Foreign direct investment in Vietnam, particularly in real estate and manufacturing, has been increasing steadily. While there are both successes and failures in these sectors, the media often highlights only the positives of real estate investments in Vietnam. This can lead foreign investors to underestimate the complexities of the market. Indeed, while Vietnam offers more opportunities than many developed countries, diving into property investment without a fundamental understanding of the market can lead to significant losses.
This article aims to provide a clearer picture of the realities and opportunities in Vietnam’s real estate market, offering crucial and specialized information in an accessible manner. We hope this serves as a helpful guide for those looking to invest in Vietnam.
Contents
Contrary to popular belief, land prices in major cities like Ho Chi Minh City, Hanoi, and Da Nang can be comparable to, if not higher than, those in some developed countries. The reason for high land prices includes rapid real estate development centered in these cities in recent years. As quality land is scarce and many local and foreign developers are active, prices for well-located land have surged, often already controlled by domestic or foreign developers.
Key Point: Land prices in Vietnam are not cheap. The best plots are already taken.
One of the first steps in real estate investment is assessing the development potential. While developed countries have systems in place to verify the viability of land for development, Vietnam relies primarily on individual proposals (policy approval, DP1/500 approval, etc.). Additionally, compensation for the original landowners and free occupants within the project area must be handled directly by the developers. Hence, the potential for project development is only truly known to the original developers, requiring foreign investors to thoroughly assess development possibilities before acquisition.
Key Point: Always verify the development potential of real estate projects in Vietnam through professional firms.
Many opt for joint ventures with Vietnamese firms, contributing only capital to projects that already have secured land and permits. However, if a good project is seeking a partner, it likely has underlying issues, such as problems with land acquisition or permits, or undisclosed liabilities. A rational skepticism about why such a good opportunity has come to you is essential.
There are several risks might lay under
good projects
Key Point: Thoroughly review joint venture projects, no matter how long it takes.
Whether a company or individual has real estate development experience in their home country, the application of this experience in Vietnam without careful adaptation can lead to significant challenges. Differences in business development processes, regulations, marketability, and government policies mean that what works in one’s home country may not work in Vietnam. Understanding Vietnam’s unique characteristics first is crucial.
Key Point: Vietnam differs significantly from your country. Forget your prior experience when you come here.
In recent years, companies from Korea, China, Taiwan, and Japan have extensively set up factories in Vietnam. However, industrial land near major cities like Ho Chi Minh City and Hanoi has become saturated, driving up prices. Newer industrial zones further from the cities are being developed, but these may lack infrastructure and workforce, requiring careful consideration and selection.
Key Point: Industrial land near major cities is expensive and scarce. Carefully evaluate newer industrial zones.
While labor costs in Vietnam are lower, the quality of work may not be as high, affecting the overall cost-effectiveness. Construction materials and equipment of the same quality as those used in developed countries can be more expensive in Vietnam, especially when imported, due to tariffs and shipping costs. Additionally, areas with poor geology may require significant extra construction costs.
Key Point: The cost of setting up a factory in Vietnam is not necessarily lower. Budget carefully for construction expenses.
Although the Vietnamese government was initially very accommodating to foreign factory investments, side effects such as environmental and safety issues have led to a tightening of regulations and benefits for foreign investors since 2015. As a result, the process of setting up factories has become more complicated, and using a professional consulting firm for permits and approvals is advisable.
Key Point: Establishing a factory in Vietnam is not easy. Utilize verified consulting services.
Foreigners with experience building factories in developed countries might think it’s straightforward to do the same in Vietnam. However, the lack of robust construction systems and considerations for local environmental and geological conditions can lead to serious issues if not properly managed. Proper design and construction by capable companies are crucial.
Key Point: Entrust factory design and construction in Vietnam to competent and verified companies.
