Gamuda Land has become the latest victim of the struggling build-transfer mode in Vietnam.
The Hanoi People’s Committee (HPC) last month approved a proposal from Gamuda Land Vietnam for it to cease with the development of Part B of the Yen So Park project in Hoang Mai district. Hanoi Chairman Mr Nguyen The Thao decided that Part B would be transferred back to the Hanoi Department of Planning and Architecture. It will be adjusted without moving existing residential areas and local authorities will seek other investors to develop Part B under the build-transfer (BT) mode.
Located at Hanoi’s southern gateway, the Yen So project is the largest green park to be built in the BT mode, with 323 ha in Part A and Part B. Gamuda Land Vietnam finished construction of Part A of Yen So Park in October 2010 and the Yen So Sewage Treatment Plant in March 2012. Hanoi, in return, decided to transfer 82 ha of land in Hoang Mai district to the company for it to build two residential areas: Gamuda Gardens and Gamuda Lakes. Part A of Yen So Park (the Cultural and Traditional Park) was officially opened to the public in April this year. Construction of Part B, meanwhile, has faced a range of difficulties. Mr Cheong Ho Kuan, General Director of Gamuda Land Vietnam, said the primary issue is sharply increasing site clearance compensation costs. Changes in regulations dramatically increased compensation costs from $20 million for both Part A and B to an estimated $150 million for Part B only.
The sudden increase in compensation costs interrupted site clearance and the compensation process being implemented by the Hoang Mai District People’s Committee and the Hoang Mai Land Fund Centre. “The developer must pay site clearance costs in advance to proceed with the process and is then reimbursed the amount spent,” said Mr Cheong. “We are unable to pay this amount in advance while authorities cannot clear the site.” If local authorities completed the compensation for Part B, Gamuda would continue with the project. “The change in the investment mode for Part B was decided upon by the HPC and we will comply with that decision,” he added.
Besides ceasing work on Part B, it’s also claimed that Gamuda Land Vietnam has proposed re-planning for Yen So Park. Mr Cheong, however, rejected such claims. “We would like to highlight that Gamuda did not propose any re-planning of Yen So Park,” he said. “We only proposed the addition of a residential area.” Mr Cheong also pledged that the area of Yen So Park comprising lakes, trees, roads and other public components would be retained according to the master plan approved by Hanoi and is not affected by the re-planning.
The first phase of Gamuda Gardens, including 364 units of terraced and semi-detached houses, is now fully completed, with houses handed over to owners since April. Since the beginning of the year the company has achieved a sales rate of 70 per cent.
Falling in favour
Despite some positive signs in housing transactions, it is nearly impossible for Gamuda Land Vietnam to continue implementing the BT mode in projects like Yen So Park. BT was previously an attractive investment mode for both investors and local authorities, with benefits accruing to both, but the frozen property market has seen its usefulness decline.
A report from the Hanoi Department of Planning and Investment showed that, as at early 2013, the capital was implementing 63 projects in the BT mode. Only six, however, were finished on schedule while 57 had been delayed. Investors such as Nam Cuong Hanoi Group, Geleximco Group and now Gamuda Land Vietnam have struggled with the BT mode, with tight monetary policies and instability in the real estate market as well as difficulties in site clearance creating trouble for many investors.
Moreover, the World Bank, at the Workshop for Urban Infrastructure Finance Orientation held in Hanoi last month, also revealed many shortcomings in the BT mode in Vietnam. These relate to the lack of land resources, unclear land valuation mechanisms, and unstable financial resources of investors, not to mention that the real estate market has remained in the doldrums. According to the World Bank, difficulties in BT projects have become common not only in Hanoi but also elsewhere in Vietnam, including Ho Chi Minh City, Quang Ninh and Quang Nam.
When the real estate market is healthy, property experts point out, BT is one of the best methods for investors. “When the real estate market declines and land prices are devalued, investors do not have the ability to implement projects in the BT mode.” Mr Dang Hung Vo, an independent property analyst, was quoted as saying. He added that it’s not easy to accurately assess land prices, which differ from infrastructure valuations. “Hanoi needs to focus on carefully selecting potential investors before implementing projects in the BT mode,” Mr Vo suggested.
For his part, Mr Tran Nhu Trung, Deputy Director of Savills Hanoi, urged the government to review the quality of its planning process. “How can each sq m of land be used effectively?” Mr Trung asked. “Plans should be regulated by the free market, which will decide where a building is needed instead of planning massive developments.” Overall, not only proper mechanisms but also financial sources are needed. A contradiction exists in Vietnam, where the State invests in building roads and infrastructure, increasing the cost of real estate, but there is no regulatory method to address the issue.
- Gamuda Land