Optimism Over Vietnam Property, With Caveats
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Version 0 of 1. HO CHI MINH CITY, Vietnam — Dinh Thien Thien’s barbecue business bloomed just as Vietnam’s property market wilted. It was not a coincidence. In 2010, Mr. Thien said he rented an empty lot downtown here, where construction had largely stopped, and installed a grill. He added some homemade wooden furniture intended to conjure the image of a saloon — a motif inspired by his love of American westerns. Word of his movable feasts began to spread on Facebook, and within months he was renting 15 lots for the equivalent of $1,000 to $5,000 a month. But as construction picks up again, Mr. Thien, 32, is down to five locations. Some of his former grill sites are dotted with cranes or cement mixers, and he predicts that in three years he will be forced to pursue an entirely new line of work. Vietnam’s beleaguered property market is bottoming out just as macroeconomic indicators stabilize and the ruling Communist Party makes new pledges to reform a struggling and corruption-riddled banking sector, say developers and businessmen here, the country’s commercial capital. And if Vietnam signs onto the Trans-Pacific Partnership, a proposed trade agreement that involves a dozen countries, including the United States, it may bolster the Vietnamese economy and speed a real estate recovery. Yet although lending rates have fallen to 12.8 percent, from 20.3 percent in 2011, no one in Vietnam knows whether the market can rebound to the peaks it hit before 2008, much less whether the government’s statistics or commitments to banking reform are reliable. For the moment, the mid- to high-end apartment markets remain oversupplied in this city and in the capital, Hanoi. “It’s going to be another year before things get more clear — it’s rather opaque at this point,” said Trinh Bao Quoc, chief executive at Son Kim Land Corporation, a local developer. “But if you talk to foreign investors, a lot of them who are here in Vietnam know that this is a good time to buy.” In this city, asking rates for office rentals, now at about $20 to $30 per square meter, or about 10 square feet, began to rise in late 2012 for the first time since 2007, according to the Los Angeles-based real estate company CBRE. And in recent months, average selling prices for low-end residential properties in Hanoi have held steady around $800 per square meter after falling precipitously for two years. Some foreign investors have bought real estate here this year, in what brokers suggest is a sign of rising liquidity and investor confidence. And a few major construction projects are in the pipeline, including a tower that will include Vietnam’s first Ritz-Carlton. And in July, Vingroup, a real estate developer in Vietnam, opened the country’s largest shopping mall, which has a gross floor area of more than 200,000 square meters, or 2.1 million square feet. A company spokesman said 53 percent of the 4,518 units at a new apartment complex nearby had already been sold, and 29 percent of them were leased for 50 years. “We believe the real estate market is recovering well now and is expecting a positive turnaround by the end of this year or early next year,” said Le Thi Thu Thuy, chief executive of Vingroup. But Vietnam’s economy has underperformed relative to predictions that accompanied its 2007 entry to the World Trade Organization, and its current annual growth rate of about 5.3 percent is the slowest in more than a decade. A central obstacle to economic recovery is that local banks are saddled with bad debts linked to speculative property investments. Credit has tightened in the years since the market began to sour in 2008, and in July the government created an asset management firm tasked with buying bad debts in the banking sector. In September, Prime Minister Nguyen Tan Dung also pledged to raise the cap on foreign ownership in local banks to 49 percent from 30 percent. But analysts say many of the bad debts are still linked to real estate. “There are early indicators that the market is beginning to move,” said Stephen Wyatt, the Vietnam country director at Jones Lang LaSalle. “It doesn’t take away the fact that the banking sector still has to work itself out.” Vietnamese lawmakers have debated draft laws aimed at allowing foreigners to buy more than one apartment unit, secure apartment leasehold rights longer than the current limit of 50 years and buy land, David Lim, a Ho Chi Minh City lawyer who is advising the government on land reform, said last month. Mr. Lim said the draft laws were codifying years of piecemeal reforms and clearing up legal gray areas. They are likely to help the country compete with its Southeast Asian neighbors for foreign investment, he added. And some local developers are changing their habit of building high-rise apartment towers with only wealthy consumers in mind, according to real estate brokers. Mr. Wyatt of Jones Lang LaSalle said low-end buyers dominated residential sales in this city, and a typical case is a 50- to 70-square-meter, or 540- to 750-square-foot, apartment that sells for the equivalent of about $30,000. Don Lam, chief executive of the fund manager VinaCapital, said that many middle-class Vietnamese couples were more interested in townhouses than high-rise apartments, and that his company was focusing on a potential new growth area: American-style gated communities on the city’s outer fringes, with three-bedroom units priced at the equivalent of about $200,000. Mr. Lam added that although banking and political reform was sorely needed in Vietnam, the property market would rebound with or without the government’s help. “Buyers and sellers are not waiting,” he said in a 17th-floor office with panoramic views of the city’s skyline. “Transactions are happening.” The American private equity firm Warburg Pincus led a consortium that in May pledged to invest $200 million to acquire about 20 percent equity interest in Vincom Retail, a subsidiary of Vingroup. A few brokers and fund managers in Vietnam say, without offering specifics, that the deal is likely to be the first in a series here by international investors. Other businessmen counter that although Vietnamese developers have emerged relatively unscathed from previous real estate slumps, their current debts are larger, and the overall banking crisis may be more severe than the government has acknowledged. ABB Merchant Banking, an investment bank based in Hanoi, recently analyzed 61 Vietnamese construction and real estate companies on Vietnam’s Ho Chi Minh Stock Exchange and found they were trading at up to 30 percent below their book value. And Frederick Burke, managing partner at the Vietnam office of Baker & McKenzie, an American law firm, said that although there was a perception among Vietnamese developers that the country’s property market was bottoming out, the logistics of real estate development in Vietnam were mired in tedious bureaucracy that would inhibit a swift rebound. A typical development project in this city officially takes a minimum of 580 days from start to finish, he added, and often far longer. “What do Vietnamese developers do?” Mr. Burke asked. “They spend their lives going from one office to another getting little pieces of paper chopped and stamped, and then going back and getting them rechopped and stamped when some designer tells them they have to change a project.” But Mr. Thien, the restaurateur, said property owners had in recent months taken back a few of the lots he once leased for his barbecues. He said his next idea was for a chain of restaurants that would be decorated like motorcycle garages. He has already rented one downtown location for the equivalent of $3,000 a month, he said, and it is on track to open by Christmas. |