WHEN discussing the most dynamic emerging markets globally, it is hard to lose sight of Vietnam. Driving its strong economic growth is an expanding middle class with thickening wallets. Rapid urbanisation supported by a young, growing and educated population all bode well for an economy with one of the world's fastest growing gross domestic product (GDP) rates.
Understandably, this has fuelled the appetites of global investors looking to make their mark in Vietnam's burgeoning domestic real estate market.
Home to Asia's best performing stock market in 2017 and the second largest retail market in 2018, much of the appeal that Vietnam currently holds sits, ironically, in its auspicious future. Since 2015, the bulk of big-ticket mergers and acquisition (M&A) transactions that we have seen have been championed by those investing in property development sites, followed by hotels, apartments and offices. This is testament to the fact that those pouring money into Vietnam are in it for the long run.
Over the last three years, foreign investment in Vietnam's real estate market has been increasing year on year. In particular, developers from Singapore, Japan and South Korea have favored development sites in downtown areas and within close proximity to the metro stations. Local developers usually enter into joint venture agreements with foreign developers on the premise of optimising decision-making in site sourcing and project management.
Running alongside the strong demand for commercial sites is the relative shortage of supply, which is especially prevalent in the market for prime retail and office spaces in Ho Chi Minh City and Hanoi.
Grade A rents in Ho Chi Minh City have increased from about US$35 per square metre per month (psm/month) in Q2 2016 to US$43 psm/month in Q2 2018, which translates to a healthy 23 per cent growth.
Similar office rental growth has been observed in Hanoi over the past two years. In the office market, an increasing presence of international firms has resulted in developing areas absorbing the overflow of occupants. But progress in office construction has been pleasing, and the second half of 2018 will bring a significant amount of Grade A office supply onto the market.
Another area generating solid demand is the residential sector, and this segment of the market stands to inject further momentum in the economy - to illustrate, the largest initial public offering (IPO) this year was that of a luxury residential developer in which Singapore's sovereign wealth fund GIC recently acquired a stake.
Investors from Singapore, Hong Kong and Taiwan have shown much enthusiasm in the serviced apartment and condominium markets, together representing 75 per cent of total buyers in the buy-to-let market.
As a whole, foreign buyers accounted for 50 per cent of all successful residential deals. What this tells us is that foreign investors are not merely entering Vietnam to set up operations, they are committed to keeping their money here. This could explain the 15 per cent rise in prime residential prices in Ho Chi Minh City over the past two years.
Courtesy of businesstimes.com.sg