Property projects under construction seen from a high-rise building in downtown Ho Chi Minh City
Many companies in Vietnam were dealt a harsh blow by the real estate market slump last year. Singapore property developer Keppel Land, though not completely untouched, has weathered the downturn well. Linson Lim, President of Keppel Land Vietnam, is confident that the market will recover soon.
Lim, who says Vietnam’s growth has been resilient, speaks about the long-term strategies of his company and sheds light on a social housing project developed under a public-private partnership – a relatively new model in the country.
Vietweek: Vietnam’s property market ended 2011 on a negative note. Some experts have blamed the downturn on the credit tightening that left both developers and homebuyers struggling financially. Do you agree with this?
Linson Lim: I agree that the global downturn and tightening measures have had its impact. But property developers should not take a short-term view. Financially strong and responsible property developers will take a longer term view of the country.
At Keppel Land, we believe in the strong fundamentals in Vietnam. We believe the demographics are very favorable – you have a young population, a high urbanization rate and a growing middle class. As the country prospers, buyers will become more discerning in the choice of properties and reputation of the developers. Developers who are able to deliver on time and with quality will continue to do well.
We see that the government has taken positive measures to address the economic challenges. We are tracking the consumer price index and we’ve found that it has improved month-on-month. It will take some time but things are moving in the right direction.
I think that in 2012, maybe the second half of 2012, we may see a turnaround.
How does the Vietnamese market stack up compared to other regional markets, like China and Singapore, for instance?
I think the two markets did much better than Vietnam. But each country is in a different stage of development, so we cannot compare. There were times in 2007 when Vietnam did very well in its property market compared to other countries.
Can you rank the three markets?
It’s hard to rank them because this is not like a beauty pageant where you have first, second or third place.
For Keppel Land, our focus is on China, Singapore, Vietnam, Indonesia and India. Each country will not give you the same return on investments, but we take a long-term view in these countries. We may not enjoy as much return as we would if we had invested in other countries. But over a longer term, we think we will do much better.
We have been in Vietnam for more than 20 years and we want to continue to grow with the country.
But statistics show that Vietnam’s property sector has fallen behind other sectors like manufacturing or energy in attracting foreign investors. Does it mean the market is no longer considered attractive by investors in general?
Foreign investors are still watching to see how other developers here are performing. In 2007-2008, when the property market was very attractive, you saw a sudden influx of developers coming in to acquire sites and seek investments.
There are some developers who are more opportunistic and they will come into the market as it shows signs of recovery. But you also have developers like us who are in for the long haul.
Keppel Land has been here since the early 1990s and we have gone through many ups and downs with Vietnam – like the Asian financial crisis and the SARS epidemic – but we stayed on course and progressed with our projects
Should developers reduce prices to draw homebuyers back to the market?
The market recovery will be in tandem with the recovery of the macroeconomy. When the inflation rate is more manageable and interest rates are reduced, people will start to invest more in properties. Then you will begin to see the turnaround.
We do not believe in fire sales or cutting prices because we have quality developments in good locations and we deliver on time. What we can do is to give some flexible options to the purchasers. For instance, a homebuyer can buy a unit that is completely fitted up or one that is not fully fitted up. So it’s more of a pricing strategy rather than just giving steep discounts.
You mentioned the high borrowing rates, which are now more than 20 percent. What do you think would be a reasonable rate for developers and buyers?
If you look back to the time when the property market was moving and progressing, the interest rates were in the low teens. So if we can bring the rates to that kind of level, you will see a higher interest in terms of home ownership.
So was your company affected by the market downturn last year in any way? And what is the business plan for the new year?
We were not unscathed, because it was not only in Vietnam but the global economy was affected by the US debt crisis and now, the crisis in Europe. There was a reduction in the number of business travelers which in turn affected our serviced apartment take-up. As for the office sector, during a global crisis, the expansion of multinational corporations here were not as fast as we would have wished for.
Taking the longer term view, we broke ground for the second phase of the Saigon Centre in Ho Chi Minh City in November. The project is a mixed-use development and it’s a heavy investment, but we believe foreign investors will continue to come to the country and will require offices and service apartments. The retail market is also doing well. Our mixed development is comprised of retail, office and service apartments, and scheduled for completion in 2015.
We are in the midst of preparing, developing plans or applying for investment certificates in some other projects. Depending on the market, we may launch one or two projects this year.
It is also significant that we recently opened a safety awareness center in District 7, HCMC. The construction industry of Vietnam is young. Most construction workers are not well trained in terms of safety awareness. Our center will provide training to workers, especially to those working in high-risk areas.
Keppel Land is developing a residential project in District 2 under a public-private initiative with the HCMC government. How does this work?
This is a unique partnership in a sense that we are developing 1,800 units of social housing for the city in return for land for our developments.
The second phase of the project has just been handed over to the residents this week. Then we will complete the final phase some time at the end of this year or in the first half of next year.
It’s a win-win for all. For us, as the developer, we get the land. The city has a social housing project and the residents can move to better homes. We would definitely look at more projects like this and look forward to opportunities to work with the city. It’s something worth pursuing and exploring. We are open to doing this in other cities and provinces as well.