The problems besetting Vietnam's real estate market present handsome opportunities for developers with strong financial resources.
Hanoi’s stagnant real estate market experienced a breath of fresh air recently with new owners taking over the ION Complex at 36 Pham Hung Street in Nam Tu Liem district. After five years lying idle, the FLC Group Joint Stock Company has taken over the 5,000 sq m project, now known as the FLC Complex 36 Pham Hung, with construction to begin in the third quarter. The upscale complex is to feature a 38-storey building that includes high-end apartments and a commercial centre. FLC Group’s acquisition, priced at VND198 billion ($9.3 million), was revealed immediately after the group also announced an investment of VND5,500 billion ($261 million) in golf course and resort projects in Thanh Hoa province’s beach town of Sam Son.
The FLC Complex 36 Pham Hung certainly holds an advantage in being located in one of most favourable areas of the capital. The project meets with the approved master plan for Hanoi to 2030 and vision to 2050, which aims to turn the western areas of the capital into a new central business district (CBD). The project will benefit from the new infrastructure in the area, such as the Thang Long Highway and the Pham Hung - Khuat Duy Tien road connection, as well as the planned urban railway network.
Retailers such as Parkson, Metro and Big C have already recognised the opportunities in and potential of the area and have opened large retail centres. Many government offices have relocated to the area and many facilities have been built, including universities, museums, and the national sports stadium. “Home buyers here also benefit from the facilities and public works established in new residential or complex projects,” said Mr Stephen Wyatt, Country Head of JLL Vietnam. The benefits from improved infrastructure, together with modern architecture, contribute to better living standards for residents moving into new developments in the area. Some mid-end and premium projects have also attracted attention in the market, including Indochina Plaza Hanoi, the Eurowindow Multicomplex, Keangnam Hanoi Landmark Tower, and FLC Landmark Tower.
However, while the location has certain advantages there is no guarantee the project will be a success. Many other factors must be in place for a project like the FLC Complex to truly succeed, such as a good product mix, effective sales and pricing strategies, and first-class management. With so many similar complexes already found nearby, the FLC Complex will face challenges in trying to differentiate itself from its competitors. Either the price of its apartments and rentals in its retail space will have to be lower than other nearby complexes or it will have to offer something truly outstanding that sets it apart from the rest. At the shareholders’ meeting in June, FLC’s management expressed high hopes for the 36 Pham Hung complex. “We will even buy back apartments if buyers experience losses,” said Mr Trinh Van Quyet, CEO of FLC.
Besides the FLC Complex 36 Pham Hung, FLC is also investing in another project in the area: the eight-hectare Garden City, which it expects to complete by 2017. The developer plans to put VND3,500 billion (more than $165 million) into the project, which has a focus on green living space. It has been built in different architectural styles with varying price levels in order to approach a diverse range of customers. There are large garden villas of 220 sq m to 320 sq m each, arranged around and facing a central lake. Three hundred smaller four-storey villas, of 90 sq m to 110 sq m each, are divided into eleven blocks between the high-rise buildings and are intended to make the most of natural sunlight and ventilation. The high-rise buildings contain public space, reception areas, office space for lease and commercial space, while from the 6th floor and above are apartments. Garden City also has public space dedicated to the recreational needs of residents.
FLC’s recent investments may well be a smart decision, given the property market is predicted to be in a recovery phase. Vietnam’s economy has also seen signs of recovery in recent times and this will have a positive impact on the real estate market, according to Mr Arsh Chaudhry, Executive Managing Director of Cushman & Wakefield in Southeast Asia. Recent figures indicate that the retail market may be the brightest sector as demand for retail space is on the rebound, pushing up rentals in both Ho Chi Minh City and Hanoi. Regarding apartments for sale, luxury apartments and social housing are the two vibrant sectors at the moment. Mr Chaudhry added that now is a good time for investors to enter and expand their investment activities in Vietnam’s real estate market. As markets become more stable, more investors will enter the market and seek opportunities to proceed and this wave may create more competition among investors in the searching process. “The market may decline in the short time, but this is exactly the time that promises high returns for investors,” he said.
To prepare its financial capacity for these projects, FLC is raising capital from a range of sources. At the shareholders’ meeting the Board of Management proposed a plan to issue more stocks, to more than double its charter capital from the existing VND1,543.6 billion ($73.5 million) to VND3,750 billion ($178.5 million). Other sources of capital may come from investors and buyers interested in the FLC Garden City and FLC Complex 36 Pham Hung projects, or from loans, with BIDV Thanh Xuan and MB as well as international investment funds expressing interest in FLC’s projects.
The developer recently signed a contract with the Global Emerging Markets (GEM) investment fund, under which GEM will invest VND200 billion ($9.5 million) into FLC over a period of 12 months and purchase FLC shares at a price of no less than VND20,000 ($0.95) a share. Mr Quyet said at the signing ceremony that there are many foreign partners interested in investing in FLC, in addition to GEM. “This shows that our operational efficiency and potential are recognised not only by domestic investors but also by foreign partners,” he said. “This is a great opportunity for us to continue to develop professionally and intelligently, gradually asserting our position within and outside of Vietnam.” FLC is also considering issuing international bonds, having worked with Asia Pacific Financial Engineering (Singapore) on issuing bonds in the Cayman Islands.
FLC had successfully increased its profits over recent years despite the many fluctuations in the real estate sector. In 2013 it earned revenue of VND1,744 billion ($83 million) and pre-tax profit of VND137 billion ($6.5 million), increases of 115.5 per cent and 350 per cent, respectively, compared to the previous year. In 2014 it aims to record VND3,300 billion ($157 million) in revenue and VND350 billion ($16.7 million) in profit, with the latter being a 250 per cent increase year-on-year. The developer also signed an agreement with the Vietnam National Construction Consultants Corporation (VNCC) in April, under which it will receive consultation on its investment projects from the preparatory stage to the implementation stage, so that its projects can reap the most cost-effective and high-quality results. FLC now owns projects spanning 1,500 hectares in total, including urban and industrial areas, such as the Hon La industry project in central Quang Binh province and the Tam Duong industry project in northern Vinh Phuc province.