Real estate seeks foreign investors

Neil MacGregor. — VNS File Photo

With the nation's real estate market still largely frozen, property services firm Savills Viet Nam held a seminar in Tokyo last Friday to promote the market with Japanese investors. Viet Nam News spoke to one of the leaders of the seminar, Savills Viet Nam deputy managing director Neil MacGregor

Why would Japanese investors be attracted to Viet Nam's real estate market, since it has some of the highest property prices in the world?

There are a number of reasons why Viet Nam in general and the country's real estate market would be attractive to Japanese investors. First of all, the average annual GDP growth rate at around 7 per cent is impressive and the continued growth potential means Viet Nam remains a focus for Japanese investors. Secondly, being an emerging market with favourable demographics, low labour costs and a strategic location in the region, Viet Nam is ranked as one of the top investment destinations in Asia for its competitiveness. This is more so for Japanese investors following a "China + 1" policy.

Japanese investors have been focusing on the Viet Nam real estate market for a while, but have been waiting for property prices to fall to more reasonable levels. Now that property prices in Viet Nam are indeed falling they see it as an opportune time to invest. In addition, they are generally long-term investors and are seeking steady returns over many years, rather than speculative capital gains.

Do you think the real estate market will begin to recover this year? What is causing the prolonged downturn? What needs to be done to spur a recovery?

The real estate market depends a lot on the economic environment, which is in turn dependent on Government policy. The current economy is dominated by high inflation, a lack of liquidity due to restrictions on credit, and continued pressure on the currency. This unstable environment hinders both supply and demand, causing a prolonged downturn.

Deposit interest rates have been capped at 14 per cent per year in an attempt to hold lending rates at a lower level. However, for the real estate market to see any significant signs of recovery, and for owner occupiers to be able to access affordable mortgage financing, interest rates will need to fall significantly. There are few signs of interest rates reaching such a level in the foreseeable future, while inflation remains high.

The other significant consideration is the very high level of gold savings in this country. Gold prices are currently very high, but should gold fall on the international market, then we may see a shift from saving in gold to investments in real estate.

Finally, buyers need to have confidence that real estate developers will complete projects on time and to the quality expected. With the current uncertainty as to whether developers are able to meet their debt obligations, and with projects being completed to poor standards in some cases, this impacts upon confidence in the sector as a sound investment.

A number of domestic real estate developers are expected to merge due to a lack of capital. Can you comment on this trend?

Real estate developers are currently unable to access financing at affordable levels and are therefore seeking to raise capital from other sources. Mergers among local developers can only assist if one party is able to provide capital that the other is unable to access.

That is why Savills held this seminar in Tokyo to call for investment from foreign developers. The event was a significant success and we hope to help improve the liquidity of the market.

The Vietnamese real estate market is critically short of capital and developers are therefore seeking new sources of financing. These include an outright sale of a project to a third party, seeking a joint venture partner, en bloc sales of residential units, or strata sales of retail and office space. Many Vietnamese developers holding large land banks are now willing to sell land to third parties in order to raise capital to finance the construction of other projects.

The financial pressure on local developers has resulted in many distressed assets in Viet Nam – which also creates an unprecedented period of opportunity for foreign investors. Although facing a number of challenges, including an immature legal framework, low market transparency, complex licensing procedures, and differences in price expectations, the market within the next few years will likely see a rising number of deals taking place. — VNS