VIETNAM CONSTRUCTION INDUSTRY

Index

•Key Objective

•Market Overview

•Trends and Development

•Key Players

•Challenges

72%

18%

10%

Inflow of FDI in 2014Manufacturing and Processing IndustryConstructionOthers

Key Objectives

To understand Vietnam Construction industry

Market OverviewThe Vietnamese construction industry recorded a compound annual growth rate (CAGR) of 16.12% during (2009–2013).However, industry growth slowed from 19.7% in 2011 to 7.0% in 2013.

Reason-• A sudden severe or prolonged fall in price in the property market.• Banking system characterized by non-performing loans (NPLs).• Slow-moving or inactive real estate sector.

The industry’s output is expected to record a nominal CAGR of 11.43% over the forecast period (2014−2018). With improved credit facilities to middle and low-income population, the Residential Construction segment is expected to drive the Construction market in Vietnam during the coming years

Reason-• Government’s focus on industrial and residential construction.• Expansion in the tourism and retail sectors.• Investments in infrastructure projects.

Trends and Development The Vietnamese construction market, both residential and non-residentialseeing a rapid growth.

Vietnam needs $150 billion in infrastructure investment just to 2020 for thatthe Government and its international donors (such as Australia) will fund 50% of this, and the other 50% will need to be funded by the private sector.

The industry ranked as the second-largest recipient of foreign direct investment with total capital of VND10.0 trillion (US$465.4 million); real estate attracted 16 projects and a capital of VND14.9 trillion (US$692.3 million). 

The Vietnamese construction industry delivered a strong growth rate during the review period (2014), due to Vietnam’s stable economic conditions and despite a slowdown between 2011 and 2013, due to a slump in the property market.

The central bank and five state-run banks announced a VND70 trillion (US$3.3 billion) loan package in 2014, to allow investors, developers and suppliers to lower prices and cut costs to increase sales.

Ministry of Finance announced a reduction in tax burdens applied to the sale and leasing of apartments and houses. Under this, a 50% reduction in VAT was implemented for sale or lease of commercial housing. 

AECOM, a US engineering and construction company, has beencommissioned by the World Bank to provide consultancy services onthe development of the water supply and sanitation systems in Vietnam. AECOM is also the consultant for the new town development of the Long Hung Commune in Soc Trang province (Southern Vietnam), providing transportation, waste management and utilities infrastructure engineering,design and planning services

(a) Non Residential construction

With a considerable number of foreign manufacturers setting up production bases in the country, demand is also on the rise for industrial properties, including industrial parks, warehouses and logistics facilities.

As a relatively low-cost, alternative production base in the Asian region, Vietnam has welcomed the strong demand for industrial properties from Foreign manufacturers thus driven the need for infrastructure and supporting facilities, such as factory buildings, warehouses and utilities that meet international standards.

Spending in the non-residential infrastructure segment will grow at a CAGR of 5.7%, from US$18.2 million in 2005 to US$31.6 million in 2015. Key drivers of this segment will be the construction activities carried out in electricity, gas, water, transportation, and communications.

Government Initiative

The Vietnam Ministry of Planning and Investment (MPI) estimates that thecountry should be investing US$200 billion in infrastructure developmentduring the 2010-2020 period.

The government plans to invest US$79.9 billion in power generation and the development of the electricity network, according to the National Electricity Development Strategy for 2006-25 so as to increase development in upcoming years.

The government also plans to develop 117 industrial zones by 2015 with orientations through 2020. The industrial zones would require a strong infrastructural support in the form of transport facilities, sewerage, and electricity transmission facilities.

(b) Residential construction

The construction industry market in Vietnam is dominated by the low-cost and affordable housing sector. With the sustained growth of the country’s economy over the years, the purchasing power of the population has increased, particularly of the middle class population. Vietnam’s growing middle-income class and its influx of foreign investment has resulted in rising demand for better quality homes and commercial buildings and has also boosted the upmarket property segment, which is dominated by foreign developers.

The increasing population, coupled with an increasing rate of urbanization from 26.5% in 2005 to 31.6% in 2015, will stimulate demand for housing units, there by increasing spending on residential construction in the next ten years.

Government Initiatives

Introduced new ‘Housing Law’ and the ‘Law on Real Estate Business’ (passed in November 2014), which reduce the restrictions on foreign ownership of residential and commercial.

The new Law on Real Estate Business permits foreign entities and individuals to purchase constructed facilities for use as offices, factories or for other business functions.

Foreign nationals and enterprises are also allowed to lease the purchased houses and facilities.

The number of households is estimated to grow at a CAGR of 2.3%, from 17.2 million in 2005 to 21.5 million in 2015. This will boost the demand for housing units, thereby increasing the spending on housing during 2005-15.

1. Vietnam national cement corporation (VINACEMENT) 2. Song Da Construction Corporation (SONG DA) 3. Vietnam construction import-export joint stock corporation (VINACONEX) 4. Housing and urban development corporation (HUD) 5. Hanoi construction corporation (HANCORP) 6. Vietnam machinery installation corporation (LILAMA) 7. Construction pottery and glass corporation (VIGLACERA) 8. Construction machinery corporation (COMA) 9. Vietnam construction consultancy corporation (VNCC) 10. Vietnam infrastructure development and construction corporation (LICOGI) 11. Vietnam water supply, sewerage and environment construction investment

corporation(VIWASEEN) 12. Song Hong construction corporation (SONG HONG. CORP) 13. Bach Dang Construction Corporation (BACH DANG) 14. Central Construction Corporation (COSEVCO) 15. Building Materials Corporation No. 1 (FICO) 16. Vietnam Industrial and Urban Development – Investment Corporation (IDICO) 17. Commerce and construction investment joint stock corporation (CONSTREXIM) 18. Development Investment Construction Joint Stock Corporation (DIC. CORP)

Key Players

Risk and ChallengesState-owned enterprises: In Vietnam, massive state-owned companies are awarded most of the large projects. Cold approaches and open tenders doesn't work.

Overseas Aid: Many projects in Vietnam are funded by foreign development agencies, in particular from Japan, Korea and China. As a result, head contracts are awarded to companies from those countries.

Inflation: Construction sector is one factor impact of inflation, growth and high inflation pushed so how to regulating is a difficult problem with the government. Vietnam is depending on credit capital for construction industry and real estate which affect the growth of construction industry.

Legal and Taxation: Legal and taxation regulations are still not fully developed and pose significant operational risk for foreign investors. There are a massive 32 corporate tax payments to be made each year which takes an average of 872 company hours to complete

Building material: Material manufactured in Vietnam are generally have lower standards compared with those produced in developed countries. As a result of this, prices of building material are higher as they are mainly procured from other countries.

Corruption: Investment in the industry was considered at a high risk of corruption. Construction contracts were particularly prone to corruption because of their size, technical complexity, extensive approval processes and easy concealment of sub-standard workmanship and materials.

Human Force: The income of construction labour is always lower than general average income of all sectors in state sector as given in the table that is why construction 11 sector has lack of skill employees, even semi-skill employees.

Low transparency in Real Estate: Vietnam current land and property laws still do not provide clear guidance on issues related to the legal nature and rights of land ownership and usage, and lack implementation mechanisms and procedures for land distribution and transfers.