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Feature: VinaCapital finds home is where the wealth is

PERE met with VinaCapital boss Don Lam for breakfast at a London hotel recently to hear his take on what Vietnam’s government stimulus has done to the country’s real estate market.

Having fallen by 40 percent in 2008 from 2007, Vietnamese real estate prices are on the rebound, according to Don Lam, chief executive officer at private equity and real estate fund manager VinaCapital: “During the third quarter, prices have started to go up,” he says. “I predict by the end of the year, real estate prices will be up by 10 percent, although from a lower base.”

Lam believes Vietnam’s somewhat radical stimulus measures, adopted at the start of the year to kick-start a domestic economy that saw inflation of 20 percent and interest rates of more than 22 percent going into 2008, are working, and a bounce is on the cards. At the time international interest in Vietnamese real estate had tailed off and domestic demand was waning: “No one wanted a mortgage at those rates so no developer built anything.”

In response, the Vietnamese government instigated two key measures: an ongoing 4% interest rate subsidy for manufacturers; and from January to June this year, a freeze on income tax. Predictably, Lam says, financing costs dropped by two-thirds enabling production to increase and consumer spending and enthusiasm returned straight away.

“Vietnam had a 4 percent GDP growth rate on an annualised basis. Now the country is hoping for 5.5 percent by the end of the year and 7-8 percent for next year,” he says.

To add fuel to the resurgence, Vietnam’s government is expected to introduce another measure whereby capital gains tax is shelved for a year. It is currently approximately 25 percent.

The measures are yet to entice international real estate buyers back into the country, but Lam says domestic demand has picked up. “We were surprised because we thought there would be more foreign buyers.” VinaCapital, which manages an AIM-listed real estate fund and is currently working up plans for a privately funded sequel, has sold out its latest residential project, entirely to domestic buyers.

The firm’s Garland project, in a district 20 minutes from the country’s economic hub Ho Chi Minh City, has 53 villas. They were marketed to domestic buyers for approximately $300,000 each, reflecting a price of about $1,000 a square foot. Domestic buyers have also bought 80 of 115 units of VinaCapital’s latest mixed-use, ocean-front project.

Lam says the demand stems from two-thirds of the population being under 35 years old as a result of a baby boom: “Even though the market was slow,” he says, “people still need a place to stay.”

Unsurprisingly Lam is switching future marketing endeavours to his home turf: “We were going to do a road show in Singapore and Hong Kong but now we’ll do it in Ho Chi Minh City and Hanoi instead.”