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Outlook for Vietnam’s construction industry in 2022

Outlook for Vietnam’s construction industry in 2022

Thursday 16, 06 2022
In 2021, the Covid-19 pandemic and rising raw material prices eroded the profit margins of most construction enterprises, and the growth rate of the industry hit the lowest point in the past 10 years. It is forecasted that in 2022, despite still facing many difficulties, construction enterprises will have many opportunities to break through.

Overview of Vietnam’s construction market

The Vietnamese construction market was worth USD 57.52 billion in 2020. This market is expected to reach USD 94.93 billion in 2026 with a growth rate of more than 8%.

Vietnam's construction industry is the best performing industry in the Asia-Pacific (APAC) region. Despite losing momentum due to COVID-19, it continued to grow strongly in 2020. According to the General Statistics Office (GSO) of Vietnam, added value of construction recorded a growth of 5.7% (year-on-year) in the third quarter of 2020.

Vietnam is construction industry

Before the Covid-19 outbreak, the industry had recorded an average annual growth rate of 9.6%  between 2015 and 2019. However, construction activities were disrupted due to strict measures to prevent the spread of the Covid-19 pandemic, with growth falling below 5% for the first time since the first quarter of 2013.

Profit erosion due to high raw material prices

Besides the complicated developments of the epidemic, fluctuations in the price of raw materials have become a "nightmare" for construction contractors. The price index of raw materials, fuel and construction materials increased by 6.4% over the same period last year due to high demand for construction materials while the supply chain has still been interrupted since 2020. Prices of the two most important construction materials, steel and cement, increased by 40% and 8.4%, respectively.

raw materials

Because the cost of construction materials accounts for about 65 - 70% of the estimated cost of construction, the increase in the price of such materials directly affects the cost of construction investment and the efficiency of many projects, and profit margin of enterprises was eroded. Some experts believe that the "price storm" has wiped out the remaining possible profits, pushing many businesses into losses. Meanwhile, according to data from the General Statistics Office, the growth rate of the construction industry only reached 0.63% in 2021, which is very low compared to the average growth rate of 7.2% in the past 10 years.

However, many people think that the impact of the Covid-19 pandemic is completely unexpected. Therefore, businesses that invest well in business resilience can not only overcome difficulties from risks and disruptions, but also recover faster and thrive in the future.

Prospects for construction businesses

Analyzing the context that creates prospects for construction businesses in 2022, experts at SSI Research believe that the amendment of the Laws related to the real estate market will be an important factor. Specifically, the 2013 Land Law may be revised in 2022 and completed in May 2023, which will provide specific regulations on the land price compensation - the biggest issue of many real estate projects.

construction businesses

In addition, the amendment of the Law on Housing 2014 on the recognition of investors of commercial housing projects for investment owners with the right to use 100% agricultural land or non-agricultural land that is not residential land. If approved, a series of real estate projects will be launched, creating a huge number of jobs for construction businesses.

As for the revenue and profit prospects of construction businesses in 2022, SSI Research believes that the value of unrealized contracts signed at the end of 2021 can ensure a recovery in construction sales.

Besides, according to SSI Research, the downward adjustment of construction steel prices in 2022 can help improve profit margins for businesses in the field of construction industry.

Sharing a positive view on the prospects for the operation of construction businesses, Mr. Nguyen Quoc Hiep, Chairman of the Vietnam Association of Construction Contractors (VACC) said that the growth of the real estate market will certainly lead to a strong recovery in construction materials, construction and installation, and at the same time contribute to the development of businesses.

On top of that, the Government's determination to promote public investment and support packages for economic recovery may not only create opportunities for investment projects in the field of real estate but also other works in terms of technical, cultural and social infrastructure. Therefore, the construction industry in general and onstruction materials sector in particular will have very good outlook in 2022.

According to the President of VACC, currently, contractors in the construction industry are very ready and well prepared to quickly return to the market.

 Source: SSI Research, vneconomy

Compiled by VietnamCredit

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