The Surge in Land Prices in Vietnam’s Northern Economic Zone: Implications for Investors
By Minh Anh
Mon, October 30, 2023 | 2:48 PM GMT+7
As interest in Vietnam’s Northern Economic Zone (NEZ) grows, recent reports from Savills Vietnam indicate a substantial rise in land prices that could send ripples through the investment community. With a notable 35.3% increase in land prices, the implications for both domestic and foreign investors are significant.
Understanding Land Price Trends
According to Savills Vietnam’s Industrial Real Estate Market Report 2023, land prices in the NEZ soared to approximately $138 per square meter during the first half of the year, a substantial jump from $102 the previous year. This trend raises concerns about the zone’s competitiveness as a manufacturing hub compared to the Southern Economic Zone (SEZ).
Bac Ninh province stands out with the most dramatic increase, witnessing a staggering 48% year-on-year rise, pushing prices to $156 per square meter. The heightened interest from electronics manufacturers and suppliers looking to diversify their supply chains beyond China has prompted this spike.
Conversely, other provinces within the NEZ, such as Hung Yen and Hai Duong, have also seen significant price increases of 45% and 33%, respectively. In total, the NEZ comprises 68 industrial parks spanning over 12,000 hectares, with an occupancy rate of around 83%, underscoring the demand for industrial land.
The NEZ: A Magnet for Foreign Direct Investment (FDI)
The land price surge is being met with a steady influx of foreign direct investment (FDI) into the NEZ, which attracted $3.4 billion in new manufacturing FDI in the first half of 2023 alone. This figure accounts for a remarkable 63% of newly registered manufacturing FDI projects in Vietnam, emphasizing the NEZ’s allure for international investors.
Bac Giang province led the charge, securing a 20% market share with investments totaling $1.06 billion, featuring significant contributions from Fulian Precision Technology and LONGi Green Energy Technology. This interest in expansive investment underscores the region’s strategic importance in high-value sectors such as electronics and automotive.
The Shifting Landscape of Industry
The types of industries bringing investment to the NEZ are equally telling. In the first half of 2023, the electrical equipment sector emerged as the leader in attracting newly registered manufacturing FDI, accounting for 21% of the total investment capital—equating to approximately $1.14 billion. Notably, the computer and electronics sectors also played pivotal roles, highlighting the region’s significance in tech-driven industries.
Notably, three of the top five manufacturing projects in the NEZ are solar-related, showcasing a growing trend towards renewable energy production within industrial landscapes. Major projects from companies like Trina Solar and AD Green emphasize the NEZ’s role in shaping Vietnam’s green energy ambitions.
Infrastructure Developments Supporting Growth
Infrastructure improvements over the past five years have dramatically enhanced the NEZ’s attractiveness. With well-constructed highways connecting to three major ports—Hai Phong Port, Lach Huyen Deep Water Port, and Cai Lan Port—logistical efficiencies are bolstered, facilitating trade both locally and internationally.
Thomas Rooney, Senior Manager of Industrial Consulting Services at Savills Hanoi, notes the strategic positioning of the NEZ to attract high-value investments. This geological advantage is further enhanced by the ongoing development of large-scale projects in automotive and solar industries requiring extensive land banks.
The Competitive Edge of the NEZ
Despite the rising land prices, the NEZ maintains essential advantages over the SEZ, mainly through its infrastructure and capacity to attract high-value added industries. The steady growth in occupancy rates of ready-built factories and warehouses is a testament to this competitive edge.
Savills Vietnam reports that although average rental rates stand at $4.8 per square meter per month (excluding VAT), the region’s occupancy rate remains resilient, indicating strong demand amidst the price increases.
The NEZ houses a myriad of tenants in high-value sectors, attracting names such as Samsung, LG Electronics, and Foxconn. This indicates a diverse yet focused interest within the zone, allowing it to thrive despite escalating land costs.
Conclusion
While the rising land prices in Vietnam’s Northern Economic Zone may pose challenges, they also reflect a broader narrative of robust growth and investment. The evolving landscape of manufacturing and the steady stream of FDI earmark the NEZ as a pivotal player in Vietnam’s industrial future. As the market adjusts to these changes, investors will need to navigate this complex terrain with foresight and strategic planning to capitalize on the opportunities presented.