Vietnam's real estate sector attracts foreign investment

According to a survey by the General Statistics Office, real foreign direct investment (FDI) in Vietnam in the first two months of 2024 is expected to exceed 2.8 billion USD, a 9.8% rise over the same time last year. This is the biggest FDI reported in the first two months of a year in the previous five years.

Investment opportunities in Vietnam

Specifically, the processing and manufacturing industry received USD 2.17 billion, accounting for 77.5% of total implemented FDI; real estate business activities received 279.3 million USD, accounting for 10%; and production and distribution of electricity, gas, hot water, steam, and air conditioning received USD 128.4 million, accounting for 4.6 percent.

Furthermore, Vietnam is well-known for its liberal regulations, which provide a favorable business climate for international companies. In terms of macroeconomic regulation, such as foreign exchange or interest rates, the government has successfully kept exchange rates steady and inflation under control. The stability of value has calmed international investors considering investing in Vietnam.

Foreign investors are more likely to borrow for investment projects when interest rates are steady. Furthermore, low loan rates boost economic growth by increasing expenditure, resulting in huge prospects for overseas businesses.

Along with monetary policy, the government has enacted fiscal policies to promote economic development, such as lowering the VAT rate by 2% for most commodities, extending the tax and land rent payment deadlines for 2023, and lowering land rent for 2023. In 2024, the government intends to retain an expansionary fiscal policy and ease monetary policy in order to ensure budget income while also aiding the recovery of individuals and enterprises, so promoting development.

Regarding the government's real estate strategy, the Prime Minister highlighted that in tough times, measures must be based on "balancing interests, sharing risks." In 2023, many decrees and resolutions were issued to boost the market, including Decree 08/2023/ND-CP, Resolution 33/NQ-CP, a 120 trillion VND package for social housing, Circular 06/2023/TT-NHNN, the Real Estate Business Law, the Housing Law, and the Land Law. These rules are designed to improve the predictability and stability of the real estate market while also providing major possibilities for international investors to engage in investment projects.

Mr. Nguyen Trong Toan, Investment Manager at Savills Hanoi, stated: "Vietnam demonstrates stability not only politically but also macroeconomically, with the economy recovering strongly after the pandemic, with low inflation and more stable exchange rates than other countries in the region. As a result, in the real estate industry, Vietnam remains a significant investment destination for international investors and developers in areas and industries with strong growth potential."

Attractiveness across segments

Mr. Toan thinks that each real estate category in the Vietnamese market in 2024 will have unique investment opportunities for international investors. "For example, in the residential real estate industry, foreign investors seek investment possibilities and prefer to create projects under their own brands in the face of limit ed supply and rising housing demand. Foreign investors have an edge in terms of brand, creative concepts, standards, and construction quality, thus, their high-end category items are always well appreciated in the market."

Additionally, the office real estate industry draws a lot of attention. According to Savills, the sector has witnessed increased demand from energy, manufacturing, and consultancy firms, resulting in a constant occupancy rate. The office market trend, particularly in large cities like Hanoi, Danang, and Ho Chi Minh City, creates chances for international investors with investment capabilities and green standard positioning goods, such as LEED, WELL, and BREEAM certifications.

In Hanoi, Mr. Toan stated that foreign investors are beginning to broaden their investment horizons beyond central districts in order to capitalize on the trend of administrative and private office relocation, city transportation infrastructure development, and population concentration in large urban projects surrounding the city.

In the retail sector, the entry of retail giants has highlighted the attractiveness of the Vietnamese market. Major investors are actively looking for land to develop large-scale modern commercial real estate projects focused on the consumer experience.

In early February 2024, the retail real estate tycoon Central Pattana – a member of Thailand's leading retail group Central Group – began establishing a legal entity in Vietnam to enter this vibrant retail market. Previously, THISO, after opening its third Emart supermarket in Ho Chi Minh City, demonstrated its expansion strategy with a fourth supermarket in the North by purchasing a 2.4-hectare land plot in the Tay Ho Tay Urban Area.

The hotel market is on the path to recovery. According to Savills Vietnam's Q4/2023 Market Report, in 2023, Vietnam welcomed 120.6 million tourist arrivals, a 19% annual increase. International tourist arrivals reached 12.6 million, three times higher than in 2022. The report also showed that hotel occupancy rates and rental prices in Hanoi and Ho Chi Minh City both recorded increases.

Specifically, the occupancy rate in Hanoi climbed by 21 percentage points every year, while the average nightly rental price increased by 28%. Similarly, the hotel occupancy rate in Ho Chi Minh City climbed by 18 percentage points every year, with the 5-star sector exhibiting the greatest development, with an occupancy rate of 61% and an average room rate growing by 14% yearly, reaching 2.9 million VND/room/night.

With the continuing improvement in the hotel segment's performance, many international investors highly value the segment's recovery potential and believe in the hotel market's future possibilities in Vietnam, deeming this an ideal moment to participate.

Aside from the individual appeal of each segment to foreign investors, Mr. Toan also stated: "While foreign investors with significant financial resources previously preferred to invest in controlling stakes, they are now more open to various investment forms, from financial investment and capital contribution to business cooperation, to maximize the potential of the Vietnamese market. Furthermore, after investigating the industry, many international investors are broadening their project geographical scope, particularly by looking for investment prospects outside of big cities."