Mr. Timothy Horton, General Manager of Cushman & Wakefield, Vietnam, shared his thoughts with VET's Quynh Trang on what's in store for Vietnam's real estate sector in 2015.
How do you see the performance of Vietnam’s real estate sector last year?
Over the last six years Vietnam’s real estate market has experienced two or three cycles. Around the world a development cycle in real estate is usually seven years. So it is clear that Vietnam’s real estate development is not sustainable. The government, however, has implemented a lot of policies and laws with the aim of controlling and developing the real estate market towards sustainable growth. In 2014 Vietnam’s real estate market was not actually as successful as expected. The establishment of the Vietnam Asset Management Company (VAMC) marked a turning point in the property market. The company’s activities, however, were not overly effective in resolving bad debts, which ought to have been an important factor influencing the real estate market.
Many real estate experts believe that Vietnam’s real estate market will gradually recover this year and that there are many positive signs in all sectors. How would you comment on this?
As a whole, Vietnam’s real estate in 2015 is expected to be more vibrant due to the amended Law on Housing, which allows foreigners to buy houses. However, Cushman and Wakefield believe that 2015 will be a year of “wait and see”, because the law will only officially take effect on July 1. There are also a lot of circulars and decrees to be issued for the law. As a result, it is impossible to immediately evaluate the prospects for the real estate market in 2015 without waiting for the effects of the amended Law on Housing to be felt.
However, I have some concerns that the amendments to housing regulations will also restrain the number of houses sold to foreigners. The number of apartments is not to exceed 30 per cent of a project while the number of villas and townhouses must not exceed 250. Therefore, in my opinion, Vietnam’s property market in 2015 will not see many clear changes because of these restraints. Fortunately, though, the coastal villa segments in Da Nang and Nha Trang are expected to attract more and more foreign investors because although they seem to be beyond reach for most Vietnamese they are suitable for foreigners.
Regarding the retail segment, most foreign investors appreciate the potential for development of Vietnam’s retail market and have expressed an interest in many market surveys. Thanks to the government’s policies, which create more favorable conditions for foreign developers, as well as the positive effects of the TPP and FTAs, the picture of Vietnam’s retail market in 2015 promises to be more vibrant and brighter.
What factors will affect Vietnam’s real estate market in 2015. What segments will lead the way?
I want to mention the important changes in the amended Land Law and the amended Law on Housing because they are two important factors that will affect Vietnam’s real estate market this year. The amended Land Law has deeply influenced the industrial real estate segment in particular and the real estate market in general. The amendment to the Law on Housing that allows foreigners to buy houses in Vietnam will help the property market to again secure the interest of foreign investors.
In 2015, mid-end apartments are expected to be the most attractive segment because the majority of people hope to own an apartment that is suitable with their income. More importantly, the government’s housing credit support package, worth VND30 trillion ($1.4 billion) for low-income earners, has deeply affected the mid-end segment. However, the number of apartments absorbed in the market last year only accounted for a small percentage compared with supply. Besides the mid-end segment, Cushman and Wakefield believe the luxury segment promises to have much potential because more and more Vietnamese people have the capacity to buy a high quality apartment in a convenient location. So I’m confident about the segment’s development prospects.
Another segment I believe has many positive signs is the industrial real estate segment, especially in the southern region. Many domestic companies as well as multinational companies with high profits have come to Cushman & Wakefield seeking industrial land on 10,000 to 15,000 square meters and even 40,000 square meters.
What sector do you think will be preferred by foreign investors this year?
The largest amounts of foreign direct investment (FDI) have been recorded in the industrial sector, based on major investments in the high tech industry throughout all of Vietnam. This will have a flow-on effect across all other sectors and we expect it to create higher levels of demand in the office and residential sectors.
What are the main drivers for foreign investors in Vietnam’s property market in 2015?
Transparency and infrastructure continue to be the main drivers of the market and we look forward to seeing Vietnam’s real estate market continue to grow on the back of this. As market sentiment grows in line with government changes to investment policies, this goes a long way to increasing confidence of those foreign parties looking to invest in the country.
Who has been successful recently and in what segments?
We have seen developers who focus on the lower end of the residential market continuing to prosper as well as those with strong and reliable brands. Buyers are looking for confidence that the product will be delivered on time and to a specific standard and quality.
What are your thoughts on the recent change permitting foreigners to buy houses in Vietnam?
We believe that the decree is a step in the right direction. However, there is still a great deal of unknowns that may restrict the potential buyer, such as the volume of properties available for purchase within a particular ward and the ability to transfer the title, which is yet to be tested. It will create some positive sentiment in a market that has continued to only slowly creep along over the last four years. We have seen an increase in absorption of new residential stock but it is yet to be tested with the foreign market.
What will be the challenges facing Vietnam’s real estate market in 2015?
I think that the government’s policies will still be the biggest challenge in the real estate sector in 2015. Regarding the industrial real estate segment, some companies have complained that they cannot access bank loans because the owner of the industrial zone is yet to complete the paperwork to lease the land from the State for 50 years. In my opinion, once secondary investors meet all of their obligations to the State, such as paying taxes and legally registering their business, they ought to be guaranteed that they will receive all the benefits. Completing the 50-year lease is between the State and the owners of the industrial zone and does not relate to secondary investors. Therefore, the government needs to modify regulations in the Land Law, to create a favorable investment environment for investors.
Fees for land conversion are also a pressing issue for investors. The new land price framework is double or even triple the framework in 2009, which makes many enterprises feel concerned. Finally, the difficult question is whether VAMC can play an important role in resolving bad debts, which will affect Vietnam’s real estate market in 2015 and beyond. We hope that these problems will be resolved as soon as possible in order for enterprises to feel more assured when investing in Vietnam.
As a large global real estate firm, what would Cushman and Wakefield’s suggest the government do to develop the real estate market in 2015?
I think that policy implementation and rates of progress are two problems the government should address. Of course, it’s not easy to implement a policy promptly, but Vietnam should have introduced regulations for the amended Land Law and Law on Housing sooner. VAMC should also push ahead more quickly with the resolving of bad debts to create a significant breakthrough for Vietnam’s real estate market in the future. Finally, in order for the Land Law and the Law on Housing to be effectively implemented, it is necessary for the government to adopt a specific timeframe and legal documents to ensure that the amended laws create a transparent investment environment, contributing to turning Vietnam into an attractive destination for investors.