Dec 25, 2012

Vietnam - Foreign capital flows out ‘cause investors’ hope exhausts

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VietNamNet Bridge – Foreign businesses have withdrawn investment capital and stopped pouring money into the real estate market without any statements about the plans to come back to the market.

Backing out because of capital exhaustion?

VinaCapital has offered to sell its stakes in Metropole Hotel in Hanoi. The decision has been explained by Andy Ho, VinaCapital’s Managing Director as a strategic move which would bring long term benefits to the fund. In fact, withdrawing capital after certain periods of making investment is quite a normal thing for investment funds. The investment portfolios are re-assessed once every six months by independent firms.

According to Don Lam, General Director of VinaCapital, it has withdrawn all the capital from 10 projects out of the 36 projects it once invested, and withdrawn a part of the capital contribution from one project.

Also according to him, VinaCapital won’t make new investments in the real estate sector, while it would focus on withdrawing capital from existing projects and refunding capital to shareholders.

VinaCapital is not the only investor who decides to quit real estate projects. The movement of leaving the real estate market has been explained by the fact that the market has become no more profitable. The economic downturn, plus the real estate market fall both have made foreign investors shrink back.

Phan Xuan Can, President of Soho Vietnam, also commented that withdrawing capital would help investors restructure their portfolios, once they meet financial difficulties.

Nevertheless, Dang Van Quang, a senior executive of Navigat, a real estate consultancy firm, does not think that foreign investors quit the market because of their financial problems.

Quang said the global economic crisis is not the main reason behind the investors’ decision to give up real estate projects, because most of the foreign investors who injected money in Vietnam are the big ones with powerful financial capability.

“I believe that the actual reason behind their leave is the business confidence index increase in Vietnam. Some institutions have recently released the reports showing that foreign investors’ confidence on the Vietnamese business environment has decreased.

The disappointment

Agreeing with Quang, some economists said that once the business environment degrades, this would prompt investors to leave the market.

The latest survey of European Chamber of Commerce and Industry EuroCham showed the decrease in the confidence of the European business community in the business environment in Vietnam.

More than 1/3 of the polled businesses gave pessimistic comments about the current situation. 50 percent of businesses fear that the high inflation would harm their business in medium term.

Especially, European enterprises also think pessimistic about the macroeconomic performance with only 28 percent of businesses thinking that the situation would be gradually improved.

The Vietnamese real estate market had witnessed an overly hot development over the last few years. Meanwhile, the lack of the transparency and the massive investment have led to bad consequences. The situation has been worsened by the economic downturn, which has blocked the capital inflow into the real estate market. As a result, the market has got frozen.

Foreign investors have repeatedly said that transparency is the most important thing for the real estate market. Meanwhile, this is the thing the market is lacking.

Under the current regulations, foreign non-residential units in Vietnam are now allowed to rent or buy Vietnamese real estate. Meanwhile, residential foreign individuals and foreign invested enterprises set up in Vietnam can buy apartments for accommodations, but in limited quantity. The tightened policies make the market demand weak.

An Duong

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