Photo: Cushman & Wakefield
Ms. Sigrid G. Zialcita, Research Managing Director at Cushman & Wakefield Asia Pacific, tells VET's Quynh Nguyen about how Vietnam's real estate market compares regionally.
■ What are the advantages and disadvantages held by Vietnam’s real estate market compared to other markets in the region?
Vietnam’s real estate market is currently at a different point on the property cycle, having lagged the upcycle experienced by most of Southeast Asia between 2010 and 2015. This means that Vietnam’s real estate market is in a good position to take advantage of slowing growth across the rest of the region to position itself as an investment destination.
The characteristics of the economy - its young demographics, rapid urbanization, growing middle class, rising incomes, a manufacturing hub, infrastructural developments - are of immense potential for investors to buy into and gain exposure to a very attractive asset class within an emerging market that has excellent structural characteristics and strong growth prospects.
With rental yields of 6 per cent Vietnam is a relatively high return location for taking a long-term position in. However, compared to most of developing Southeast Asia - Malaysia, the Philippines, and Thailand, but with the exception of Indonesia - it does not have an established foreign ownership regime.
■ What regional factors have affected Vietnam’s real estate market in recent years?
The Asian Economic Community (AEC) and the TPP are probably the most important economic events that will have the most profound effects on Vietnam’s economy and we expect strong FDI growth to be seen in most areas, especially textiles, construction, banking, high technology and real estate due to AEC and the TPP. This means that Vietnam’s industrial and office real estate will be a direct beneficiary of the country’s deeper integration with the global economy.
■ How do you evaluate the attractiveness of Vietnam’s real estate market for foreign investors?
In a study carried out by Financial Times’ data division, FDI Intelligence, Vietnam ranks among the top in terms of greenfield FDI into Asia. Its demographic profile, rapid urbanization, growing middle class, rising incomes, status as a manufacturing hub, infrastructure developments and stable political climate are attractive fundamentals. The potential upside, from a higher level of economic integration, is also compelling.
■ Vietnam’s real estate market is overheating. What are your thoughts on this?
While residential has increased of late, which has increased land prices, and speculators are coming back to the residential market, it is too soon to say that the market is overheating. Moreover, we see that the development of infrastructure has raised the value of real estate in cities. However, with the large levels of supply we expect prices to stabilize. Office rents are also increasing gradually and cap rates have compressed to a level not experienced before, due to heightened interest among investors for prime income producing offices.
However, the robust supply pipeline should rein in expectations. On the other hand, industrial prices are flat. As with any market, there are reported prices that may seem above market value, but many times this is unsubstantiated. The government has shown itself to be wary of a repeat of what happened before 2012 and are taking measured moves to rein in any instance of irrational exuberance.
■ What do you think about the impact of Circular No. 36 and its recent amendment on the real estate market?
Recent amendments to Circular No. 36 are expected to lead to a more stable and sustainable real estate market. The objective is to strengthen risk management pertaining to commercial banks’ lending activities rather than to tighten credit. The risk weightage used in calculating capital adequacy for loans to the real estate sector has been raised to 200 per cent from 150 per cent. This is necessary as it will prevent real estate from going into bubble territory.
Moreover, the timeframe for tightening credit will last for three years, specifically maintaining the ratio of short-term capital to mid- and long-term loans at 60 per cent through 2016, which will be reduced to 50 per cent as of 2017 and further to 40 per cent in 2018. This will give developers time to adjust their capital requirements to their development projects. As developers mostly use mid- and long-term loans, the impact will be greater in the real estate sector. This policy is expected to force real estate developers to restructure their balance sheet and manage their capital requirements to be more financially independent and less reliant on banking credit or recycling capital from purchases.