Vietnam is the easternmost country on the Indochina Peninsula in Southeast Asia. Emerging from a long war, Vietnam instituted economic and political reforms in 1986 in an effort towards international reintegration. The Socialist Republic of Vietnam is a single-party state. The primacy of the Communist Party was reasserted in all organs of government, politics and society. Still, Vietnam has steadily worked to liberalise and open up its economy.
By 2000, the country had established diplomatic relations with most nations. In the past decade, its economic growth ranked among the highest in the world. In 2001, Vietnam and the US signed a Bilateral Trade Agreement, granting Vietnam a normal trade relations status on a temporary and renewable basis. The agreement covered market access for industrial and agricultural goods, protection of intellectual property, market access for services, investment protection and other matters. Vietnam’s efforts culminated in the country joining the World Trade Organization (WTO) in 2007 and its successful bid to become a non-permanent member of the United Nations Security Council in 2008.
Between 2004 and 2007, Vietnam has been affected by bird flu, droughts, flooding, inflation and rising fuel bills. However, the Vietnamese economy still achieved steady and satisfactory growth results year on year. It is ranked as the second fastest growing economy in Southeast Asia. Now that Vietnam has become a member of the WTO, it has turned into an attractive emerging market. This certainly applies to the property sector, that offers a prosperous outlook for investors.
Vietnam is also an interesting destination for tourists, because of its long coast line of over 2,000 kms, its good climate and a number of UNESCO world heritage sites. In the latest annual survey by the World Travel and Tourism Council (WTCC), Vietnam moved up from 6th to 4th place in the league table of the world’s fastest-growing travel destinations. In 2007, Vietnam had 4.2 million foreign visitors, 16% more than in 2006.
With a population of over 86 million, Vietnam is the 13th most populous country in the world. The population is still growing with a 25% growth forecast up to 2025. 79 million people are under 65, meaning that the country is fairly young. No less than 65% of the population is under 35. The Vietnamese population is highly literate, hard-working, consumption-oriented and highly motivated.
Vietnam’s young and entrepreneurial population is a key competitive advantage that makes Vietnam an attractive market. The opening up of the economy has resulted in a huge increase in consumer spending, exceeding 75% between 2000 and 2007. Also, the country is becoming increasingly urban and concentrated. More than 1 million people are expected to migrate each year to Ho Chi Minh City and Hanoi, two of Vietnam’s largest cities.
The decision to abandon collective farming in the early 1990s gave Vietnam the opportunity to reduce its dependency on imported basic foodstuffs. Nowadays, the country is one of the world’s leading exporters of products such as rice, coffee and rubber. Vietnam is also in the process of integrating into the world’s economy, as part of globalisation. Vietnam is on the way towards becoming the world’s leading agricultural exporter, and a bright destination for foreign investment. With the enhancement of management skills and the potential workforce, Vietnam aims to become listed as a developed country by 2020.
Gross Domestic Product (GDP) growth
With a high GDP growth rate of 7-8% in the past five years and a GDP growth reaching 8-8.5% on average by 2010, Vietnam’s economy is in good shape. GDP growth ended at 8.5% for 2007, and a forecast of 7% is given for 2008.
The national income per capita is approximately US$ 835 per person per year, increasing by 23% year on year (first 7 months of 2008). The GDP per capita in Ho Chi Minh City, at US$ 2,180 in 2007, is nearly three times the national average, while Hanoi is not far behind, at US$ 1,988. It is crucial to note that the Vietnamese GDP per capita does not represent accurate data. Given the cash-based economy and the lack of an automated clearing system, the figures available on incomes and social differences are patchy and opaque, meaning that analysts are forced to rely on estimates and projections. This implies that the actual disposable income per capita is (much) higher than indicated by the official figures.
Economic development is borne by exports as the number 1 growth engine (e.g. crude oil, clothing/textiles, shoes and fish products), buoyant consumption and high investment rates. Agriculture still plays a specific albeit decreasing role, measured by the share of the population involved (65%).
Vietnam ranks among Asia’s strongest growing national economies, with a GDP growth of 8.5% (2007), coming second behind China (11.4%).
Foreign Direct Investment (FDI)
FDI in 2006 was US$ 7.6 billion, US$ 1.1 billion being invested in real estate.
FDI in 2007 was US$ 21.3 billion, US$ 4.7 billion being invested in real estate.
FDI in January-August 2008 was US$ 47.2 billion, US$ 22.5 billion being invested in real estate.
- Foreign Direct Investments play an important role in Vietnam’s economic development. Real estate projects account for approximately 48% of all FDI in 2008.
- Microchip producer Intel is to open a US$ 1 billion factory near Ho Chi Minh City. In addition to Intel, major investors (over US$ 1 billion) include Foxconn, SP Chemicals, Posco, Sumitomo, Berjaya Land, Tata Steel, KumhoAsiana, Trustee Suisse, AES and China Southern Grid Co.
- With Vietnam’s accession to the WTO, its real estate sector is likely to be further liberalised. Changes have been set in motion to stimulate the sector, including the recent relaxation on foreign ownership of apartments and a clearer framework for local and foreign joint ventures in property development projects.
- Along with the rapid urbanisation that is underway, Vietnam’s real estate sector, particularly in HCMC and Hanoi, will continue to generate investor interest, including the retail subsegment.
The new strong demand for real estate in Vietnam is driven by:
- Increased standard of living and rapid urbanisation
- Current lack of supply
- Urban infrastructure development
- Increased availability of mortgages
- Growing remittances from over 3 million overseas Vietnamese
- Large young population looking to buy their own homes
- Developing real estate legal framework
- Strong growth in tourism
For various reasons, Vietnam is seen as a highly attractive retail market. The starting conditions for an attractive retail environment are provided, viewed from a macroeconomic perspective, by a very young and consumption-oriented population with a growing income. In addition, tourism figures are continually rising. The steadily increasing retail sales of recent years (2007: US$ 10.4 billion) confirm the favourable conditions. However, the supply of attractive retail spaces is still very low, although some spaces are at the planning stage or under construction. A doubling of the retail inventory is planned by 2010. The shopping centre inventory in HCMC is currently put at 140,000 m². So far, smaller shops dominate the market, but a slow change is starting to become visible, progressing via smaller luxury shop units to air-conditioned supermarkets through to shopping malls.
According to the 7th annual Global Retail Development IndexTM (GRDI), a study of retail investment attractiveness among 30 emerging markets conducted by the management consulting firm A.T. Kearney, Vietnam has ended India’s three-year reign as the most attractive emerging market destination for retail investment.
Vietnam’s leap from 4th in the 2007 GRDI to 1st in 2008 was driven by strong GDP growth, consumer spending expected to hit > US$ 60 billion in 2010, changes to the country's regulatory structure favouring foreign investors, and increasing consumer demand for modern retail concepts. According to the research firm RNCOS, the Vietnam retail industry is expected to grow at a Compounded Annual Growth Rate (CAGR) of approximately 13.6% during 2008-2012. The revenue from retail sales has escalated very rapidly in the last few years, reaching US$ 30 billion in 2007, as compared to US$ 16 billion in 2002. The rapid growth in the Vietnam retail market in recent years has attracted many multinational retailers from all over the world.
One of the major reasons for the high growth in the Vietnam retail industry is the liberalisation of the retail sector under the conditions of Vietnam’s membership to the WTO. These conditions have allowed foreign players to chip in up to 49% capital in joint ventures from early 2008. Starting from January 1, 2009, foreign players can invest in Vietnam’s retail markets. Also, foreign-owned companies will be able to run their independent outlets in the country, while already a large percentage of FDI is earmarked for Real Estate Development.
The other major factor inducing concrete growth in the Vietnamese retail sector is the increasing income level in the country. Accordingly, there is a huge shortage in the supply of real estate, whereas the demand keeps increasing. There is also an ongoing flow of expats in the country, numbering an estimated 80,000 persons (including unregistered persons), who stay in Vietnam for 1 to 5 years. By the end of 2008, the number of expats is expected to have increased by 5-10%. At the same time, the tourism industry is flourishing, with 4.2 million foreign visitors in 2007, an expected 5 million in 2008, and 10 million foreign visitors being projected for 2010.
ECC Invest is to introduce the ECC Vietnam Retail Fund in 2009. The Fund targets larger scale retail (shopping) developments and investments in Vietnam. Target size of the Fund is US$ 250 million.