Optimism Over Vietnam Property, With Caveats
By MIKE IVES (New York Times)
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.
