As a number of foreign direct invested enterprises (FDI) are expected to move to Vietnam from China, demand is growing but real estate offers are unable to meet the requirements.
Since early 2020, there is an increase in demand by several multinational corporations for large tracts of land and built up factory complexes. This demand has mainly arisen because of many large production businesses wanting to move out of China after the sudden spread of the Covid-19 pandemic.
This shift of enterprises wanting to move to Vietnam in the last six months has caused much concern. According to the Foreign Investment Agency under the Ministry of Planning and Investment, in June 2020 Vietnam attracted USD 1.79 bn of newly registered capital. More capital also came from investment of 206 new projects that were granted investment registration certificates, with total registered capital reaching USD 997.1 mn, up 4.5% over the same period in 2019, and up 51% compared to May 2020.
According to the Ministry of Planning and Investment, FDI inflow into Vietnam has slowed in June, hence it is not yet clear which way the wave will shift. On the other hand, new investment capital has increased but still only due to very large projects that had been under negotiation a long time back. If these big projects of about USD 1 bn are excluded, the total newly registered capital in the first six months is only 70.4% of that in the same period in 2019.
Along with the newly registered investment capital being still not a strong indicator, and FDI projects too being modest in size, uncertainty prevails as demand is not yet clear. Land prices are pushing up every day, especially in industrial real estate, and this strange phenomenon has been occurring in the market since the beginning of the second quarter until now. Experts warn that the massive development of industrial parks will pose a potential risk, because these parks do not offer adequate infrastructure facilities for large production units to move to Vietnam.
According to Mr. Vo Tri Thanh, former Deputy Director of the Central Institute for Economic Management (CIEM), the current industrial real estate development plans in localities are monotonous and lack adequate infrastructure. Mr. Thanh believes that industrial real estate is not just a factory area to work in but it must integrate with households living there and provisions for infrastructure such as houses for workers, cultural houses, sport areas, kindergartens for workers' children must all be built within easy reach.
In order to attract capital from lucrative businesses, industrial real estate must endeavor to fulfill all needs of the customers. Recently, the Japanese government spent USD 2.2 bn in a stimulus package to support its businesses to withdraw from China.
Enterprises investing in industrial real estate parks must have an overall understanding of science, technology, investment capital and modern innovative ideas to offer the best possible infrastructure for multinational corporations for the long term.
-Prof. Dr. Dang Hung Vo
Mr. Do Nhat Hoang, Director of the Foreign Investment Department under the Ministry of Planning and Investment, said that when interacting with large FDI enterprises, all representatives of businesses had commented that the industrial real estate rental price in Vietnam is far too high. Besides the high rental, the sites too are not fully developed and do not compare with other markets.
Prof. Dr. Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, said that reality shows that the concept of an industrial park is not only a place where the manufacturing factory is located, but an industrial park must include residential areas along with production areas. Hence, the better the accommodation and living conditions, the more attractive the industrial park will be for investors because they can offer better facilities to their workers. An industrial zone can develop sustainably when they are able to secure migrant workers from other places.
According to Dr. Dang Hung Vo, there are still problems that real estate enterprises have not been able to resolve for many years, such are housing problems, living conditions and entertainment facilities for workers. The development of industrial zones has led to an increase in the demand for living accommodation for workers. Lack of this facility has resulted in difficulties in attracting workers to come to work in industrial zones, as well as a concern for foreign investors.
Dr. Dang Hung Vo pointed out that though people talk a lot about modern eco industrial parks these days, such industrial parks must not be seen as factory area only, but must include accommodation, schools, markets, hospitals, job placement centers, banks, clubs and parks, that are developed synchronously with the main factory areas. This way all needs of workers in industrial parks are well met, and where multinational corporations can flourish. In this, Dr. Dang Hung Vo feels that Vietnam is lagging far behind.