Maybank Kim Eng positive on Vietnam real estate as new govt looks to resolve regulatory bottlenecks

MAYBANK Kim Eng (MKE) is positive on the investment outlook of the real estate sector in Vietnam, given recent indications that its new government will be acting to clear the country's regulatory bottlenecks so as to smoothen the supply of modern housing in big cities.

In a report on Monday (Dec 13), the brokerage pinpointed the country's upcoming amendments to its construction and investment laws as a "macro catalyst" and issued a call to "buy" the related stocks, including Vinhomes JSC, Novaland and Vincom Retail.

Over the past few years, most developers in Vietnam have been mired in substantial legal hurdles due to the government's crackdown on corrupt practices related to the management and acquisition of prime land in Hanoi and Ho Chi Minh City.

But analyst Tyler Manh Dung Nguyen said he is "seeing signs" that the newly-installed government under former intelligence agent Pham Minh Chinh, who took over as prime minister in April, is turning its attention to the sector now that Covid-19 is under control.

Of note is the Ministry of Construction's recent announcement to amend the construction and investment laws. Areas of the construction law being looked at include the approval procedure for development projects by local governments. Inconsistency in terminologies between the investment law, investment procedure and housing law are also under review.

Nguyen also noted that government officials had indicated that 2 decrees will be released as a guideline for real estate business law and real estate market information law before the changes to the law are finalised.

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"We expect the new laws and guidelines will help smoothen the bottlenecks in the approval process for residential projects and shorten the time for granting construction permits starting from (the second half of 2022)," the analyst said.

Nguyen believes "substantial progress" will be made in the second half of 2022, given that the government is "fully aware" of the sector's importance and the urgency to finalise changes to laws as soon as possible.

He cited latest research by the Vietnam National Real Estate Association (VARS), which found that the real estate sector contributed to 13.6 per cent of Vietnam's GDP in 2019.

He further cited that real estate made up 20.8 per cent of the total asset of the entire economy, and that a 10 per cent decrease in real estate sector earnings could reduce Vietnam's GDP by 1.247 per cent.

Furthermore, it has become evident that the supply reduction in big cities like Hanoi and Ho Chi Minh City is "becoming serious", Nguyen said.

Pointing out that sales and absorption have hit the lowest in the past five years, he noted that new launches in Ho Chi Minh City only reached 7,400 units in the first 9 months of 2021, a 35-per-cent drop over the same period last year.

To make matters worse, developers had been delaying projects, causing primary supply to remain suppressed, as their confidence is low, Nguyen added.

The target price set by MKE for Vinhomes, the largest commercial real estate developer in the country, is 100,000 dong, which represents a 24 per cent upside from its current share price of 80,900 dong.

Novaland's target price is set at 128,000 dong, up 13 per cent from its current share price of 113,000 dong. Vincom Retail's is set at 39,500 dong, up 30 per cent from its current share price of 30,350 dong.

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