With an increasingly affluent middle class, Vietnam has become a favourite overseas investment destination for Malaysian developers like Berjaya Land, S P Setia, Ireka Corp and Gamuda Land.
Tan Thang Development (TTD) in HCMC’s Tan Phu District is one of the latest projects by a Malaysian developer in the country and the third by Gamuda Land. To be undertaken jointly with Vietnam’s Sai Gon Thuong Tin Real Estate Joint Stock Co (Sacomreal) on a 60:40 basis, the township project will have a gross development value of US$1.6 billion (RM6 billion) and will be carried out over seven years.
Gamuda Land paid US$82.8 million for its majority stake in the 82ha or 203-acre development and owns the land with Sacomreal.
The developer had ventured into Vietnam in 2007, entering into a joint venture with local construction company Nam Long Investment Corp for a development project. Located in District 7 of the city, the Tan Thuan Dong Residential Development comprised 14 semi-detached and six detached houses. Launched that same year, the homes were priced between US$1,150 and US$1,450 psm and have been handed over.
The experience gained from this development gave Gamuda Land an insight into the Vietnam government’s policies and guidelines on property development, particularly in Ho Chi Minh City.
In Hanoi, Gamuda Land is developing Yen So Park, which has a GDV of RM10 billion. The developer, which is undertaking the project on its own, was given 176ha for commercial and residential development in return for constructing a cultural park and sewage treatment plant in the area.
Commercial facilities in Yen So Park, which started in 2007, comprise Grade A offices, four and five-star hotels, a convention centre and shopoffices. The cultural park, which comes under the first phase of the project, is scheduled for completion this October.
Tan Thang Development
Gamuda Land’s JV partner Sacomreal was a real estate services provider which had expanded into the development and marketing of high-end apartments. Its projects in Ho Chi Minh City include the Sao Mai Deluxe Apartment Building in District 5, the Sacomreal-584 Deluxe Apartment Building in Tan Phu District and The EverRich Business Centre, Apartment and Complex in District 11.
Sacomreal approached Gamuda Land and started negotiations on being its JV partner after noticing what Gamuda Land was doing in Yen So Park.
Sacomreal was incorporated in Ho Chi Minh City in March 2004 with a paid-up capital of 1,000 billion dong. Some of its directors also sit on the board in Sacombank, the largest private commercial bank in Vietnam.
The Tan Thang project will comprise residential and commercial components. In all, there will be 7,500 units in several tower blocks — the exact number is being finalised. Units are between 66 and 110 sq m (710 and 1,184 sq ft) in size and will be priced at an average of US$1,200 psm, Gamuda Land managing director Chow Chee Wah tells City & Country.
“This is affordable considering that prices of similar units in the CBD in HCMC are now selling at about US$4,000 psm. In the Phu My Hung development, about 7km south of the CBD, units are going for about US$2,000 psm on average,” Chow says. The 750ha Phu My Hung project was started 20 years ago.
The maiden launch of TTD’s apartments is targeted for 3Q this year. Although plans are still being finalised, seven pieces of land have been reserved for the residential towers that are expected to vary in size and height to give each tower a unique identity. A noteworthy point is that a maximum of only 10 storeys is permitted due to the area’s proximity to the Tan Son Nhat International Airport.
The commercial component is also in the planning stage. The township will also have a public school, kindergarten and community building with a swimming pool and tennis courts, says Chow.
But the pièce de résistance will be a 16ha park. “Within the park, we plan to ensure connectivity by introducing things like jogging and walking paths to promote communal living,” Chow explains. A botanist will be engaged to ensure that the right type of plants are used in the park.
TTD is less than half an hour’s drive from the airport in moderate traffic. The journey will take a few more minutes if one is coming from the city centre that is 9km away.
Newly paved roads make it a pleasant enough journey although the numerous motorcyclists and honking cars may unnerve the unfamiliar motorist.
When City & Country visited the TTD site last week, some parts looked like quiet pastures with clusters of trees. Other parts were cleared or being used as dumping ground. The odd cow stood languidly under the hot afternoon sun.
The roads bordering the site were narrow and used by locals on motorcycles and in cars. It is a wonder serious accidents were avoided.
Chow says the project’s catchment area within a 3km radius has 460,000 people, one million within a 5km radius and 3.5 million within a 10km radius. The Tan Phu District is considered HCMC’s fifth most populated, with over 400,000 people.
A CB Richard Ellis (CBRE) Vietnam report on the country for 4Q2009 says 60,000 housing units are scheduled for completion to 2012. Between 2012 and 2020, it adds, more than 450,000 homes will be required by HCMC’s residents, with units priced below US$800 psm seeing the greatest demand.
Gamuda Land has a good track record in Malaysia, successfully developing townships like Kota Kemuning and Bandar Botanic in the Klang Valley. In Vietnam though, it is a relatively new player.
PA International Property Consultants managing director Jerome Hong, who monitors the Vietnamese market through its representative office in HCMC, notes that five other Malaysian developers are also there. The biggest player in terms of the number of projects is Berjaya Land, with developments in both HCMC and Hanoi. The others are S P Setia, WCT Land, Mudajaya Group and Ireka Corp. Their projects range from townships and mixed developments to commercial and housing.
Other developers like IJM Land, Mah Sing Group, F&N Group, Nova Holdings, Golden Plus and Giant Group are also exploring Vietnam’s real estate market, Hong tells City & Country.
Vietnam’s attraction lies in its demographics. “The population of 86 million, according to 2009 government statistics, is largely below 35 years of age, making up about 65% of the total. Also, the literacy rate is 90% while income and consumption levels are rising,” Hong explains.
Add to this an improving infrastructure that allows greater accessibility within HCMC, with the construction of highways, bridges, seaports and a subway metro system in progress. On March 8, 2010, the Viet Nam News — the country’s national English language daily — frontpaged a report on the construction of an underwater tunnel traversing the Saigon River. This 370.8m-long underwater tunnel will connect the city’s District 1 with the new urban Thu Thiem Area in District 2.
This passageway is part of the Saigon East-West Highway Project implemented by HCMC, with funding assistance from the Japan International Cooperation Agency (JICA). The agency provided US$456 million in official development assistance funds.
Vietnam is also attractive for its operating environment, says Hong. That has resulted in a surge of foreign direct investment (FDI) in recent years. “Vietnam’s registered FDI in 3Q2008 reached over US$47 billion, increasing 4.5 times over 2007, of which 50% went into real estate,” he adds.
CBRE Vietnam managing director Marc Townsend points out that although Vietnam’s FDI fell significantly in 2009 from 2008 as a result of the global financial crisis, it was still the second highest year on record. In 2007, Vietnam received FDI of US$21.3 billion, while in 2008, it was US$71.7 billion. Townsend estimates 2009’s figures at US$21.4 billion.
The State Bank of Vietnam devalued the dong for the third time in February this year.
Vietnam’s GDP dropped from a high 8.5% in 2007 to 5.3% in 2009 and CBRE Vietnam forecasts a growth of 6.5% this year compared to Malaysia’s 6%. “Vietnam is one of the few countries in Asia with strong positive economic growth,” Townsend points out. “It was the third quickest economy to recover after China and India, beating other Southeast Asian countries.”
Little wonder then that developers are upbeat about its property market.
Says Savills Vietnam managing director Brett Ashton: “The second half of 2009 saw a number of projects launched successfully in Hanoi and Danang. Ho Chi Minh City is somewhat slower. We are in the midst of the traditional Lunar New Year slowdown but we expect things to pick up again from 2Q.”
While Vietnam looks enticing, its property market is in what PA International Property Consultants’ Hong calls a developing stage, with policies and the legal framework still evolving.
“There is also a lack of transparency in business licensing and the general regulatory environment, enabling corruption within authorities and inefficient state firms,” he says. “This results in poor accessibility to basic information like land policy and guidelines and other land matters.”
Furthermore, Hong says, business policies are not as mature as Malaysia’s. The Vietnamese government is still cautious when dealing with foreign investors and is trying to streamline its policies to complement the FDI that is coming into the country.
There are also land resettlement issues. Settlers on land earmarked for development must be compensated and relocated and the process can take years. The amount of compensation varies depending on the circumstances.
“Although Vietnam does not have a Housing Development Act, developers still have to adhere to stringent regulations,” Hong says. “For example, permits have to be granted by various committees, local area governments, city governments and the central government before a project can proceed.”
In the case of Gamuda Land, Chow says they are able to circumvent these issues due to their good working relationship with Sacomreal which knows the culture and working environment in Vietnam.
Moreover, Gamuda Land increased its understanding of the market through a three-year research exercise that helped it understand the country’s culture, systems, process and guidelines. Lessons learnt from their Nam Long Investment Corp JV also helped them gain better understanding of how to operate in Vietnam’s growing property industry.
The property market in Vietnam is getting an added boost as foreigners can now buy property although strict conditions are imposed.
In November 2009, propertywire.com reported that foreign buyers of Vietnamese property are allowed to own one apartment for up to 50 years in developments that do not prohibit foreign buyers. This group will include investors who have contributed to national development, are experts in a particular field, those with a Vietnamese spouse and companies not in real estate. When the ownership term ends, the foreign investor will have to sell or transfer the property.
Besides foreign investors, laws pertaining to property ownership by the the Viet Kieu — a term referring to the Vietnamese diaspora — have been amended. According to a March 9 report in Viet Nam News, overseas Vietnamese can own more than one house, which can be sold, rented, donated or used as collateral. Those who don’t fall into this category but have stayed in Vietnam for three months or more have the right to buy property if approved by local authorities.
Last September, the Vietnamese Ministry of Finance introduced a capital gains tax to curb speculation. A tax of 25% of gains is levied on property sellers. If the gains cannot be determined, the seller will be taxed 2% of the transaction value.
According to some reports, the new tax has paralysed the local property market, with transactions falling 80%, says Hong of PA International Property Consultants.
However, Ashton of Savills Vietnam feels it is still too early to assess the impact of the tax on the property market. “The tax only recently came into effect and the jury is still out as to what impact it will have. We still see ample speculation in the luxury condo market.”
Gamuda Land managing director Chow says they don’t see the new tax as a hindrance to the TTD project as it caters for the masses that are looking for affordability rather than luxury.
Malaysian developers are seeking opportunities overseas to broaden their portfolio. Vietnam, with its growing economy and potential plus its proximity to Malaysia, makes it an ideal candidate.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 797, Mar 15 - 21, 2010
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