Warning to investments using domestic capital

The total FDI capital into Vietnam in the first five month of 2010 was 7.5 billion US dollars. Of that, 1.28 billion US dollars were for real estate business, accounting for 17 percent of the total FDI attraction. There are worries behind those numbers.

There currently exist real estate projects that attract and use domestic capital while being registered as multi million dollar foreign invested ones. This is contrary to the expectations of management bodies when attracting foreign investments.

There have been no accurate figures of the sources of capital from foreign investors' pockets that are poured into real estate sector. In Mulbert Lane project in Mo Lao (Hanoi), 60 million US dollars of the total 170 million US dollars are from borrowings.

As in the case of Indochina Capital investors, who use 44 million US dollars from borrowings to invest in Indochina Plaza in Xuan Thuy, Cau Giay (Hanoi) and 39 million US dollars from borrowings investing in Hyatt Regency Danang Resort & Spa.

Furthermore, investment capital of this investor in Indochina Riverside Towers in Da Nang and The Nam Hai (Quang Nam) were also from loans.

Above examples point out that foreign investors' capital in real estate sector are mobilised from domestic market.

The worrying problem is that many foreign investors taking advantage of Vietnam policies to attract investments to make profit, especially in real estate business. They only need 5 to 10 million dollars, then can mobilise capital from the public through "pre-selling apartments on paper" and borrow capital from banks to develop the projects.

There have been warnings of this situation in 2008 Vietnam Economic Report by Central Institute for Economic Management.
According to calculations, 70 percent of foreign investment capital in real estate business is from loans. This could continue causing complications in different aspects.

Reconsideration is needed for capital investment in real estate sector

Foreign investors attracting capital that should be reserved for domestic investors could hinder the development of the private sector. The target of attracting more foreign currencies capital to supplement the shortage of domestic savings and foreign currencies then would not be achieved.

Recognising this fact, deputy minister of Construction Nguyen Tran Nam mentioned that now is the time to reconsider the story of foreign investments in real estate sector using domestic capital. There should then be methods and policies to readjust.
It cannot happen again that foreign investors registered total projects' capital at 3 to 4 billion dollars when the capital they actually bring to Vietnam is just 20 to 30 percent thereof.
They mainly spend on initial expenses like project building, site clearance, etc. After that, with experience and commercial name advantages, they mobilise domestic capital like other domestic investors, or even sell the projects. This fact needs to be viewed thoroughly, since there currently is a serious lack of capital in the market.

Contributions of foreign investors in turning marshy lands into modern urban areas cannot be denied. However, there still needs an answer for the question on the actual percentage of the 42 billion dollars that foreign investors poured into real estate sector in the country. If the actual amount of capital invested by foreign investors were as little as warning, would that be considered as foreign direct investment or not?

Vietstock