Monday Morning Coffee: Vietnam’s booming construction industry

In this episode (MMC.006): The growth of the construction industry in Vietnam. What are the advances and challenges? How can Vietnam improve the industry?

Vietnam’s construction industry is booming and shaping the skylines of cities across the country.

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Below is a transcript of the episode, edited for readability.

Listen to the full episode at links below.

Granger: Good morning! It’s Monday morning here, in Ho Chi Minh City. Another awesome day to be in one of the most fabulous cities in the world… This week, I want to talk about the construction industry in Vietnam as our Monday Morning Thought and how that affects your planning as a business, a business owner, or an entrepreneur. There are so many choices right now on where to live, where to get an office. There’s so much growth happening. You can be in District 1 if you need to, right downtown or District 2 where they have villas and other buildings going up. You can be out in District 9 where the high tech center is. You can be out in District 11, District 4, District 3, or District 7, by the universities, there is little more space out there. And the price per square foot fluctuates quite a bit, depending on where you are in Ho Chi Minh City.

Granger: On Friday, we’re going to have a special guest. Uli Feldsieper from Ricons will be joining us. He is an expert in construction and real estate. So that’ll be fun.

Overview of Vietnam’s Construction Industry

Granger: Let’s talk about the growth of the construction industry in Vietnam. I’m not a real estate guy, personally. I really have never gotten into the real estate business, even though my family has in big ways. You can’t do it here, in Vietnam, as an expat. To a degree, you can get these leases, long term leases, to own real estate, but you need to be Vietnamese. But even ownership in Vietnam as a Vietnamese is difficult because I believe the land is all owned by the government. It’s very interesting, very complex.

Granger: Vietnam’s construction industry continues to grow since 2012. Production value grew 9.2% throughout 2018, increasing from 53 billion US dollars in 2017 to 57.5 billion in 2018. The annual growth rates between 2012 and 2017 had been between six and 11%, give or take a couple of decimals there.

Granger: Infrastructure construction is really number two in Vietnam, and we’re hoping it becomes number one. We’ve talked about all the time and it’s a repetitive conversation you hear in these interviews and conversations everywhere. The infrastructure is so important, to build the infrastructure here to continue the growth, whether it’s for logistics or supply chain or for commuting. It’s so important, being able to develop it for the trains, subways and new transportation for the public. It’s about 23% while energy and utility construction is about 14%, commercial is about 7.5%, and institutional is around 3%. That gives you some numbers about where the money being spent.

Granger: Residential construction is the largest market in the Vietnamese construction industry. About 40, 45% of the construction is residential. And you can see that by driving around anywhere from Hanoi, Danang, Nha Trang, down to Mui Ne, to Ho Chi Minh City, and even the outskirts. There are a lot of homes, there are a lot of skyscrapers, apartment buildings being built to house the workers coming into the city, to house them for the technology boom.

Granger: And if you get to know the Vietnamese people, you’ll find that it is one of their first investments. Young people, just getting married or starting out will buy a home. That’s their first investment and they will buy one of these new buildings built by Ricons, Cottecons, Novaland or any of the big companies. We’ll talk a little bit more about that later, but they’ll invest in them and you know, in two or three years, they’ll flip them. In the meantime, they’ll rent them out unless they’re living in theirs. The rental market is pretty strong here. There’s so much growth that there’s always people looking for a new place to live, and everybody wants the newest, right? The newest building, the one that has the best views of the river, or the tallest windows, or a washer and dryer like Vinhomes, Landmark 81…That’s a massive complex. I think there are 18,000 apartments in there or something. It’s massive. These are cities within a city where you have your own grocery stores, your restaurants, movie theaters, shopping centers, and a hospital, Vinmec hospital, right there in the center of the development.

Granger: Last year, there were 60 million square meters of housing completed. 5,000 of that was for low-income earners. That’s great. You gotta have the low-income housing. It’s a massive issue of any city that has lots of growth. There’s a lot of people that own homes in the areas you want to expand to, you have to be able to provide for them. You have to give them a place to live and to be able to go to schools and to access their work, so you can displace them if you pay them fairly and give them housing.

Granger: The average housing area per person reached around 25 square meters. So a family of 400 square meters is a really nice size home. You can get three or four bedrooms in that.

There are more than 120 construction firms in Hanoi and Ho Chi Minh City.

What are the advantages and challenges for Vietnam’s construction industry?

Granger: There’s a lot of advantages to all this growth. It helps with economic recovery. The government infrastructure investment in residential and in the roads… is a huge advantage. More building permits being issued all the time. I think Vietnam ranks around 19 or 20 of the 190 countries in the world, right? Strong workforce, you’re putting a lot of people to work, right? 5% of the workforce will be trained in construction this year and through 2020.

Granger: You definitely have to watch out for issues like frequent violations of construction laws, or construction delays, and pollution. Pollution’s a big one. You’ve got to make sure that you’re using environmentally friendly materials, otherwise, you get a big pollution issue and we all see what that’s like.

Who are the prominent players?

Granger: There’s about 120 construction firms in Hanoi and Ho Chi Minh City. That’s about 19% of all the listed businesses on the public exchange in addition to the foreign manufacturers. Big players are PetroVietnam, Song Da, VinGroup, Vietnam Construction and Import-Export Joint Stock Corporation,  Ricons, Cotteccons, Hong Ha Vietnam Joint Stock Company, HoaBinh Construction and Real Estate Corporation Conclusion… There’s a lot of them.

What does the future of Vietnam’s construction industry look like?

Granger: The future looks good. It’s expected to expand here, between 2019 and 2023, at a rate of about 7.8% with the value of about $85 billion in 2023 mostly due to investments in transport, infrastructure, energy and utilities and more affordable housing projects. That’s what you want to see happening.

Granger: Vietnam requires investments of about 50 billion US dollars through 2023 to develop that transport infrastructure. It’s a lot of money, but really it’s not, not for what you’re seeing as a result here. It’s well worth the money to build up an infrastructure.

Granger: And of course the government is trying to build a million affordable houses. Going hand in hand with the growth, building affordable housing, and you can really build a sustainable workforce. It gives more opportunities for training and more opportunity for the low income as well as the wealthy to build a future. And the result is we all have more places to live and work, which is positive for everybody.

Granger: So think about this, how can you help Vietnam to improve the construction industry? What can you do to make a difference? It is always a theme that we talk about because it does take everybody. No one is supposed to have all the answers, and some of the best ideas have come out from out of nowhere. Well, there’s your Monday Morning Thought with your Monday Morning Coffee. Thanks for listening to me. It’s not a subject I have deep knowledge of, but one I think is important to share. So I hope you enjoyed it a bit and I hope you have a fantastic week. Talk to you on Friday! Thank you!

The Lotus Talks is produced by The Vietnam Group. This episode was produced by Granger Whitelaw, Cameron Lynch and Toan Tang.

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