The Demand for Vietnam’s IP Land Rentals: A Boom in 2023
As Vietnam positions itself as a significant player in the Southeast Asian economy, the demand for industrial property (IP) land rentals is expected to experience notable growth in 2023. This surge can largely be attributed to government policies aimed at revitalizing investments, making Vietnam an attractive destination for businesses.
Promising Growth in Industrial Property
The industrial property sector has shown remarkable recovery and resilience in recent years. After achieving impressive growth in 2022, industry insiders predict that this segment will continue to shine in the Vietnamese real estate market. A report from VNDIRECT Securities outlines a bullish forecast, anticipating a net profit increase of approximately 12% year-on-year for listed IP developers in 2023.
While challenges such as slow project approvals and limited funding sources loom, these obstacles present opportunities for developers with existing land banks. Notably, firms like Becamex IDC Corporation (BCM) are expected to shine, leveraging their ready-to-lease land to capture the rising demand.
Advantages of a Robust Land Bank
The significance of having a robust land bank cannot be overstated. Companies that already possess substantial land resources are more likely to weather downturns and capitalize on favorable market conditions. For example, Phuoc Hoa Rubber Company (PHR) has set ambitious goals for developing five new industrial zones covering over 2,700 hectares from 2026 to 2030. This proactive approach positions the company favorably despite the lengthy approval processes.
Rising Rental Prices Amid Short Supply
One highly anticipated aspect of the industrial real estate landscape in Vietnam is the rental price trend. According to SSI Securities Corporation, the rental demand for industrial park land will surge in 2023. However, with a limited supply forecasted, rental rates are predicted to rise by 8% to 20% year-on-year, depending on the region. Last year already saw an average rental increase of 10% due to heightened demand.
This upward trajectory reflects broader market dynamics, where companies seek strategic locations to establish their operations. With escalating rents, the industrial property market is likely to maintain its appeal as one of the top performers in the real estate sector.
Strong Business Performance: Case Studies
Several companies have reported impressive financial results that underscore the growth potential in industrial real estate. Viglacera, a market leader, showcased a pre-tax profit of approximately VND1.6 trillion (about $68.2 million) from IP leasing and worker housing, exceeding its annual plan by 33% and showing a remarkable 57% increase from the previous year.
Viglacera, traditionally known for construction materials, has increasingly turned to real estate, now accounting for over 70% of its total consolidated pre-tax profit. The company is ambitious, planning to establish ten new industrial parks in the 2022-2023 timeframe, ultimately expanding to 20 parks by 2025, with new developments covering an area of 2,000 to 3,000 hectares.
Similarly, Kinh Bac City Development Holding Corporation (KBC) reported noteworthy business results, receiving substantial dividends from its subsidiary, Saigon-Haiphong Industrial Park Joint Stock Company (SHP). These dividends, estimated at nearly VND12 trillion, will provide KBC with necessary cash flow for future industrial zone developments.
Nationwide Industrial Infrastructure
As per the Ministry of Planning and Investment, Vietnam boasts a total of 563 industrial parks, of which 397 are operational, covering an extensive land area of about 122,900 hectares. This infrastructure is critical to supporting the anticipated growth in industrial real estate and attracting foreign investment.
The operational parks encompass 292 sites, utilizing around 87,100 hectares, indicating a broad footprint ready to accommodate burgeoning industrial activities. This infrastructure is crucial in positioning Vietnam as a viable alternative for companies moving production from traditional hubs.
Conclusion
Vietnam’s industrial property sector is on the cusp of remarkable growth in 2023, fueled by strategic government policies and existing land banks. As demand for IP land rentals escalates, the market’s dynamics point toward increasing rental prices and substantial opportunities for developers adept at navigating the complexities of project approvals and funding sources. With a clear vision for growth and robust infrastructure in place, Vietnam’s economy appears set to thrive in the coming years, making the industrial property landscape an exciting area to watch.