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Vietnam's Industrial Real Estate Market Is Thriving

The relocation of manufacturing from China to Vietnam is creating a clear "hot spot" for the Vietnam industrial real estate market. Average rents for industrial land in Vietnam are increasing moderately by 5-8% per year. Rents for industrial parks in Vietnam, especially those strategically located and close to major infrastructure, are increasing. Industrial land prices are highest in the South, centered on Ho Chi Minh City, and in the North, centered on Hanoi. The average monthly rent for industrial plants in 25 northern provinces and cities in 2019 is US$4-5/sqm. For industrial parks developing infrastructure in Hanoi, Bac Ninh, Hai Duong, and Hai Phong, the highest rent for construction plants in the North is US$5.5 to US$6/sq m, which marks a 5.0% - 9.1% increase y-o-y. The central 21 provinces and cities at US$2.9/m2 and the southern 17 provinces and cities at about US$4/m2, ranging from 8.4% to as high as 40% y-o-y. The average land concession price for industrial zones in 2019 is nearly US$121.5/m2 in the 25 northern provinces and cities, about US$27-42/m2 in the central 21 provinces and cities, and nearly US$123/m2 in the southern 17 provinces and cities nearly US$123/m2.

Current Situation Of Vietnam Industrial Real Estate Market 

The increase in foreign investment helped fuel the Vietnam industrial real estate boom. In recent CBRE statistics, the number of factories on the list of Apple suppliers in Vietnam increased from 16 in 2015 to 22 in 2018, all of which are FDI companies. Also following this trend, Samsung Electronics Co. announced the closure of its last cell phone factory in China in October 2019, marking Samsung's complete exit from cell phone manufacturing in China. Currently, 29 Vietnamese companies are Type 1 distributors of Samsung. The localization rate increased from 34% of the total output in 2014 to 57% in 2017.

In 2019, Vietnam attracted $38 billion in agreed foreign investment and $20.38 billion in actual capital, up 7.2% and 6.7% year-on-year respectively. The total agreed amount of foreign investment attracted is USD 362.58 billion and the total foreign investment in place is USD 211.78 billion, with a foreign investment in place rate of 58.4%. A total of 135 countries and regions have effectively invested in Vietnam, with the top 5 cumulative agreements ranked at US$67.71 billion by South Korea, US$59.33 billion by Japan, US$49.78 billion by Singapore, US$32.37 billion by Taiwan, and US$23.45 billion by Hong Kong SAR. Influenced by the trade war between the U.S. and China, China mainland, and Hong Kong, China's investment in Vietnam increased significantly, up 65% and 143.5% year-on-year respectively. The share of foreign direct investment in the manufacturing sector has been increasing.

Source: Ministry of Planning and Investment of Vietnam; CBRE report

Advantages of Vietnam in Attracting Investment

Lower Cost

Many countries in Southeast Asia have lower production costs, which is the most direct reason for many companies to move their factories to Southeast Asia. The price of industrial land in some major cities in China is 180 USD/m2. in Vietnam, the price of industrial real estate property drops in the range of 100-140 USD/m2. This is clearly attractive for potential manufacturers. On the salary side, the average salary in 2019 is around VND7.8 million/month. The average monthly salary in Vietnam is currently still below US$300, which is only about one-third of that in mainland China and at a lower level among Southeast Asian countries.

Sufficient And Cheap Labor Force

Vietnam currently has a population of nearly 100 million, with a median age of 30.5 years old and 56% of young adults under 35 years old. Compared with the gradually decreasing labor force in China, Vietnam has a sufficient labor force, which can better meet the demand of the manufacturing industry.

Excellent geographical location

Geographic location determines the level of production costs and the efficiency of goods sales. Coastal areas and maritime countries can use the most inexpensive ocean transportation to import raw materials and export processed products, while inland areas can only rely on road and railroad transportation, but the transportation costs are much higher than ocean transportation. Compared with central and western China, Southeast Asian countries are located in the Indian Ocean and the Pacific Ocean, the transportation of goods is cheaper and more convenient.

Open And Supportive Investment Policy

The Vietnamese government has repeatedly amended the Law on Investment to attract foreign investment. According to the Law on Investment, both foreign-invested enterprises and domestic enterprises in Vietnam adopt uniform taxation standards and implement different tax rates and exemption periods for projects in different fields. For example, the income tax rate for especially encouraged investment projects is 10% and the period of exemption is 4-15 years; the income tax rate for encouraged investment projects is 15% and the period of exemption is 2-10 years; the income tax rate for ordinary investment projects is 20% and the period of exemption is 2 years. For enterprises with investment amounting to USD 300 million, or annual sales reaching USD 500 million, or providing more than 3,000 jobs, the Vietnamese side gives special preferences of exemption for the first four years and 50% reduction after nine years of tax payment.

Tips for Investing in Vietnam Industrial Real Estate Market

The total investment and registered capital of foreign investment enterprises in Vietnam are generally not limited, but the legal capital is not less than 30% of the investment amount, and the legal capital is allowed to be adjusted down to 20% of the investment amount in the case of encouraging and larger amount of investment. In practice, it is recommended to register a minimum of US$100,000. If it is less than US$100,000, the local government will generally not give approval.

Foreign companies/individuals, regardless of the way they invest in Vietnam to set up factories or companies, can operate in the following three ways.

① Directly registering a Vietnam company in the name of a foreign company or individual.

② Indirect establishment through one holding company (single-level holding).

③ Indirect establishment through two holding companies (double-tier holding). Most foreign investors currently use the 2nd and 3rd ways to invest in Vietnam or abroad for the parent company's tax planning.

As of 2018, there are 80,000 hectares of land planned for the construction of industrial parks throughout Vietnam, with 320 industrial parks from north to south, mainly concentrated near Hanoi and Hai Phong in the north and Ho Chi Minh in the south.

When enterprises invest and set up factories in Vietnam, the first thing they have to face is the question of whether to build or rent a factory. The first way is expensive and time-consuming; the second way is to enter the industrial park, where enterprises can choose to rent a ready-made factory or buy the land in the park to build their own factories. If you plan to stay in Vietnam for a long time, having your own industrial real estate property will be a more cost-effective option.