Foreign money transforms Vietnam resort city

When a squatter moved into the international school that Ricky Tan was building in Danang, Vietnam’s fourth-largest city, the Singaporean investor phoned the local Communist party chief.

In Vietnam’s opaque political system, Communist party leaders rarely take calls from anxious foreign investors, let alone intervene in their disputes with locals. But after answering the phone, Nguyen Ba Thanh, party boss in Danang, went to the construction site and ousted the squatter, allowing the school to be completed on schedule.

“Mr Thanh is very bold and, once he has worked out whether you are serious, he gives investors a sense of commitment and delivery,” says Mr Tan, who runs a chain of international schools across Vietnam.

Mr Thanh has led Danang for well over a decade, first as chairman of the local council and now in the arguably more powerful role as the city’s Communist party secretary.

During that period, Danang has been transformed from a sleepy backwater into a booming, investor-friendly seaside city, which regularly comes top of an index of provincial competitiveness in Vietnam that is funded by the US Agency for International Development.

Upmarket resorts, villas and golf courses have been built along the new coastal highway that runs south from the city. Foreign investors are betting the development will bring an influx of tourists from China and elsewhere.

While Vietnam’s economy has been growing at about 7 per cent per year over the past decade, Danang has grown at over 10 per cent, and per capita income in the city reached $2,016 last year – almost double the national average.

“Mr Thanh has ruled the city with an iron first,” says Peter Ryder, one of the first large foreign investors in Danang’s tourism industry and chief executive of Indochina Capital, which has $540m in assets under management across Vietnam.

“He is the closest that Vietnam has to Lee Kuan Yew [the former Singaporean prime minister who propelled the rapid development of the south-east Asian city-state].”

Over the past decade, a growing number of international investors have followed Mr Ryder’s lead in Danang.

But there are concerns about the sustainability of the city’s approach. “Danang epitomises the enthusiasm for real estate-focused development in Vietnam,” said one Vietnam-based economist. “The risk is that this leads to too much land speculation and distracts from the need to develop productive industries that create long-term employment, such as manufacturing.”

Regardless of these worries, Don Lam, the chief executive of VinaCapital, the foreign investment group behind the Greg Norman golf course and an adjoining JW Marriott resort and villa complex, says that other provinces in Vietnam are trying to copy the Danang model.

Huynh Duc Tho, director of the planning and investment department of the Danang government, believes that other provincial governments will have to change their mindset if they want to replicate his city’s success.

“Our leaders are determined to take risks and responsibility, which is something that other provinces cannot do well,” he said.

Mr Thanh’s aggressive approach has ruffled feathers both among some local residents and in the highest echelons of the party. About 300,000 people, one-third of the city’s population, have been resettled in the past decade to make way for new roads, hotels and office blocks, according to Mr Tho. A year ago, there were violent clashes between police and Catholic protesters who were unhappy about the proposed development of an eco-tourism project on the site of a cemetery.

The speed with which the government clears residents off their land is a big bonus for investors, but a worry for those who want to keep their homes or are unhappy with the level of compensation offered by officials.

Some analysts have also questioned the sustainability of the property boom in Danang, where around 2,000 high-end apartments and 500 villas have come on to the market in recent years,with villas going for $500,000-$2m and apartments for $60,000-$1.4m, according to Indochina Capital.

Despite these high prices, developers and real estate agents argue that the market is unlikely to collapse because of the relatively low levels of leverage.They say that about 80 per cent of the buyers are from Hanoi, and they tend to prefer cash purchases, as opposed to investors from Ho Chi Minh City, Vietnam’s main business centre, who are more likely to take out a mortgage.

However, the economic instability that has plagued Vietnam in the past four years has made life tough for some developers, and recent moves to tighten credit in response to rapid price rises Vietnam having one of the highest inflation rates in Asia – will make it tougher.

“It’s quite a challenge for developers to roll out projects now because of financing,” says Mr Lam, whose company has around $1.7bn in assets under management.

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