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VietNamNews

Real estate gains from stock market doubts

Update: November, 09/2015 - 08:39

"Investing in real estate is less profitable but safer." — Photo baodoanhnghiepvietnam

by Thien Ly

Tran Thanh Vu, general director of a construction and building materials trading company that is listed in HCM City, recently decided to sell some of his stock holding in his company when its share appreciated by more than 400 per cent.

He used the money to buy an apartment in a luxurious residential area in the city, and expects to earn around VND250 million (US$12,601) a year from rent while also having a prime asset.

"This investment is not very lucrative, but it is safer than investing in the stock market," he said.

Huynh Ngoc Huong of the city's Tan Binh District has invested all her savings, including money she had parked in the stock market, to buy a plot of land in her native Binh Thuan Province in preparation for her retirement.

"Securities investors like me will not find it too difficult to earn money from the market if we have experience in this line. But [it] will give one a heart attack, and requires them to continuously update all kinds of information.

"Investing in real estate is less profitable but safer."

In recent times many people have moved their investments from the stock market to real estate due to the latter's robust recovery.

Many think that property investments provide more stability as well as a steady and dependable income.

Thanks to this, the shares of housing and construction firms are also proving to be more attractive than those of securities companies.

Cotec Construction Joint Stock Company (Coteccons) has seen its price run up by 30 per cent within a month, Dau Tu & Chung Khoan magazine reported.

Many other real estate shares like DXG, LDG, KDH, and CEO are also expected to appreciate after profit margins have ballooned since May.

According to analysts, there are many reasons for the strong recovery in the real-estate market, including an economic recovery that is expected to push GDP growth up to 6.28 per cent this year.

Viet Nam's accession to the Trans-Pacific Partnership (TPP) is expected to push up demand for real estate because of an influx of foreign businesses hoping to exploit this promising market, including its low-cost manufacturing.

This has encouraged developers to inject a lot of money into the market.

According to US-owned property consultancy Cushman & Wakefield Viet Nam, the real estate market, particularly the industrial segment — including factories and warehouses — will benefit greatly when the TPP comes into effect.

The demand for offices, apartments, and retail space is also expected to rise sharply as a result of this.

The US-based Eurasia Group has predicted that, thanks to TPP, Viet Nam's GDP would grow by 11 per cent in 2025 and exports by 28 per cent.

The Vietnamese real state market also has the advantage that prices are lower than in most neighbouring countries, making it an attractive investment bet.

Joint venture

On October 27 the Saigon Union of Trading Cooperatives, which owns the Saigon Co-op supermarket chain, and Singapore-based Wilmar International Limited announced the signing of a contract to establish a joint venture called Nam Duong International Foodstuff Corporation.

A limited liability company to be incorporated in Viet Nam with Saigon Co-op owning 49 per cent and Wilmar the rest, it will make sauces and condiments.

The $25.6-million company's products will be sold in the domestic market as well as exported.

US fund manager Mark Mobius has invested millions of dollars of his personal wealth in Huy Viet Nam Food Processing Corporation, which has a chain of 100 restaurants under the Mon Hue, Pho Ong Hung, and Com Tho Chay brands.

Many other famous food processing companies like Bibica, Kinh Do, Vinamilk, Masan, Vinh Hoan, and Minh Phu also have foreign strategic partners such as Lotte Confectionery Co Ltd, Orchid Capital Investments Pte. Ltd, F&N Dairy Investments Pte Ltd, and Ezaki Glico.

Foreign investors have not only entered the Vietnamese food market indirectly in this manner, but have also directly invested in it. The fast food segment, for instance, is dominated by foreign giants like South Korea's Lotteria, which has more than 160 outlets nation-wide, the US-owned KFC, which has 140, and the Philippine-owned Jollibee (30).

Despite coming to the country just a few years ago (2012), Burger King already has nearly 20 restaurants in Ha Noi, Da Nang, and HCM City.

The US-owned Subway is also actively promoting itself with its sub sandwiches.

Analysts attribute the giant foreign firms' huge investments in the food business to the tremendous potential of the Vietnamese market and the attractive cash flows Vietnamese food producers enjoy.

Grant Thornton Viet Nam said in a recent report that the food sector ranked second top in the list of foreign direct investment.

The country has a population of over 90 million, one of the world's highest, and rising per capita income while consumption grew at a compounded annual rate of around 17.6 per cent in 2014-19.

These factors will continue to drive the development of the food and beverage industry. The packaged food industry is expected to grow annually at 48.7 per cent in turnover terms and beverages at 10.5 per cent.

Most the food companies in the sights of foreign investors are notable for their financial transparency, large, steady profits and large cash flows.

The Vietnamese companies are expected to benefit greatly from this marriage with foreign partners.

Saigon Coop, for instance, expects to sell its products both in the domestic and overseas markets following its association with Wilmar, which has a global production and distribution network.

While not denying the advantages strategic foreign partnerships bring, some analysts expressed concern about iconic companies being bought out.

Cai Lan Vegetable Oil Company, Viet Nam's biggest cooking oil producer, is a prime candidate: Wilmar already owns a 76 per cent stake in it and could well buy out the 24 per cent owned by Viet Nam Vegetable Oil Industry Corporation (Vocarimex).

Promotions prohibited

Decree No.37/2006/ND related to the law regulating promotional activities prohibit freebies exceeding 50 per cent of the value of the goods or services promoted.

But the injunction no longer makes sense and has merely become an impediment to doing business, traders complain.

The prolonged economic crisis has caused consumers to tighten their purse strings.

Besides there is a proliferation of shopping options and the competition is intense as a consequence.

In this situation, businesses point out, they have no choice but to launch promotions in different forms and attractive enough to lure customers.

No surprisingly, the value of goods and/or services offered as promotions often exceed the 50 per cent level. Taking cognizance of the situation, the Ministry of Industry and Trade recently recommended that the Government should increase the cap.

But businesses reject this, saying they should have the right to determine on their own and the limit should be scrapped. Government agencies admit that regulation of trade promotion activities has been slack and ineffective in recent years, blaming it on a lack of human resources and the fact that thousands of sales promotions are rolled out every year in major cities.

An expert on Regulatory Impact Assessment (RIA), who declined to be named, said the policy of capping the value of sales promotions at 50 per cent used to be necessary in the past before the Competition Law was enacted.

At that time it helped prevent businesses from using promotions to undercut and eliminate rivals.

"Now we should no longer be afraid since the Competition Law can prevent this phenomenon," she said.

Viet Nam is widely and deeply integrating with countries in the region and around the world, and so the removal of unnecessary barriers is essential to create a proper legal framework that would enable its businesses to tap all the advantages and resources available to compete equally and fairly with foreign rivals, she said. — VNS

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