Excitement rises in Vietnam’s real estate

VIR’s Bich Ngoc talked with Michael Piro, COO of Indochina Capital, about the company’s efforts to be acknowledged by the market and his assessment on its development so far.

Michael Piro, COO of Indochina Capital

How do you see the real estate ­market in Vietnam shaping up as of late?

Overall, the market is in fairly good health, considering it has had a relatively strong run. We have seen most sectors grow, especially with strong demand in the apartment market. Apart from that, we have seen the hospitality and retail segments maintain their relatively good performance over the last few quarters.

The market is in much better shape compared to 10-12 years ago, when times were difficult for developers. Now, we see more stable growth in the market based on a fundamentally strong economy, growing foreign direct investment (FDI), inflation that is seemingly under control, and a relatively stable currency. Vietnam is one of the fastest-rising economies in the whole world, and many foreigners have either already picked up on that fact or have begun to. The market is full of potential and I am really interested in finding out where it can go.

What have been the most positive trends in the market so far this year?

It has to be the dominance of local developers, which has really impressed me. Domestic developers have been growing very quickly, increasing the standard of their ­developments, as well as their professionalism. Their ability to execute projects has also risen very quickly. I would love to see this trend continue, as everyone profits when Vietnamese companies dominate the market, as long as land is not wasted on developments of lesser quality.

Something else that has really impressed me is the strong foreign demand for apartments and other residential products. Back when I was selling units at the Hyatt Regency, selling to foreigners was not an easy task, but things have since been made simpler. We have a brokerage agency, Indochina Properties, which focuses on selling upscale residential products. For every one property we sell to a Vietnamese buyer, three are sold to foreigners.

As you can see, foreign demand, at least in the high-end residential market, is growing incredibly fast and I think the Vietnamese government has made a very smart decision in permitting foreigners to own up to 30 per cent of units in a residential development. It is a great opportunity for both overseas buyers and developers, as well as a great opportunity for consultants and brokerage firms like us. These facts bode very well for the future of Vietnam’s real estate market.

What segments could potentially see the most growth in the future?

We have seen more demand in the logistics sector this year, especially in traditional and model shopping retailers, as e-commerce continues to grow rapidly in Vietnam. Another segment which will see very strong development is logistics services and businesses, and cold storage transportation systems, but these sectors can only grow as fast as the country’s infrastructure will allow them to.

Additionally, overall demand continues to grow the hospitality segment, though it is hard to say if it is keeping up with the supply. We are excited to see a lot of domestic developers who are actively getting involved in hospitality. Namely, I would like to commend BIM Group who have consistently developed resorts and hotels of the highest quality.

Of course, fast development also comes with its disadvantages. There will be both winners and losers in this game and we really need to start a focus on the sustainability of tourism development. Developers who continue to push out products of lower quality will start to realise where they went wrong.

We can use the condotel market as an example. In our estimation, around 50 per cent of upcoming products – about 25,000 rooms – coming to the market are condotels. There will be an oversupply of this type of residential unit in the near-future. Many Vietnamese developers lack originality, which has resulted in this oversupply. Those who bring unique or new types of experiences to the market are setting themselves up best for success.

There is a lot of opportunity in the industrial and logistics sectors, as well as the hospitality segment, but we need better management to avoid oversupply and other negative circumstances in the future.

Real estate made up the largest portion of FDI into the country so far this year. What is your assessment on this heading into 2020?

We continue to see increasing levels of FDI into real estate – a trend I expect to continue into the coming years. If you look at the portfolios of both foreign developers and buyers you can see that the South Koreans and the Chinese make up the largest group of buyers right now and these nationals also dominate the tourism segment in Vietnam. Who is dominating FDI? We get the same answer.

I do not see this trend stopping anytime soon, due to the proximity of these countries and how intertwined the cultures have become. Every day we receive inquiries from East Asian and Chinese groups that express interest in entering the Vietnamese market. This is a shift from what we saw back in 2006 and 2007 when there was a lot of North American interest in the market. That is not to say that Western countries are no longer showing interest – quite the opposite actually. However, the rapid rise of FDI from our Asian neighbours should be highlighted. The whole world wants a piece of Vietnam right now.

Do you expect any significant FDI growth into Vietnam via a flow of manufacturers moving their bases from China to Vietnam? How could this impact the country’s real estate market?

China is becoming more expensive and has some issues related to the tariffs that have caused many manufacturers to move to Vietnam. This factor discourages investors from the country and should be something the Vietnamese government should look to avoid.

What is China’s loss becomes Vietnam’s boon, however, as I have already mentioned, this should push the Vietnamese government to further focus its efforts on improving the country’s infrastructure. This will not only help the industrial sector, but also all segments in the real estate market.

Indochina Strategic has just won twice at the Asia Pacific Property Awards. How did the company get into this position?

Indochina Strategic is Indochina Capital’s real estate consultancy arm. The awards and the others we won the previous year prove that we have been able to leverage the knowledge that we have gained as long-time developers in Vietnam.

After more than 25 years doing business in Vietnam, Indochina Capital has seen the demand for services and consultancy rise strongly. What started off as ad-hoc assignments to help our fellow developers has turned into a full-blown advisory operation. Of course, there are many consultants in the market, but I believe we provide a distinct advantage compared to our competitors.

We have practical knowledge rather than theatrical advice that is normally given by our fellow consultants. This is very important for customers, because we ourselves are developers and investors, we have carried out many developments before and have real experience in implementing a project from the beginning to its operation. We know what it takes. We also bring a developer’s perspective to the work and we pursue our assignments like they are our own projects and are also selective with the assignments we choose to take on.

Indochina Strategic is exceptional in hospitality advisory, as ­hospitality makes up the majority of our development experience. The difference between us and other hotel consultants is that we have been building real hotels, whereas they have not. That being said, in the last few years, our team has grown and we now have more confidence than ever in taking on all sorts of advisory assignments all across the spectrum.

What do these two awards mean for Indochina Strategic?

We at Indochina Capital have received many awards in the real estate sector; however, it is nice to see our advisory arm recognised on the international stage. Not only does it affirm our position in the market, but it also is a big source of motivation for our team. I am very proud of them and we are only going to improve from this point.

It is also a commitment to deliver the best service to our customers. It confirms their decision to hire us as consultants and in an industry that operates heavily on word-of-mouth, it only furthers the development of our business. Moreover, these awards prove that our decision to enter the advisory business was the right decision and we look forward to delivering the very best for our clients for more years to come.