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COVID-19 hinders the industrial real estate

COVID-19 hinders the industrial real estate

Friday 23, 07 2021
The complex progression of COVID-19 pandemic fourth outbreak in Vietnam impacted massively on the economy and real estate industry specifically.

The resurgence of COVID-19 made investors reconsider their investments in the industrial real estate segment in Vietnam. However, if the pandemic will be well under control, investment in the segment will still go on strong.

How is the pandemic affecting Vietnam real estate market?

In the first months of 2021, Vietnam consecutively faced two outbreaks of the pandemic. The fourth one especially halted all economic sectors.

In Ho Chi Minh City, the fourth pandemic wave resulted in a steep drop in real estate transactions.

According to the Vietnam Association of Realtors, real estate market supply nationwide in the first half of 2021 reached 129,890 units. However, transactions done were only 47,119 units.

Ho Chi Minh CIty

In Ho Chi Minh City alone, 4,082 real estate units were recorded to be on sale in the second quarter of 2021.

Of which, the apartment segment took up a great proportion with 3,844 units. However, the total market transaction was very low, reaching only 936 units (856 apartments and 110 low-rises).

Compared to the total supply in the second quarter of 2021, Vietnam’s real estate industry absorption percentage only reached 23.9%. Inventories are very high, due to the sharp decline of transactions from the beginning of 2020 until now.

The new outbreak hinders the development of industrial real estate

There still exists the interest of domestic and foreign investors in the industrial real estate segment of Vietnam. However, there also exists restriction of movement in the country, limitation of flights, which leads to investments in the segment not meeting the market expectation.

Industrial real estate was expected to be a hot spot of the market. However, the resurgence of COVID-19 in Vietnam, and problems concerning custom clearance became obstacles that made investors think twice about the decision to invest in industrial real estate in Vietnam..

Covid

Besides, the development of this segment also depends on supply chain, storage, ports, transportation, and the disbursement speed of public policy groups, which is the key factor to help Vietnam's industrial real estate gain advantages, helping investors decide to invest in industrial parks.

Foreign investors also consider and choose places with the suitable land fund, with facilities and transportation in sync. Once the pandemic is controlled, the investment will go on strong.

Aside from the impact of the pandemic, there are still difficulties when investing in industrial real estate in Vietnam. For example, in the Mekong Delta, the transportation facility is greatly limited. The only road for freighting is the national route 1A, which does not meet the need of investors. Therefore, while the area owns a large land fund, its inconvenience transportation facility diverts most foreign investors. In addition, qualified laborers that meet the requirements of foreign investors in the industrial real estate field are not abundant.

Import-export procedures are also a problem to consider. Supporting businesses in customs clearance of goods as well as exporting goods to foreign countries will help reduce costs and create advantages to attract foreign investors.

Investing in an industrial park will require businesses a huge amount of capital. In addition to investing in standard technical infrastructure, companies also have to find raw materials sources and output markets for products when moving to the area. Hence, to catch this wave of displacement requires those areas to have favorable conditions to be able to attract investors.

Positive signals for the market

Although struck hard by the fourth pandemic outbreak, the industrial real estate market still received large investment cash flows. For example, although total FDI in the first six months of this year decreased, capital into the real estate industry increased. Specifically, real estate is one of 18 industries in Vietnam to receive capital from foreign investors registered in the first half of 2021, reaching 1.15 billion USD. This number increased more than 35% over the same period last year, equivalent to an increase of 300 million USD.

COvid 19

In addition, there are a lot of cash flows investing in real estate such as investors' money from the stock market; Remittances in many regions of the world, due to the epidemic, are not effective for investment, have committed to Vietnam for real estate investment. Along with that, many economic sectors in Vietnam have been narrowed down due to the epidemic, so they have to move capital into the real estate market to look for better opportunities. Bank deposits when interest rates drop are withdrawn and transferred to the real estate market, etc.

It is expected that FDI inflows into Vietnam in the coming time will continue to be positive. Through surveys, international investors have shown a great desire to enter this market, when the fundamentals of income growth, the demographics, and urbanization that make Vietnam so attractive remain unchanged. Along with that is the rapid development of large infrastructure projects in Hanoi and Ho Chi Minh City is further supported by the national transport connectivity program.

Vietnam is in a considerably good place, being one among few countries that withstood and handled the pandemic well.

The growth potential remains high, which adds to the attractiveness of FDI. Much of it is still the manufacturing sector and while it remains the main driver of economic growth, all types of real estate assets have enjoyed positive impacts, making Vietnam a hot spot for foreign investors.

It is forecasted that in the coming time, the market demand will return to a low level in the third quarter of 2021 and increase greatly in the fourth quarter of 2021. Total transactions can be equivalent to 70-80% compared to 2020.

Source: Ministry of Industry and Trade

Compiled by VietnamCredit

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