Savills News

Asia Pacific Investment Quarterly Q1 2020

Although the rapid spread of COVID-19 has caused significant damage to the economy worldwide, Vietnam continues to control the outbreak very well, whilst ensuring that the economy continues to operate, albeit at reduced capacity.

Although the rapid spread of COVID-19 has caused significant damage to the economy worldwide, Vietnam continues to control the outbreak very well, whilst ensuring that the economy continues to operate, albeit at reduced capacity. However, COVID-19 is hampering economic momentum in the short-term. Vietnam’s GDP increased 3.82% year-on-year (YoY) in Q1/2020, the lowest growth rate for the first quarter in the last 10 years. There were over 18,600 enterprises that suspended their business, up 26% YoY. 

Retail services, tourism, and hospitality are likely to be the sectors hardest hit, whilst the manufacturing sector is also affected due to the disruption to supply chains and lower orders due to the rapid slowdown in consumer spending globally. The World Tourism Organization revised its 2020 prospects for international tourist arrivals to reflect a decline of 1% to 3%. This is the first-time international arrival numbers are expected to drop after ten consecutive years of growth. Vietnam is facing a significant drop in international arrivals, with China and Korea representing the most significant tourism source markets, accounting for 56% of international arrivals in Vietnam in 2019. 

In the retail sector, the rise of social distancing has been devastating for consumer spending. Most tenants have seen their revenues plummet and have asked for rent reductions. In the meantime, retail landlords are also monitoring the progress of the COVID-19 epidemic and are considering offering support that is essentially reducing rents to up to 50% during the peak of the outbreak. 

Residential real estate is seeing a short-term negative impact as travel bans are preventing buyers from visiting and closing deals, especially as China, South Korea and Japan account for a large proportion of international demand in Vietnam’s residential sector. However, developers have prepared strong project pipelines in order to prepare for the local and international demand returning to previous levels, as Vietnam still has one of the highest rental yields and lowest real estate prices in the region. In January 2020, Mitsubishi Corporation and Nomura Real Estate Co., Ltd. acquired majority shares (80%) in Phase 2 of the Grand Park Project, which covers 26 hectares and over 10,000 units of condominiums in Ho Chi Minh City, Vietnam. 

In response to the challenges of the outbreak, a variety of government incentives have been issued. The incentives will include providing tax breaks, delaying tax payments, and land-rentals for businesses whose production and business activities have been affected by COVID-19. In addition, a credit package worth VND250 trillion (US$10.6 billion) and supportive measures such as rescheduling and reducing interest, keeping current loan classification, reducing fees, etc will be offered to enterprises who are in difficulties due to COVID-19. Those measures help fulfil the capital needs for production and improve the customer’s loan accessibility. Besides, in order to support businesses and improve the business environment, the government has asked relevant authorities to review and cut administrative procedures and to speed up the disbursement of investment capital. 

Whilst the expectation is that the entire year of 2020 will be impacted, at the first light of recovery, the hospitality industry is likely to see the fastest and strongest turnaround. Vietnam’s high reliance on local travellers (82.5% of arrivals in 2019) and the Chinese and Korean markets could turn out to be an advantage, as these groups are expected to be some of the first who are able to travel again. COVID-19 is also expected to speed up the diversification of supply chains for manufacturing, which opens further opportunities for Vietnam’s industrial real estate.  

Commenting about the overview of real estate investment in Vietnam recently, Dr. Su Ngoc Khuong, Senior Director, Savills Vietnam said: “This is a difficult period of time for local and international property investors. However, for cash rich, sector experienced investors it will also be a time of great opportunity, in overseas markets as well as in Vietnam, as those investors who have over extended are forced into rapid divestment. A trend on the rise since 2019 is for investor groups to seek to partner with others to develop larger scale M&A opportunities. In Viet Nam we estimate that there are deals of this nature, currently under negotiation, valued at well over half a billion dollars. Also, and these are being implemented now, are the latest robust Government directives to support property and business through the slowdown. With this increased liquidity, and a potentially opportunity rich investment environment, we anticipate that when the pandemic eases, more and more investors will plough new capital into Vietnam’s real estate sector.”

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