Vietnam's Role in the APAC Real Estate Investment Landscape

According to Savills Asia Pacific Investment Quarterly Report in Q3/2023 (APIQ), the Asia Pacific (APAC) real estate investment landscape faced challenges like higher interest rates and global uncertainties, resulting in a notable downturn. However, signs of renewed investor confidence are emerging. What are the existing market dynamics and leading regional sectors, and how is Viet Nam's resilience attracting foreign investment?  

Adapting to Economic Uncertainties 

Persistent challenges such as elevated interest rates and global economic uncertainties continue to impede investment activity in the APAC region. Preliminary estimates show APAC investment volumes, excluding development sites and pending transactions, had a year-on-year (YoY) decline of 48% in Q3/2023, reaching a post-2013 low of US$20.7 billion. Nevertheless, there are encouraging signs that investors are regaining confidence in the regional property market, supported by a clearer outlook on interest rates, with several significant deals currently under due diligence. 

Japan remains a focal point, benefiting from an accommodative monetary policy and a weakened yen. Although the overall investment volume decreased in Q3/2023, the industrial and hotel markets were resilient, partially offsetting the contraction in other property segments. Hong Kong had modest QoQ upticks with several redevelopment projects and hospitality deals. In China, economic challenges and a wide bid-ask spread weighed on volumes, but there is growing interest from domestic end-users and insurance firms in high-quality commercial properties. 

Regional industrial investment surpassed office investment in Q3/2023, driven by consistent demand for modern industrial and logistics warehouses and attractive carry opportunities. UniSuper acquired a 50% stake in NPS's Australia Industrial Portfolio for approximately US$322 million. Office investment volumes continued to decline given global portfolio mandates seeking to reduce their office holdings and higher borrowing costs, but there are several pending office deals. Korea continued to be the primary contributor to regional office investment. 

Retail and hotel investment volumes remained subdued in Q3/2023, with only two significant deals completed in Singapore and Japan. Bright Ruby Resources acquired Far East Shopping Centre for nearly US$670 million, while the SC Capital consortium purchased the Daiwa Resort Hotel Portfolio for US$900 million. Multifamily investment volumes dipped slightly in Q3/2023. China was the only market with growth, thanks to recent government support measures, although these transactions were mainly dominated by domestic investors. 

Intra-regional transactions drove cross-border investment activity, however, it decreased by 54% YoY to US$6.0 billion in Q3/2023. Singapore had approximately 50% of cross-border activity, and North American investments rebounded after a sharp decline in the previous quarter. Japan remained the most attractive destination for foreign investors, followed by Australia and India. Industrial, hotel, and office properties were the top three target segments, notably Japanese hotels driven by an increase in inbound tourism. 

Manufacturing Investments Bolster Viet Nam's Performance  

Despite the global economic slowdown, Vietnam's performance remains robust with significant appeal for foreign manufacturing investors. By the end of August 2023, newly registered foreign direct investment (FDI) increased by 69.5% YoY to US$8.8 billion. The Government has implemented monetary policies to promote macroeconomic stability, while public investment spending rose by 23.1% YoY to US$14.5 billion in the first eight months of 2023. 

Export values have risen steadily since April 2023, with a notable 7.7% month-on-month increase in August. Inventories in the United States fell to 10% in August, which is favourable for manufacturing demand as the US is one of Vietnam's largest trading partners. Industrial real estate continues to underpin real estate investment. 

In July, Sumitomo Group (Japan) signed a Memorandum of Understanding with Thanh Hoa Province to develop a 650-hectare industrial park with a US$400 million investment. They are also exploring a 300-hectare industrial park in Nam Dinh Province. At the end of August, three new Vietnam-Singapore Industrial Park (VSIP) projects commenced, two received investment approval, and 12 signed development cooperation agreements. On 11 August 2023, a joint venture between Lineage Logistics and SK Logistics was announced to enhance and expand Vietnam's cold storage system. In July, Suntory Pepsico received approval for a new factory in Long An with an investment totalling US$185 million, while Hyosung Group has plans to invest nearly US$1 billion in a carbon fibre factory in Vung Tau. 

“Given the lack of residential supply, investors who can successfully bring projects to market will likely tap into the strong underlying demand, particularly if they target owner-occupiers in the growing middle class. In HCMC, continued strong performance, despite new Grade A supply, will mean opportunities remain for office investors and developers. Those who can deliver, or reposition, office buildings with green credentials could attract rental premiums”, said Neil MacGregor, Managing Director of Savills Vietnam. 

Prominent residential developers, including Vingroup, Masterise Homes, and Ecopark, introduced new products for sale toward the end of the quarter. The amended Housing Law, expected to be approved in the 6th National Assembly Session at the end of 2023, will eliminate the regulation that requires commercial housing developments to reserve 20% of their land for social housing. This change is expected to expedite projects for developers. 

“Manufacturing, trade, and services will continue to drive Vietnam’s economic growth while real estate M&A activity is increasingly vibrant.  The State Bank of Vietnam has continued to chase down interest rates to 2020 levels, a good sign for residential property”, Troy Griffiths, Deputy Managing Director of Savills Vietnam commented. 

Significant M&A transactions in Vietnam in Q3/2023: 

• SkyWorld Development Berhad (Malaysia) acquired 2,060 m² of land in District 8, Ho Chi Minh City, from Thuan Thanh JSC for US$14.3 million for residential development.  

• Gamuda Berhad (Malaysia) purchased 3.68 hectares of land in Thu Duc City from Tam Luc Real Estate Corp. for approximately US$315.8 million for a mixed-use development.  

• Keppel Corporation (Singapore) acquired a 65% stake in a company holding retail property in Ha Noi for a total consideration of US$50.4 million.  

• First Real Land JSC (Vietnam) acquired a 22% share of charter capital in Bach Dang Complex Company, which owns a 6,879 m² land plot in Da Nang City for US$8.2 million.  

• Saigonres Group (Vietnam) conducted M&A procedures to acquire 90% of Duc Nhi Company, thereby becoming the owner of a 7,700 m² land plot in Tan Phu District, HCMC.  

• F.I.T Group (Vietnam) officially divested all its capital in the 800-hectare beach resort project Cap Padaran Mui Dinh in Ninh Thuan Province.