Understanding the APAC & Vietnamese Investment Landscape Q4/2023

Improved Investment Sentiment

In the final quarter of 2023, prolonged high interest rates and rising global economic uncertainties continued to cloud the regional property investment market. Preliminary estimates show regional property investment volumes (deals worth over US$10 million, excluding development sites and pending transactions) fell by 23.2% YoY to US$31.8 billion.

Japan remained one of the top contributors to regional property investment activity in Q4/2023, benefiting from an ultra-loose monetary policy, a weak currency and robust inbound tourism. Although softening demand for office and residential properties softened investment volume in Q4/2023, overall investment sentiment remains positive. Investors have a healthy appetite for logistics, retail, and hotel properties.

In China, with the support of proactive fiscal and monetary measures, China regained its place position with the highest investment volume. Investment sentiment improved slightly with more realistic seller expectations and a stabilising economy. More domestic end users and well-funded investors (e.g.: insurance companies) are planning to increase their presence by acquiring good quality properties in Tier 1 cities and re-financing assets from auctions, while foreign investors continue to show a lack of interest.

Property investment volumes in Korea, Hong Kong, and Singapore continued to fall in Q4/2023 with higher finance costs and wide buyer-seller expectation gaps. However, Hong Kong and Singapore recorded several notable deals which supported investment volumes, including a local financial regulator’s acquisition of 12 levels of One Island East in Hong Kong with a total value of US$694.1 million) and a Malaysian Tycoon’s acquisition of Shenton House commercial tower in Singapore valued at US$408.1 million.

Retail and hotel investment performed relatively well among other asset types, both registering double-digit YoY growth in Q4/2023. Office investment continued to underperform in the last quarter of 2023, due to the high cost of borrowing and negative yield spreads, but it remained the most popular asset type overall with a 30% share of the total investment volume. Industrial investment had a mild decline with diminishing returns and a lack of modern warehouse stock. Residential investment was also subdued, however, Australia’s residential market proved to be a bright spot amid an increasing number of immigrants and international students.

Looking to 2024, interest rates are expected to fall from mid-2024 following an easing of inflationary pressures and concerns over slower economic growth, but rates are unlikely to return to pre-Covid lows in the short term. Regional investment activity may pick up during the second half. Japan and India are expected to attract interest from domestic and international capital due to Japan’s looser monetary policy and India’s strong economic outlook.

Positive Signs in Viet Nam

Despite challenges, Vietnamese real estate continues to attract foreign investors. According to the Foreign Investment Agency under the Ministry of Planning and Development, by 20 December 2023, Viet Nam attracted nearly US$36.6 billion of foreign direct investment (FDI), increasing by 32.1% YoY. There were 3,188 newly registered projects, rising by 56.6% YoY; newly registered capital of US$20.19 billion improved by 62.2% YoY. Approximately 1,262 projects had capital increases, rising by 14% YoY; additional capital totalled US$ 7.9 billion.

Fitch Rating upgraded Viet Nam’s long-term foreign-currency issuer default rating (IDR) to ‘BB+’, from ‘BB’. In 2024, Viet Nam’s GDP growth target is from 6% to 6.5%, underpinned by a stable FDI and ongoing government efforts, including easing difficulties in real estate, promoting public investment, and administering economic policies promptly to stimulate balanced growth.

There were sizable industrial investments in Q4/2023. HiteJinro, South Korea’s largest beverage firm invested US$100 million into a new factory on 8.2 ha in Thai Binh. Deli Group (China) also invested US$270 million in 21.1 ha of land in Hai Duong, Hyosung Corporation approved US$720 million for a biopolymer fibre facility at Phu My 2 Industrial Park.

There were also dynamic retail investments from foreign investors. In September 2023, Lotte officially opened Lotte Mall West Lake Ha Noi spanning an impressive 354,000 sq m. THISO launched its third Emart in Ho Chi Minh City and is eyeing an expansion in the north of Viet Nam, with the strategic purchase of 2.4 ha of commercial land in Tay Ho Tay Urban Area, Ha Noi.

For the office segment, more than 85% of Viet Nam’s fastest growing companies have ESG commitments, driving demand for offices that meet green standards. By 2026, 300,000 sq m of new Grade A office supply will enter Ho Chi Minh City; projects include properties pioneering green supply such as the Nexus or VPBank Saigon Tower. More than 80% of future Grade A and B supply in the city will have green certificates. In Ha Noi, according to Savills Market Report Q4/2023, from now to 2025, 15 new office projects will enter with 389,770 sq m of stock. Grade A will have an 86% share of future supply. Upcoming green developments in the capital include Grand Terra, Taisei Square Hanoi, Tien Bo Plaza, 27-29 Ly Thai To and other projects around the Starlake area. Offices with green certifications will have an 18% share of the total future office supply in Ha Noi. For more information on office projects in HCMC and Ha Noi, contact Savills Commercial Leasing.

In the last month of 2023, major developers launched new and next phases of residential products across the country, including The Privia in Ho Chi Minh City and the Canopy Residences and Lumière Evergreen in Ha Noi. The next phases of Akari City and Glory Heights also welcome new releases.

According to Matthew Powell, Director of Savills Ha Noi: “The great news is that Amendments to Housing Law, Real Estate Trading Law and Land Law have been approved recently, which is likely to support the entry of new supply and development processes. The Real Estate Trading Law (Amended) stipulates stricter legal requirements for developers before they can sell off the plan houses and collect money from buyers.

With the Housing Law (Amended), the procedures for requesting land use fee and land rent exemptions for social housing have been minimised significantly. Developers also have greater flexibility on how to allocate land for social housing within their residential projects. These amendments will support real estate in Viet Nam, and we are likely to see improved investor confidence. Policy improvements coupled with real residential, office, and industrial demand will support property in 2024.”

Major Investment Transactions in Viet Nam, Q4/2023:

• TTC Hospitality JSC purchased Imperial Hotel in Thua Thien Hue.
• CapitaLand purchased a 56,208 sq m land plot in Vinhomes Smart City, Ha Noi, for a residential project.
• Sycamore Company, a subsidiary of CapitaLand, purchased an 18.9-hectare land plot in Binh Duong valued at US$240 million for a residential project.

Conclusion

As high interest rates and a global economic slowdown persist, the road to recovery will continue well into 2024, with upticks only expected from the latter portion of the second half. Nonetheless, the Asia Pacific remains an attractive investment destination. In Viet Nam, the Government’s efforts in tackling the current challenges in real estate coupled with real demand will continue to support investment.

For more information on real estate investment opportunities in Viet Nam, contact our Investment Team. Our experienced team delivers investment advisory, brokerage, and marketing services at any stage of the property lifecycle. Our team of experts, backed by detailed market knowledge and our global reach will provide the best-in-class solution, acting as an effective communication channel between buyers and sellers. We provide investment analysis and advice on deal structuring, including joint venture and partnering arrangements.