HOW IMPORTANT IS FDI TO VIETNAM’S ECONOMIC GROWTH AND REAL ESTATE MARKET?

In the context of economic integration, the inflow of foreign direct investment (FDI) is an effective source of support for the economic growth of Vietnam. FDI brings benefits in many aspects such as: economic growth, knowledge & technology transfer and management skills, etc. And in 2017, Vietnam economy had a strong growth because the country successfully attracted large volumes of FDI (US$35.88 billion). Specially, FDI disbursement hit the record high of US$17.5 billion in lots of sectors, notably in manufacturing & processing industries  and real estate one. For 2018, the government is also positive about the Vietnam economy as setting its GDP growth target at 6.7% the same as their target for 2017. ¹

 

 

Foreign investment to increase in 2018

Trần Văn Thọ, economics professor at Waseda University, Tokyo said, statistics shows that foreign-invested enterprises now account for 50% of Vietnam industrial production, and a hefty 70% of total export sales of manufactured goods. Therein, some export products, like mobile phones, were solely FDI² Vietnam has 23 newly licensed investment projects abroad, with a total capital of US$123.6 million and added US$25.88 million to 5 operating projects in the first quarter of the year.

From the beginning of the year to March 20, 2018, FDI disbursement reached roughly US$3.88 billion, representing a surge of 7.2% against the previous year. Of the total, US$2.12 billion came from 618 newly licensed projects, while the remainder was contributed by 199 currently-operating projects that raised their capital by more than US$1.79 billion in total.

FDI disbursement as of March 20, 2018 (US$3.88 billion)

Projects

US$2.12 billion

618 newly licensed projects

US$1.76 billion

199 currently-operating projects

 

Ho Chi Minh City was the top recipient of registered FDI capital at US$1.7 billion, equal to 29.3% of the total newly-registered capital, followed by Hai Phong with US$925 million (16%), and Binh Duong with US$565 million (9.7%).³

HCMC – The city also approved 2,276 cases of foreign investors carrying out procedures to contribute capital, purchase shares and buy back capital contributed by domestic enterprises, with a total registered capital of US$ 3.68 billion.

According to the HCM City People’s Committee, FDI projects are granted new licenses if classified by occupations/ sectors: Most registered capital is real estate business (43.4%) with US$ 1.01 billion; followed by processing industry (24.2%) with US$ 567.93 million; professional activities, science and technology (13.8%) with 322.83 million; wholesale, retail, auto repair, motorbike (9.4%) with US$ 220, 49 million, and so on. Up to now, there are 7,372 FDI projects in Ho Chi Minh with total registered capital of nearly US$ 45 billion.

 

However, these figures also show that Vietnam’s economy is heavily dependent on the FDI sector as the domestic private sector is mired in difficulties. There are also weaknesses that negatively affect the quality and effectiveness of using FDI. A study conducted for a seminar on industrial policy until 2025 shows cooperation between foreign and local companies has remained weak. And that is one of the reasons behind the unsustainability of growth in the country.

In addition, many FDI projects named as technology transfer but in fact they imported old and outdated technologies which have expired, causing environment pollution and consuming energy. And lots of FDI projects are licensed but delayed, affecting planning. Moreover, FDI is concentrated in a number of key economic regions, isolated and underdeveloped infrastructure areas are less likely to attract FDI, creating the huge economic disparity between regions, areas.

 

 

FDI flows through M&A activities continues to be an essential trend in real estate market

The key factor supporting M&A activity in Vietnam is GDP growth, desirable demographics, increasing disposable incomes, and rapid urbanization. The real estate market in Vietnam has been in recovery since 2013. In the last 3 years, the market’s scale has been increasing, with a range of new projects resuming operation after long delays thanks to M&As. Via M&A, many developers have been rapidly growing. For example, locally-owned Novaland, with only 4 projects in 2013, now has over 40 projects. Dat Xanh also took over 7 projects via M&A in 2016, increasing its portfolio to 20 projects.

In this market, Vietnam has emerged as a shining star in within Southeast Asia, attracting strong interest from a host of foreign investors from all over the globe, according to JLL VietNam⁵. According to the Ministry of Planning and Investment, US$1.255 billion has come into the sector as of Feb 28, 2018. “The real estate market has mostly attracted FDI through M&A activities,” Nguyen Hoang, R&D director, DKRA Viet Nam, told Viet Nam Investment Review newspaper. “It is more and more popular as it can combine foreign investors’ strength in finance and experience with local enterprises’ huge lands and knowledge of the local investment process.”

Nguyễn Thị Vân Khanh, investment director, JLL Việt Nam, said: “FDI in real estate will set a new record this year. It will be not only for building apartments and housing but also commercial real estate such as grade A office buildings which could potentially bring in high revenues of 7-8 per cent a year.” Foreign investors also focused on hotel projects, she said. Dr Sử Ngọc Khương, investment director, Savills Việt Nam, said: “FDI in real estate will help enterprises reduce their dependence on banks.” 

Representative of a property business said that most of the delayed projects have complete legal, building permits for development, so M&A is a solution to increase liquidity as well as save spending and time for the business.

According to Luong Sy Khoa, vice Chairman of Management Board of An Gia Investment, if new projects developed, legal procedures, compensation and site clearance can last more than a year, while M&A will help save this period. That reasons help M&A attract both foreign investors and local ones. Generally, M&A continues to be an indispensable trend in Vietnam’s real estate market when the market is gradually growing up and investors will have to show their bravery, experience, style and class to gain opportunities for participation in the potential deals with great value. We can continue to look forward to the explosion of more M&A activity going on in 2018.

 

 

 

  1. http://vietnamnews.vn/economy/420011/fdi-in-vn-rose-44-to-hit-new-record-in-2017.html#RrDCo30S4JZGmFQs.99
  2. http://vietnamnews.vn/economy/373903/foreign-investment-key-to-vietnamese-growth-experts.html#MtUoX1k90zPpPtGG.97
  3. http://en.nhandan.com.vn/business/economy/item/5974202-vietnam-attracts-nearly-us$5-8-billion-fdi-in-first-quarter.html
  4. http://fdi-vietnam.com/foreign-investment-activities-in-vietnam/ho-chi-minh-citys-fdi-attraction-increases-double-in-2017.html
  5. http://www.vir.com.vn/ma-helps-to-jolt-real-estate-47002.html
  6. http://vietnamnews.vn/economy/423473/real-estate-sector-expects-record-fdi-in-2018.html#KZp3M6UEvMk4RPfL.97