Long beach long island real estate

When enterprises fail to realize their commitment of interest payment, investors would be on the losing side.

Lack of attention from regulators has resulted in the market being flooded with corporate bonds of three Nos: no credibility rating, no guarantee asset, and no payment guarantee, according to economist Dinh The Hien.

Hien made such comments when there has been a growing trend of real estate firms issuing corporate bonds with high interest rates to attract investors – which is currently seen as one of the fastest ways to raise fund in Vietnam.

Corporate bonds from real estate firms remain a risky business for investors. Photo: Tieu Thuy

For the banking sector and other fields, corporate bonds are offered with interest rates of 7-8% per annum, but real estate firms coming up with much higher rate of 11-13%, or even 18% in some case.

“For this chaos, the loser would ultimately be investors,” Hien told Hanoitimes .

“Without guarantee asset, corporate bond is actually a debt note, while enterprises’ payment capability is dependent on their operation efficiency and financial status,” Hien added.

These bonds, estimated at VND120 trillion (US$5.23 billion) in 2020, or 65.6 of the totals, are not guaranteed and pose major risks for investors.

For corporate bonds associated with stock guarantee, Hien said it still remains risky for investors as in a crisis situation, all these stock value would go downhill in no time.

“Corporate bond is not for individual investors, as they are often issued for long-term of up to five years, and investors could not withdraw in case of urgency,” Hien stated.

“When enterprises fail to realize their commitment of interest payment, investors would be on the losing side.”

Vu Duc Thanh, an individual investor at District 2, Ho Chi Minh City, told Hanoitimes of his purchase of corporate bonds from a property development firm worth VND8 billion (US$350,000) five months ago.

“This enterprise is now unable to pay the interest rate, and for us, we cannot withdraw out money,” Thanh said.

A report from SSI Research revealed in 2019, real estate firms mobilized a total of VND57 trillion (US$2.48 billion) via corporate bonds issuance and accounted for 19.25% of total value in the market.

However, the figure for the first two quarters of 2020 was equivalent to 80% of total amount for 2019, of which corporate bonds without asset or stock guarantee stood at nearly VND63 trillion (US$2.74 billion), or 34.5% of total bonds issued.

Last September, Apec Group, owner of real estate projects in cooperation with US-based Wyndham, offer their corporate bonds with interest rate of 18% per annum. Other firms also provide their respective bonds with attractive rates, including TNR Holdings (10.9%), Sunshine Group (11%), or Van Don Tourism Development and Investment (10.5%).

Chairman of the Ho Chi Minh City Real Estate Association (HoREA) Le Hoang Chau said such high interest rates are kind of “bait” from bond issuers to convince investors to put their money on.

“Even firms issuing bonds with guarantee assets being future projects are already risky enough, it is needless to say regarding those without any guarantee at all,” he said, adding investors that only go for high interest rates would be at huge risk.

Banking expert Nguyen Tri Hieu told Hanoitimes said along with stronger measures from competent authorities to ensure healthy development of the bond market, a secondary market for corporate bond is needed to boost bond’s liquidity.

“Profit for investors at that time would not only come from interest rates, but also from the difference between selling and buying prices of bonds in the secondary market,” he noted.

The pandemic has not slowed down interest from buyers and developers for top-class properties

On a breezy Saturday evening in Nhon Trach district of Dong Nai province, a group of residents were enjoying a BBQ dinner outside a garden villa at SwanBay, a township developed on Dai Phuoc island, 30 minutes by boat from Ho Chi Minh City.

“It is ideal to have a villa on the island. I had heard about the concept of island properties, and now I can have such a villa right here in Vietnam,” said the owner.

Beginning in 2017 as a project totalling over 200 hectares, half of which has already been developed, Swanbay boasts over 2,000 units sold and 1,000 of them already completed and handed over.

The project is among some of the first to be developed under the concept of island townships in Vietnam. Also in the same province, other ventures such as Angel Island by Song Tien Corporation and Aqua City-Phoenix developed by Novaland are driving interest from high-income buyers.

According to Trang Bui, head of client development and transactions at JLL Vietnam, Vietnam waterfront and island properties may be one of the newest areas in the region to reach prominence, but it is far from being the only one.

Before the pandemic hit, the Asia-Pacific was in the midst of an urban waterfront building boom, as developers crowd in to get a piece of coveted coastal areas from Singapore to Sydney.

While the world in general saw investment reduced sharply due to the coronavirus crisis, in Vietnam the segment remains on the radar of rich buyers thanks in part to its successful containment of the pandemic compared to many nations elsewhere.

Trang said that as local economies mature and affluence rises, these waterfront and island properties become increasingly attractive from a recreational and housing point of view.

“Island properties are offering something uniquely different from the typical inland development and they reflect the unique habit of wealthy consumers,” said Trang.

New concepts

From an urban perspective, coastal and island development has traditionally been dominated by commerce such as trading, shipping, and transportation.

According to Trang, in developed modern metropolises where green space is at a premium, however, a river or island view brings a sense of openness and a connection to the natural world that is crucial for every resident.

Waterfront locations offer residents expansive views and a resort-like lifestyle – two preferred factors for both buyers and investors. Moreover, island and waterfront properties are offering a valuable environment to its residents.

In many real estate projects, developers have to build up a friendly environment system from the ground up. Island projects, meanwhile, already inherit a rich bio-diversified environment, meaning developers can focus on preserving the landscape and environment in the area.

Meanwhile, over the past few years, Vietnamese people with a sophisticated lifestyle have increasingly been searching for more isolated spaces surrounded by rivers or other water-based locations.

According to the Wealth Report 2020 released by UK-based Knight Frank consulting agency, Vietnam will be among the countries with the most rapid projected growth of the superrich over the next five years and this proportion will make a great impact on the consumption of high-end properties, especially eco-island properties.

Chow Chee Fan, CEO of Song Tien Group, the developer of Angel Island in Dong Nai province, told VIR that although the real estate market in Vietnam is still in its early stages of development, eco-island properties are increasingly attracting demand from customers with high living standards.

“For this customer class, their need is not only looking for real estate to live in, but they also pay much attention to the ecological environment of that property and the amenities that cater to advanced resident’s health,” Fan said.

“Island ecological properties also need to meet key factors such as high-quality products and integrated planning,” Fan emphasised.

Fighting logistical hurdles

According to JLL, not every project has been as successful in the region. In Thailand, for instance, there is little access to many riverfronts. The building regulations of local authorities on the use of the riverfront are very tight, bringing many challenges for developers. The Thai government is beginning to offer public facilities such as walking paths and cycle-ways along such riverfronts, and these services can bring about social, economic, and environmental benefits.

In Hong Kong, harbour-front properties have been in demand for decades, but implementing the kind of large-scale change seen in places like Singapore is proving tricky. While demand for a waterfront lifestyle may be rising, supply is limited.

“There are not many waterfronts which a city or a country can offer. However, developers will be driven by areas with improved infrastructure and ambitious new projects located near rivers, and so island and waterfront properties look set for further change in the coming years,” said Trang from JLL.

The success of island properties can be more challenging than in inland areas, and also depends much on the financial and technical capacity of the developers themselves.

For example, many years ago Vinaconex looked to build Cat Ba Amatina, a $1 billion township on Cat Ba island near Haiphong. With a scale of more than 170 hectares, Cat Ba Amatina was to be a complex of several resorts and hotels, marinas, tourism port, international trade and service centres, entertainment, and sport facilities.

However, due to the lack of investment capital, the venture was delayed from 2013 and was only just resumed last October. The developer has since committed to finish the first phase of the project by 2023 and fully complete it in 2025.

In Thanh Hoa province, the Tien Trang coastal urban project has been delayed for more than a decade due to the incapability of developer Soto Co., Ltd. to implement the project.

Soto expected to put the 100ha residential area and sports and entertainment centre into operation in 2014. Today, however, only half of a central square has been constructed. Last November, local authorities permitted the developer to transact several land plots in the project to other developers. The capital flow from the transaction is assumed to be re-invested in the project itself.

Hoang Cong Khuong has lived in Poland since 2002, and he and his wife run a small business there.

Land and property prices are pushing upwards in areas such as Long Bien and Hadong in Hanoi. Photo: Duc Thanh

Thu Huong recently returned to work as a freelance broker when she realised the rising attraction of land and property in the outskirts of Hanoi.

She explained that her former company used to sell apartments, land plots, and adjacent villas in Hadong and Hoang Mai districts. These areas are far from the city centre and were offered at a more reasonable price range, targeting mostly homebuyers looking for a place to live. However, a few months ago, these and neighbouring suburban districts like Hoai Duc and Dong Anh suddenly heated up.

“A few years ago, vacant lots next to the abandoned villas of the Geleximco project on Le Trong Tan street in Hadong district were hard-pressed to get customers’ attention but have doubled or even tripled in price since then. Most shophouses are priced at around VND120-130 million ($5,200-5,650) per square metre, while apartments fetch VND25-27 million ($1,000-1,200) per sq.m,” said Huong.

Meanwhile, brokers offer residential land in the area at VND60-70 million ($2,600-3,000) per sq.m depending on proximity to the main road. In peri-urban villages such as Tay Mo (South Tu Liem district), Vinh Ngoc (Dong Anh district), and La Duong, La Phu (Hadong), prices range from VND25-50 million ($1,000-2,200) per sq.m. Some areas such as Kim Chung-Di Trach (Hoai Duc district) now come at up to $2,200 per sq.m and continue to fluctuate by day, while one square metre of residential land in An Khanh, An Thuong, and Van Canh (Hoai Duc) can fetch over $3,500.

“Estate transactions are bustling, and many older projects that could not be filled for 10 years are now almost completely sold out,” said Huong.

Explaining this increase, Nguyen Thi Hong Van, associate director of Valuation Services, Savills Hanoi, said inner-city land funds are growing gradually limited and complicated investment procedures have reduced investors’ interest. Meanwhile, infrastructure at peri-urban areas is rapidly improving, making these areas more appealing to investors. However, she warned prices are moving at a wide spectrum in these areas so buyers should make thorough comparisons and estimate the correct value of the property before entering into a transaction.

Indeed, investors and property buyers’ have been turning to peri-urban areas with a lot more gusto since Hanoi announced the master plan of Hoa Lac Urban Area last July. This has had a buoyant effect on property prices in villages and communes around the capital. Additionally, prices in Dong Anh, Gia Lam, Thanh Tri, and Dan Phuong districts (all just outside Hanoi) started to increase after the investment project was approved to build these four districts into urban hubs from 2025. In areas in Dong Anh district where Lien Ha, Duc Tu, and Thuy Lam industrial clusters will be established, prices have also received heavy upward momentum.

Recently, as rumours took flight about the Red River urban zoning plan being approved and issued by Hanoi in June, land prices in neighbouring areas began shooting up.

Last week, prices at the riverside areas of Xuan Canh commune, Dong Anh district fluctuated around VND17-18 million ($740-780) per sq.m. Since then, however, they have risen to VND28-30 million ($1,200-1,300). Nguyen Van Minh, a real estate broker in the area, shared that he had just dealt with a customer of a nearly 200sq.m of land with the price of VND28 million per sq.m, only to be offered VND30-35 million ($1,300-1,500) by someone else.

At another land lot near the Red River dykes, adjacent to Vinhomes Co Loa, Minh said that offer prices have nearly doubled, reaching $2,200 per sq.m and by the time the project breaks ground, they could reach as much as $3,500.

Land prices in neighbouring areas such as around Thach Cau street in Long Bien district also increased by about $130-220 per sq.m compared to last year. Many plots along the Red River in the district’s Ngoc Thuy ward are offered at similar prices, two or three times as much as before. Linh Nam ward of Hoang Mai district has been quite active with prices along the main road at VND65 million ($2,800) per sq.m, while properties on smaller streets and alleys are offered for VND35 million ($1,500).

The buoyant effects have in fact been rubbing off in a radius of 50km of Hanoi, with the prices of residential land steadily increasing, especially in provinces that have many industrial zones with modern infrastructure such as Bac Ninh, Bac Giang, Hai Duong, Thai Nguyen, and Ha Nam.

Vietnamese real estate goes global

The first branded apartments of Grand Marina were purchased by customers of the Asia Bankers Club with a starting price of $1 million, equivalent to a unit price of $18,000 per square metre. This price is significantly higher than other luxury apartments in Ho Chi Minh City with an average price of nearly $7,000 per sq.m, according to CBRE Vietnam’s 2020 Real Estate Market Spotlight.

Artist’s impression of Grand Marina, Saigon designed to Marriott standards

However, this price is comparable to those of branded real estate projects in the region such as The Residences at Mandarin Oriental in Bangkok and The Residences at the St. Regis Singapore. On the other hand, compared to Hong Kong – one of the most expensive housing markets in the world – this price is significantly lower than the unit price of the city state’s luxury segment, estimated at an average of $46,800 per sq.m, according to Savills.

The potential of Vietnam’s real estate is catching the attention of international investors

The emergence of a new real estate model in Vietnam – the urban branded real estate – has caused the price of luxury apartments to jump and catch up with other countries in the region. With the endorsement of global brands, Savills’ Branded Residence 2020 report stated, “The average price difference of the branded real estate market and the unbranded luxury real estate is about 31 per cent.”

The Asia Bankers Club announced that many customers have boldly decided to invest in Grand Marina, Saigon, although they did not have the opportunity to visit the project or a model house.

Kingston Lai, founder and CEO of the Asia Bankers Club said, “The project is backed by the Marriott International brand, which has created confidence for customers. Moreover, in the context of the global economy, Vietnam is the only Southeast Asian country to record GDP growth in 2020 and is forecasted by the World Bank to increase its GDP by 6.81 per cent in 2021. Vietnam’s real estate market is emerging as a bright star, promising growth and opportunities for foreign investors like those from Hong Kong.”

The South China Morning Post wrote, “Vietnam to host Marriott’s largest branded residence project as investors bet on Southeast Asian nation’s stellar growth.” The article reports that Marriott International is making a foray into Vietnam’s branded real estate sector, starting with Grand Marina, Saigon.

The success of the Grand Marina, Saigon launch event in Hong Kong is a milestone marking the success of a new export product – branded apartments, in addition to long-established products such as rice and coffee. The appearance of the Marriott International brand in the segment has placed the Vietnamese real estate market on the world map and caught the attention of foreign investors.

Skyrocketing rents threaten long-term investment appeal

While the average land lease has increased by a healthy 15-20 per cent against levels reported five years ago, rates at industrial zones (IZs) have seen runaway growth to reach levels that have a significant deteriorating impact on the country’s investment appeal.

In Tay Ninh for instance, land rent charged by IZ operators has risen 200 per cent since 2019 while in Long An province they went up to 1.5-2.5 times the 2015 rates. In Dong Nai province, land price and infrastructure costs in IZs increased by 30-50 per cent compared to five years ago.

Figures from Savills Vietnam showed sudden growth spurts in lease enquiries for land, factory, and warehousing at IZs near major cities due to buoyant demand.

Discouraged investors

Rising rents have been a cause for concern among investors and tenants in IZs and are emerging as a major deal-breaker for new tenants.

John Campbell, manager of Industrial Services in Ho Chi Minh City at Savills Vietnam said, “in some provinces, rising prices will affect occupancy rates. If they go too far above average, they will become a major concern for higher value investors in electronics and high-tech industries.”

“However, there are a further 561 IZs in planning or development,” he noted. “When their supply starts coming online, it will be interesting to see how that helps the law and land lease prices. But for now, occupancy in the key provinces is high, which means that any remaining land there will almost inevitably be priced higher.”

Indeed, there is a strong pipeline of industrial land in the next five years in Vietnam, with developers rushing to meet the market demand.

According to the announcement of the Department of Economic Zones Management under the Ministry of Planning and Investment, a master plan for 561 upcoming IZ projects has been approved with an area of over 201,000 hectares to be released on the market in the next five years.

Of this, 259 zones (86,500ha – 43 per cent of the total area to be added) have not been established yet.

However, many of the newly-established IZs remain devoid of tenants or are operating with very low occupancy rates, due to substandard development and the recent hikes in rent.

Carrot or stick?

Provinces have spotted the issue of IZ rental rates reaching levels that are discouraging investors, essentially holding up the waves the frenzied IZ development is meant to ride. To alleviate troubles, most localities are rolling out newer, stronger incentives to retain their investor-friendly disposition, instead of reining in rents running amok.

“We cannot directly interfere with land rental rates but we can negotiate and offer investors better benefits,” an official from Long An province told VIR, adding that as long as conditions for profitability are sufficient, the higher rental rates should not be a deal-breaker for investors.

Indeed, the regulations on IZ land give sufficient freedom for operators to adjust rent charges and only regulate the price of empty land to be leased out to developers. The framework of these prices is set by the government for each region, depending on the land type. These minimum-maximum rates are applicable for a duration of five years – with the intention of stabilising the market – and each province can select an appropriate range within this allocation to fit their development plans.

Indeed, the land rental rate of empty land has increased by an average 15-20 per cent during 2020, in accordance with Decree No.96/2019/ND-CP dated December 2019, but the healthy increase for empty land provided little hold on developed IZ land.

This leaves little chance for local authorities but to offer stronger incentives to maintain investor demand and promote more compact industries.

Quach Van An, director of the Ca Mau Investment Promotion and Enterprise Support Centre, said many investors visit him to complain about the rent hikes.

“We are trying to incentivise investment in clean, high technologies. These fields do not require much land and are in line with the government’s broader orientations on investment,” he said.

Meanwhile, Ho Chi Minh City, the industrial heart of southern Vietnam, is working to lure giant manufacturers to its high-tech park through incentives on land rent and tax exemption, as well as by simplifying procedures and accelerating land clearance.

“The municipal authorities are offering special incentives for technology firms and each ‘eagle’ coming to Vietnam will help lure a flock of others,” explained Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association.

The official from Long An added, “It is not easy at all for developers to choose a site with good infrastructure system and reasonable rent, but with the enthusiasm of local authorities we are sure that investors will be just as satisfied as the many others who came before them,” he continued.

Cities and provinces are in a balancing act trying to ensure adequate room for IZ developers while keeping Vietnam the place to be for incoming investors. While policy-makers appear confident of the incentives they offer, it opens the doors for the inviolate raising of rental rates that could destabilise Vietnam’s investment appeal on the long term. Indeed, low occupancy rates at newly-established IZs already suggest that restraining rents might be necessary.