After an unprecedented year for elections globally, including regime changes in many influential economies, markets are waiting eagerly to learn how investors respond, and how their response affects capital flows into the real estate sector.
Investors will be facing an environment wherein slower economic growth is expected in the coming years, explained Lawrence Lennon, director, capital markets at CBRE Vietnam, who spoke at a mid-November workshop on the theme of Economy & Capital Markets during ULI Asia Pacific’s REImagine 2024 in Vietnam. He suggested that the trajectory of interest rate cuts will be a key factor. Appetite for risk is likely to increase slightly amid cuts, he explained, although the U.S. Federal Reserve has more recently indicated that it will take a cautious stance.
Vietnam’s strong growth story
Alongside other strong performers in 2024, Vietnam had robust gross domestic product (GDP) growth, fueled by improvements in exports, tourism, and sustained foreign direct investment (FDI), especially from Asian neighbours, Lennon said.
The United States has been a key partner, too, he added. Bilateral trade between Vietnam and the U.S. has grown substantially over the past two presidential administrations, rising from US$52 billion in 2016 to US$124 billion in 2023.
Yet, even as exports from Vietnam rebounded overall, thanks to a recovery in global demand, Lennon said consumer confidence is stagnant, with spending at only moderate levels.
New routes to real estate finance
Lennon’s insights sparked broader discussions on key themes for investment in real estate during the years ahead.
During several roundtables, delegates explored the importance of creating more innovative urban financing policies and strategies to reshape cities of the future throughout Asia Pacific.
According to industry participants, fostering trust between the public and private sectors is key to making new initiatives viable. Achieving this end requires incentives—similar to ones already offered in Singapore—by which government entices more individuals to the public sector through better compensation and training. Another essential component of future growth is ensuring enough capability and capacity among developers to turn their visions into reality.
At the same time, the private sector has a big part to play in financing urban infrastructure. In Vietnam, for example, a lot of effort has been put into mobilizing people to develop required infrastructure and the broader ecosystem of schools, housing, retail, and other services.
Luring new funds
Inevitably, finding opportunities to use conventional and sustainable ways to attract new investment is a core objective for industry players when planning for the future. In Vietnam’s context, participants highlighted the importance of the government’s role in the approval process, with policy frameworks and the legislative environment determining the speed, level of transparency, and ease for foreign investors.
Typically, in markets such as Vietnam, risks around approvals force the industry to invest through a local partner, whereas they might prefer to invest on their own if they felt confident enough. Ultimately, predictability and stability are critical.
When examining where improvements can be made, Singapore was referenced by many delegates as the benchmark. Examples include the Singapore government’s partnering with trade associations to promote investment in the local sector, and measures to ease foreign investment.
Meanwhile, sustainable finance cannot be overlooked as a viable route for investors in future cities.
We are still in early days—especially in developing markets such as Vietnam—to assess whether ESG really provides alpha when attracting capital to a country or individual project. The consensus, at least for Vietnam, was that over the next five to 10 years, ESG will have a much bigger influence in funding.
A role for carbon credits
Funding for climate-related retrofit is also an increasingly important area of focus as part of the overall financing picture.
In many cases, it can make economic sense to retrofit a building rather than starting from scratch. Using an example in Singapore to highlight this point, delegates said research into one project showed that, over the next 10 to 30 years, a retrofit would result in 30 percent less carbon emissions while also being financially viable. Thus, industry participants should weigh the possibility of creating a carbon credit—to enable them to save on carbon emissions—and should consider how such a credit could be traded in a market.
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Learn more about REImagine: Whether you want to dive deeper into what’s in store or explore opportunities for future collaborations, reach out to Zoe Auclair-Boissonnat ([email protected]) at ULI Asia Pacific.
