their development. In May 2014 the government issued a list of 127 infrastructure projects deemed suitable for foreign investment in the run-up to 2020, including transportation, utilities, industrial zones and energy infrastructure projects. In addition, the authorities are looking to expand transportation systems, such as its metro lines and highways. 

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