HO CHI MINH CITY – 16 Jun 2020 –
The EVFTA, also known as the European Union Vietnam Free Trade Agreement, was officially ratified by the Vietnam’s National Assembly on June 8th, 2020. It is expected to take effect in early August this year. The authorization of this free trade agreement between Vietnam and Europe is paving a promising way for the country’s export outlook with numerous advantages such as tariffs removal, elimination of regulatory barriers/red tape, protection of geographical indications, allowance of services and commodities to public procurement markets, opportunities for new foreign investment, adoption of advanced technology and knowledge, and increase of European FDI into different industries of Vietnam.
According to Vietnam’s Department of Customs, Europe has been one of the country’s leading trade partners aside from nations in APAC and the US. As of 2019, total exports between Vietnam and Europe (including the UK) reached 56.39 billion USD, accounting for 15,7% of the total country’s exported value. The top five major exported industries of Vietnam are Smartphones, Computers, Textiles & Garments, Footwears, and Electronic Devices, in which three of them are mainly exported to Europe (Smartphones, Computers and Electronic Devices).
As such, EVFTA will pose significant impacts on the industrial real estate sector of Vietnam. Higher demand for industrial properties (land, ready-built factory) will be seen followed by the relocation of manufacturing firms from China to Vietnam and the new inflow of FDI into manufacturing sector.
According to Le Trong Hieu, Director of Industrial & Logistics Service at CBRE Vietnam, this trade deal is implemented just on time for Vietnam as it will give boost to the economy after the COVID-19 outbreak. Vietnam’s success in controlling the disease will facilitate the shift of manufacturing companies from China to Vietnam.
“Originally, CBRE Vietnam has not received many leasing inquiries from European companies, however, we do expect that more European companies will be keen on and inquire for industrial property lease in a short-term future. CBRE also believes that Machinery & Equipments (for automotive components/parts), Electronic Devices and Textile & Garment industries will increase in terms of inquiries as well” Mr. Hieu said.
Automotive suppliers/parts can be the big winner. CBRE noticed car assemblers tier-1 suppliers in this field expanding their footprints to Vietnam such as Bosch, Schaeffler, Mitsubishi Motors, Yazaki, Daimler, etc. Moreover, Vietnam is the third-largest population country in the ASEAN with 96 million people. GDP per capita of Vietnam is estimated at nearly US$3,500 by 2019, topping the US$3,000 benchmark at which car and appliance ownership tends to take off (Nikkei News). Industrial property market in Vietnam is expected to perform greatly in the coming years promoted by extremely limited supply (including land, ready-built factory and warehouses) on the back of surging demand from automotive parts makers, assemblers, and dealers. Industrial parks that are adjacent to ports or within the car-making agglomerations will attract much attention from new players. The North of Vietnam such as Vinh Phuc, Hung Yen, Hai Phong and Hai Duong Provinces are expected to be the investment hotspots. In the South, Long An and Vung Tau provinces that are close to Hiep Phuoc and Cai Mep ports can also be potential investment locations.
Yet, opportunities are apparently recognized but hidden challenges might also arise. The abrupt transition of manufacturing companies to Vietnam will create a bottle-neck congestion for the industrial property supply. Investors and developers will not have enough time to provide quality and sufficient properties for coming occupiers because developing a new industrial project will be very time-consuming, especially in terms of legal works. Additionally, temporary lack of labor force and low-quality infrastructure network will possibly restrain the growth prospect of the market in a short run. Confronting the challenges, current developers that have already acquired land are encouraged to accelerate the construction of ready-built factories to be well-prepared for new expansion opportunities. Those who are eager to join this speculative game will require to take initiative right away to seize exceptional chances for development. Vietnam’s government should find ways to address the potential obstacles in order to support domestic businesses in maximizing the advantages from EVFTA.