A shifting real estate market in Vietnam

Vietnamese investors have generally been focused on developing office buildings but are now realising that oversupply is a real concern and have switched interest to other sectors including hotels and retail centres.
Whilst strata purchases are difficult for foreigners, this has been another area of increasing interest for local investors, who have been actively buying both retail podiums and office floors
Foreign investors have shown concern at the rising number of resort developments, particularly along the central coast, however local developers have shown continued interest on the back of recent successes by the large funds such as Indochina Capital and VinaCapital with
their Hyatt Regency and Danang Goft Course projects respectively.  Local investors are clearly able to take a very different approach to country rick and this is reflected in the prices.
Paid and their return expectation. Vietnamese will generally speaking not look at the yield that the property is generating, but will be more focused on the price per square  metre and some will consider the time they estimate it will take to recover their initial investment. Very often they are speculating on the capital gain only.
Whilst the big Korean develops have generally taken a step back over the first six months of 2009, the recent improvement in the Korean economy has seen some return and others ramp up their market entry programs. Expect to see Korean money return to Vietnam but  perhaps  with  a  more  caution approach to market risk than the boom years of 2006 and 2007
The strength of the Japanese yen may well lead to growing interest from this market and in fact Vietnam is that the top of the Iist in terms of global real estate markets that are of interest to a select number of Japanese investors
The core government backed Singapore funds are showing renewed interest in Vietnam, including CapitalLand, Mapletree and Keppel Land. In addition, there are other Asian property funds based in Singapore, who will be seeking Vietnamese property for their fund portfolios.
During 2006 and 2007 Vietnam was attracting increased interest from institutional sources from the Middle East and At that time most such property investment was through indirect vehies such as the major Vietnam focused tends, including VinaCapital, Dragon Capital, Indochina Capital, Prudential and JSM Indochina.  However,  we expect to see such institutional sources increasingly looking at direct investment in to property in Vietnam.
The focus on indirect investment was largely due to the fact that foreign investors typically have to overcome a range of difficulties when entering Vietnam. By investing in a fund with an experienced team, these potential problem can be  managed effectively,
Whilst diversifying risk over a portfolio. Despite this, some funds have still found it difficult to find suitable investments, with issues including any, or all, of the following
Hurdle rates of return, typically ower a 20 per cent IRR, make foreign investors uncompetitive compared to local investors:
For developers, access to land is one of the key issues, with problems including clearance and compensation, ownership issues, red tape and pricing;
Lack of transparency: due diligence can prove difficult where information is not readily available, there is no proper land registry and many potential partners have only very limited real estate experience.

Despite all of the problems, Vietnam continues to attract significant interest and it is likely

that 2010 will see e substantial increase in daeal flow"

Nascent legal framework: for all investors, but institutional investors in particular, the lack of clear legal procedures, guidelines, precedents and recovery, can make investment into Vietnam difficult.
However, despite all of the problems, Vietnam continues to attract significant interest and it is likely that 2010 will see a substantial increase in deal flow Whilst this may not necessarily include promises of billions of dollars for huge new urban areas and resorts, it will show renewed focus on higher qual- ity investments, particularly in the city centres of Hanoi and Ho Chi Minh City
Many investors are hoping for a much more transparent land allocation system, which could involve auctions to be organised by the respective People’s Committees. This could potentially make available sites that have been sitting idle, and present new opportunities for foreign developers who have failed to identify suitable sites to date. Opportunities abound, but investors need to do thorough homework and consider all of the following:
Employ experienced professional consultants with a long term Vietnam presence;
Always complete thorough due diligence before committing funds;
Consider working with an experienced local development partner:
Open an office in Vietnam, with staff that have emerging market experience and who can then build a strong Vietnamese team
Looking forward to an exciting 2010, with Vietnam positioned to take full advantage of  the economic recovery. Local investors will remain active over the next 12 months, but expect to see a growing number of transactions completed by foreign investors as confidence increases and Vietnam becomes an important part of their regional portfolios