FDI plunges in property sector

Foreign investment in the property sector this year has been the lowest in the last five years, with analysts attributing it to the lingering impact of the economic meltdown.

FDI in the first half was US$5.66 billion, or just over than half the amount pledged in the same period last year. Of which, investment in real estate made up only $305 million.

The processing and manufacturing industry on the other hand attracted $3.3 billion, followed by construction with nearly $475 million, and accommodation services with nearly $357 million.

Last year, investment in real estate was worth more than $6.8 billion but even that represented a fall of more than $1.2 billion from 2009.

Overall, foreign investment in property, at $48.2 billion, remains second only behind manufacturing, which has attracted a whopping $97.8 billion.

Savills, a global real-estate service provider, blamed the fall in recent times on the “residual effect of the global financial crisis” saying in risk-averse times, “capital retreats to home territory.”

FDI has been steadily declining after a precipitous fall in 2009 to $21 billion from $64 billion of the previous year.

Last year, though much higher than this year, FDI was a mere $17.23 billion.

Much of the foreign investment in real estate recently has been from Singapore, whose government-backed Keppel and giant regional developer CapitaLand have both promised to increase their commitments in Viet Nam.

A Savills review of 2010 and future prospects said South Korean groups had become less acquisitive in recent times, having invested heavily in large, long-term development schemes in past years.

European and US investors are “something of a rare breed in Viet Nam, and most are currently focused on troubles in their home markets.”

International funds with a Viet Nam real estate focus – such as VinaCapital, Indochina Land, Dragon Capital, and Prudential – found it equally difficult to place their current allocations in this market.

Vietnam Economic Times newspaper quoted economists as saying that despite the Government’s efforts to improve the legal framework, there were still many obstacles to foreign investment.

They listed high inflation, shortage of electricity, poor infrastructure, services, and human resources, and delays in licensing.

The difficulty in getting approval for projects, high rentals, and cumbersome procedures for obtaining land were the biggest problems foreign property investors faced in Viet Nam, Matthew Powell, managing partner of Three Temples, a Ha Noi-based company active in the fields of development, investment and real-estate marketing, said.

Transparency

Though Viet Nam had managed to head off many of the negative headlines associated with the global financial crisis, in 2011 the country faced challenges of its own, a report released last month by CB Richard Ellis Research and Consulting said.

Transparency issues still hindered the institutional property investment market, discouraging the flow of the FDI funds into Viet Nam, “Growth Pains” report warned.

Viet Nam was not yet a popular destination for institutional money and this was the reason why the majority of investors still favoured the traditional options of Hong Kong and Singapore and, further afield in the Asia-Pacific, Australia and Japan.

“Owing to the country’s risk profile, evolving legal and regulatory environment, macroeconomic challenges, and corporate governance constraints, Viet Nam’s ability to attract institutional investors is limited compared to some of its emerging Asian counterparts,” the report stated. — VNS

Tags: invest in Vietnam, Vietnam FDI, Vietnam FDI 2011, Vietnam investment