Three strategies to enter Vietnam’s industrial property marketApril 2, 2020 / By
Of late, an increasing number of investors have been actively looking for investment opportunities in Vietnam’s industrial sector. This can be attributed to the country’s strong economic growth and the availability of plentiful young workers at a relatively low-cost. Economic Zones and several bilateral Free Trade Agreements (FTA’s) signed with other countries have also created a favourable business environment. Besides, the recent trade tensions between the US and China have caused some companies to redirect their supply chains towards Vietnam, away from China. As all of these are acting as a powerful lure for investors, how to successfully tap and unlock this promising market is one of the most frequently asked questions. Below are the three most popular market entry strategies that investors are typically following as per JLL’observation.
Firstly, forming strategic joint venture with reputable local partners who have access to land banks and can assist foreign investors with local permits or licence obtaining processes is always traditional and strong preference by foreign investors. One of the best examples for this strategy is a joint venture in 1996, between two industrial developers, Sembcorp Singapore and Becamex IDC Corp from Vietnam, both supported by their respective governments. The launch of BW Industrial Development – another joint venture between global private equity fund Warburg Pincus and Becamex IDC Corp – in May 2018 is another case.
Second, direct land lease from the government to solely develop the IP as a master developer instead of joint venture with local partner. After successfully develop the first IP in Southern Vietnam, known as Amata Bien Hoa IP, since 1994 through JV partnership with Sonadezi, a state owned enterprise, Amata Corporation now is developing another IP 410-hectare in Long Thanh and Amata HaLong in Quang Ninh Province. For these two new projects, it will be solely developed by Amata Group without local partner. We observed that there are not many similar cases and only happen for those foreign investors that have experienced investing in Vietnam in a long run and familiar with Vietnam legal framework.
Third, investors are going to sale and leaseback of operating industrial assets with stabilised income. The sale and leaseback of Unilever warehouse in VSIP 1, Binh Duong Province, in late 2018, is one of the examples. According to their press statement, Mapletree Logistics Trust entered into a conditional asset transfer agreement with Unilever International Company Limited (“Unilever Vietnam”) to acquire the Grade A warehouse unit for approximately US$31.1 million. Following the acquisition, the property will be leased to Unilever Vietnam for ten years with annual rent escalations.
Despite being one of the hottest destinations for industrial sector in Southeast Asia, finding investment opportunities in Vietnam could be challenging for investors. Finding a reputable partner to form the joint venture could also be a challenge. Given the lack of transparency in the market, investors prefer the listed companies as their financial and legal information is publicly transparent and accessible. Some other key challenges that investors face in Vietnam are insufficient supporting infrastructure, and relatively high border trading cost and time, compared to its regional peers.
Nevertheless, we expect industrial to remain the hottest real estate sector in Vietnam. We expect foreign investors will continue to show strong interest and keep looking for opportunities in the country. The lack of high specifications, modern logistics warehouse spaces, and strong demand from regional occupiers are supporting further growth of this industry. Quality of assets, rental growth, deal sizes and remaining land tenure are some of the crucial factors for investors to determine their investment decisions.
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