Vietnam is a unique country providing extensive opportunities for those willing to take time to understand the market. Although not without its problems, its economy continues to expand and modernise and, with the opening up of previously restricted industries to meet WTO commitments, opportunities continue to develop.
After more than two years of decline, the economy started to show signs of recovery in the second half of 2013 despite being saddled with a huge amount of bad debt. The GDP grew 5.3% in the second quarter of 2014, with a World Bank projection of 5.5% for the year, the inflation rate rose just over 1.5%, the manufacturing sector expanded 9.1% in the same period year-on-year, exports rose 14.9%, foreign direct investment in real estate is strong, sitting at roughly US$690 million and tourism is up 21%.
Asian investors continued to account for the majority of new Foreign Direct Investment “FDI”. Though Japanese investment decreased to 28% in 2013, South Korean and Singaporean investment increased significantly to 21% and 22% respectively, and South Korea became the largest investor as of the end of the first quarter of 2014.
A significant portion of this investment is in
manufacturing. In 2009 Samsung Electronics opened its first handset plant in Bac Ninh with a total investment of US$2.5 billion — its second largest factory worldwide — and it recently signed a contract to build a second factory worth US$2 billion in Thai Nguyen, which will make 100 million phones per year. It is also considering investing a further US$1 billion in a consumer electronics factory in Ho Chi Minh City’s Hi-Tech Park. Other mobile producers such as LG Electronics and Nokia are also investing. Nokia opened its first factory in Vietnam in October 2013, also in Bac Ninh, and the US$300 million plant is expected to create 10,000 jobs and produce 45 million handsets per quarter. Nokia has just announced the relocation of all manufacturing from Hungary, Mexico and China to Vietnam.
The retail sector in Vietnam has great potential and is one of the most highly evaluated markets in the region thanks to its young population, growing middle class and improving purchasing power. According to a recent CBRE report Hanoi and HCMC, Vietnam’s two biggest cities, are included in the list of the top 10 Asian cities for retail expansion in 2014/15.
In September 2014, Korean retail giant Lotte is opening its Lotte Centre Hanoi, with a five-star hotel, a six-floor department store, serviced residences, Evian Spa, Lotte Mart, restaurants and observation deck spread over 2.5 million square feet on 65 floors. In addition, Lotte has plans to open 60 supermarkets throughout the country by 2020 to go with existing stores in HCMC, Hanoi, Dong Nai, Danang, Binh Duong and Phan Thiet.
Japan’s leading retail group, Aeon, is currently constructing a commercial complex in Hanoi’s Long Bien district on an area spanning 12 million square feet. The centre comprises fashionable hotels, restaurants, entertainment sites, offices and a sports centre. In January 2014 Aeon launched the company’s first shopping mall in Vietnam (HCMC’s Aeon Tan Phu Celadon), the third Aeon outside Japan, following properties in Malaysia and China. Aeon plans to build around 20 large-scale shopping centres across Vietnam by 2020.
Thailand’s Central Group has also entered the Vietnamese market, opening a 100,000-square foot Robins Department Store in Royal City, Hanoi earlier this year, and will open a second 130,000-square foot store in Crescent Mall, HCMC by the end of 2014. Marks & Spencer, under a franchise arrangement with the Central Group, is another international retailer set to open its first Vietnam branch in Vincom Centre, with plans to open at least 20 stores across the country by 2020.
French Group Auchan is also expanding into Vietnam. ISMS, Auchan’s supermarket division, will collaborate with Vietnam’s CT Group to develop a supermarket business under the S-Mart name in Vietnam. The CT Group is based in HCMC and specialises in commercial real estate projects.
In the fast food world, while KFC, Pizza Hut, Lotteria and Jolly Bee have been active for more than a decade, some of the biggest brands have only just made it into Vietnam. In the last 12 months Dunkin’ Donuts, Domino’s, Burger King, McDonalds and Starbucks have made their global presence felt in Vietnam.
The real estate market in Vietnam has suffered over the past two years due to oversupply, high inflation and limited borrowing ability. The first half of 2014 has seen an improvement in consumer confidence, and the real estate market is now bullish given that inflation seems to be stabilising at 5-6% per annum and banks are reducing borrowing rates.
There have been several high profile transfers of ownership of ongoing developments that had previously stalled, and there has also been a range of recently launched projects by foreign and local developers. Absorption rates across high-end condominium sectors have picked in the last three months, inspiring optimism for the beleaguered market for 2015 and beyond.
Projects by well-known developers offering longer payment plans to drive affordability (typical payment terms now range from two to four years depending on the project size) are attracting purchasers. The result is a preference for the primary market, as the secondary market cannot compete with payment terms offered by new off-plan products.
The Ho Chi Minh City market is led by a mix of local and foreign developers, with Keppel Land, Capitaland, VinaCapital, Gamuda, Refico and Indochina Capital taking the lead ahead of overseas developers, and Nam Long, NovaLand, VinGroup and Hoang Anh Gia Lai among the top local developers.
Infrastructure: The HCMC Metro System
With a current population of over 90 million, Vietnam has emerged from colonialism and war to become one of Southeast Asia’s fastest growing economies, with rapid and continual growth in its two dominant cities, the capital Hanoi and economic centre, Ho Chi Minh City. Current estimates put the population of Ho Chi Minh City at eight to nine million.
In HCMC the use of public transport is relatively low and is dominated by buses. Personal motorcycles and cars account for 95% of travel according to the Asian Development Bank. This has caused increased congestion, protracted journey times and extreme pollution, exacerbated by increased prosperity resulting in rising automobile ownership. In October 2009 the Vietnamese government sanctioned plans for building an underground metro system.
The proposed metro project will have six lines covering almost 107 kilometres both above and below ground. In May 2012 Japan’s Sumitomo Corporation and state-owned Vietnamese firm Civil Engineering Construction Corporation No. 6 (CIENCO6) won a joint contract worth US$590 million to design, engineer and build part of Line 1, connecting Ben Thanh Market with Suoi Tien Theme Park with 11 stations. Construction is currently under way.
The HCMC transport master plan proposed five further metro lines and will also include three monorail routes totalling 37 kilometres. Completion is scheduled for 2025, by which time the population of HCMC is forecast to be 14 million.
Infrastructure: Building Bridges
The Mekong River is the lifeblood of southern Vietnam, sustaining the fertile, low-lying Mekong Delta region that covers 12 percent of the country’s total land surface. However, the Mekong River is also a barrier to the social and economic development of the 16 million people who currently live in the region. Three million people in the Mekong Delta live below the poverty line, and economic and social development in the region is needed. Providing permanent bridges over the lower reaches of the Mekong River has enabled the resources of the Mekong Delta to be better used to support sustainable development for both residents and the country as a whole.
National Highway 1 runs the length of the country and has several bridges spanning small waterways in the delta but ferries and boats have been the only means of crossing the Tien Giang river (at My Thuan, 120 kilometres south of HCMC) and the Hau Giang river (at Can Tho). Those crossings are costly and inconvenient for movement between the Delta Region and other parts of Vietnam, and have contributed to the lower level of economic and industrial activity in the area. The My Thuan Bridge, constructed by Baulderstone Hornibrook, opened in 2000 and has since facilitated increased shipping to Phnom Penh in Cambodia, while the Can Tho, built by a consortium of Taisei, Kajima and Nippon Steel opened in 2010.