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Friday, December 21, 2007

Competition hots up in Vietnam

Malaysia property developers need to strategise landbank

The lack of quality housing and growing wealth in Vietnam's major cities, such as Ho Chi Minh City and Hanoi, have beckoned Malaysian property developers to stamp their mark there.

Firms such as Gamuda Bhd, SP Setia Bhd and Berjaya Land Bhd (BLand) have made inroads into Vietnam as part of geographical expansion and diversification in earnings base.

In January, Gamuda teamed up with Hanoi People's Committee to undertake the Yen So Park integrated development on 500 acres south of Hanoi.

The Vietnamese government recently gave Gamuda the green light to start work on the mammoth project – comprising a park, sewage treatment plant and a commercial centre – which the company estimated would have a gross development value (GDV) of about RM8bil upon completion in 10 years.

SP Setia's maiden project in Vietnam, EcoLakes at MyPhuoc in Binh Duong Province, near Ho Chi Minh City, signifies the company's strategy in diversifying its earnings base while capitalising on its award-winning “Eco” brand of green-themed developments.

More recently, BLand partnered Hanoi Electronics Corp to develop 405ha in Hanoi.

Both parties plan to set up a joint-venture company to develop the land into a mixed residential, commercial and industrial township with a GDV of US$2.5bil.

Following a recent visit to Vietnam, Kenanga Investment Research believes the property boon in Vietnam is underpinned by the lack of suburban homes.

“Demand is mainly driven by the 'three generations under one roof' factor, coupled with growing wealth from foreign direct investments (FDIs),” it said in a note yesterday.

The report said it was not surprising for BLand and SP Setia to obtain their investment certificates quickly, given that their township projects were located in suburban areas.

An analyst from the research outfit said it was difficult for homebuyers to buy properties outside the cities.

“People have to go through a ballot system to buy a property because there are not enough homes. The Vietnamese government plans to move people to the suburbs to make space for commercial development in the city,” she told StarBiz.

Vietnam's proximity to Malaysia, its political stability, coupled with its entry into the World Trade Organisation, she said, made it conducive for local property players to venture into that country.

Kenanga said the Vietnamese government was encouraging more FDIs by relaxing some regulations, such as allowing foreigners to hold up to 51% equity stakes in joint-venture companies compared with 49% previously.

The analyst, however, added that competition could heat up, given that developers from Singapore, Taiwan and South Korea had had a substantial head start in Vietnam's property market.

Malaysian developers may not have to go through the teething problems encountered by developers from the other countries, but their success will depend on how they strategise their landbank,” she said.

She added that strong partnerships would be key in determining the success of projects undertaken in Vietnam.

Another analyst said further exacerbation to the US subprime woes could potentially lead to a credit crunch that could impact on Vietnam's property market.

“Developers should be quite cautious over the long term,” he said, adding that Vietnam's property boom could result in an influx of developments.

By The Star (News analysis by Suraj Raj)

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