BUSINESS IN BRIEF 14/7

Dong Nai: Private companies’ registered capital rockets

The registered capital of privately-owned enterprises in the southern province of Dong Nai approximated 9 trillion VND (428.57 million USD) in the first half of this year, up 74 percent year on year.

Half of that sum came from about 1,000 newly established businesses, while the rest was from 300 existing ones, according to the provincial Department of Planning and Investment.

By June 15, the number of private firms across Dong Nai stood at 19,408 with a total registered capital of over 120.105 trillion VND (5.72 billion USD).

Director of the department Bo Ngoc Thu attributed the outcome to the province’s regular dialogues with both domestic and foreign enterprises to remove obstacles and facilitate credit access. It has also put into practice new favourable tax and customs policies.

To maintain growth pace and help out the circle, Dong Nai continues improving its investment climate by cutting down business fees, favouring land use, while ensuring greater transparency of administrative agencies, she added.

Irregularities the culprit of road subsidence, say experts

The key reason behind the sinking of roads has not been pinpointed despite a host of conferences, but according to transport experts, such subsidence might have been caused by conspiracies between consulting, supervision, execution and management units.

At a conference held in HCMC last week to identify what had caused roads to sink, scientists mentioned several possible causes.

Professor Phan Huy Khang from the University of Transport and Communications said there are four main reasons for road subsidence, which are poor quality of construction materials, overloaded vehicles, environmental problems and weak foundation.

Similarly, Professor Nguyen Van Hung, a member of the team in charge of studying subsidence of the East-West Highway, said the subsidence rate of the highway is 1.5-2 times faster than other roads as asphalt layers deform as a result of high temperature and high traffic volume.

In addition, vehicles run on only one lane, causing the road surface to deform, even though the asphalt layer on top is replaced.

Meanwhile, vice chairman of the HCMC Port, Road and Bridge Association Ha Ngoc Truong said that asphalt used on East-West Highway’s section in District 2 fails to meet quality standards.

Besides, the estimated volume of traffic to and from Cat Lai Port is not accurate as the actual figure is 22,000 vehicles compared to the initial estimate of 10,000 units a day.

To fix the road subsidence, Professor Le Van Bach, also at the University of Transport and Communications, proposed using new materials including fiberglass and carbon meshes to increase the weight bearing capacity of asphalt.

Truong from the HCMC Port, Road and Bridge also agreed on using more durable materials and said that polymer asphalt should be used on roads with heavy vehicular traffic.

However, Pham Sanh, former head of the Phu My Bridge construction unit, objected to the new-material scheme, saying that the use of polymer asphalt is costly and unnecessary. Foreign countries are often quick in finding the main cause and dealing with the problem while Vietnam still fails to find out the culprit.

“I think the main reason lies in consulting and implementation units. If roads are built appropriately, they cannot subside after a couple of months,” Sanh said.

One of the existing problems when constructing roads is that contractors apply different standards from different countries, resulting in inconsistent execution of a certain road.

According to Sanh, one main reason for road subsidence is irregularities among consulting, supervision, implementation and management units as they might have reduced the amount of materials and skipped certain implementation steps. Cau Gie-Ninh Binh Expressway, National Highway 18 and HCMC-Long Thanh-Dau Giay Expressway are typical examples for such irregularities, he said.

AmCham extols TPP

When implemented, the Trans-Pacific Partnership agreement will make Vietnam an alluring destination for US manufacturers.

Herb Cochran, executive director of the American Chamber of Commerce in Vietnam said, “The implementation of the Trans-Pacific Partnership (TPP) agreement – if it is signed – would improve the general business environment in Vietnam and therefore increase investment in terms of manufacturing from the US.”

The TPP is a high-standard regional free trade agreement under negotiation involving 12 countries including the US and Vietnam.

“The TPP will offer duty-free entry into the US market for products that meet the ‘rules of origin’ requirements. In addition, the TPP agreement will be the mechanism by which we define the rules of the road, the standards countries should adhere to, and the norms which create a sense of fairness among economies,” he said.

In fact, many US companies are increasingly looking for more investment opportunities in Vietnam. In March, a delegation of the US-ASEAN Business Council, including 33 US-based companies such as Boeing, Dow Chemical, General Electric, Coca-Cola, PepsiCo, UPS, ExxonMobil and Hewlett-Packard visited Vietnam to seek more business opportunities in the country.

Alexander Fedman, president of the US-ASEAN Business Council, said this was the biggest delegation of the council to ever visit Vietnam. Fedman said this was a reflection of increasing interest by US investors in Vietnam.

Some American companies have been planning to increase investments in Vietnam. Coca-Cola last month inaugurated four production lines in Hanoi and Ho Chi Minh City to increase production capacity in the Vietnamese market. This is part of its plan for investing an additional $300 million in Vietnam from 2012 to 2015.

The US-based multinational oil and gas company ExxonMobil is planning a mega gas development project, worth $20 billion, on Vietnam’s central coast.

Global chipset manufacturer Intel Corporation recently announced plans to close its factory in Costa Rica and move part of its production to an existing factory in Ho Chi Minh City.

The US is the seventh biggest foreign investor in Vietnam, with 694 projects as of June 2014. The combined investment commitment was $10.7 billion, according to the Ministry of Planning and Investment.

But Cochran said the actual number could be much higher as they may be reported based on a subsidiary company’s location, such as Singapore or Hong Kong, while the ultimate owner may be a US company.

Cochran said US companies in Vietnam now faced challenges including availability of raw materials, free movement of goods in the region and unstable laws and regulations.

However, if the TPP is signed, these issues could be handled, Cochran said. For example, the TPP chapter on transparency, anti-corruption, and regulatory coherence will promote greater transparency, participation, and accountability in the development of regulations and other government decisions.

In addition, the chapter on customs, trade facilitation, and rules of origin, will help cut red tape in trade, which will also reduce costs and increase customs efficiencies, making it cheaper, easier, and faster for Vietnam businesses to get their products to market.

Nearly 6,000 apartments find buyers in city

Realty firms in HCMC sold 3,210 apartments in the second quarter, a year-on-year jump of 140%, taking the total apartment sales in the year’s first half to nearly 6,000 units, according to CB Richard Ellis Vietnam’s report (CBRE).

The property research and management service company said the condos sold in the second quarter belong to 11 projects of high-class, mid-end and low-cost housing segments. In the first quarter, 2,600 apartments were successfully traded as reported by CBRE in April.

CBRE said the fact that homebuyers now can mortgage the houses they will own later at banks has encouraged investors to continue their slower-than-expected projects.

Offered prices of apartments in the city are now more affordable than in previous years. Particularly, prices in many low-cost apartment projects have now slid to less than VND15 million per square meter, a level which allows home buyers in these projects to borrow from the VND30-trillion credit package.

In other middle-range and high-class housing segments, selling prices have also edged down by between 0.8% and 1.8% against the previous quarter. However, such prices have risen by 1.9% and 0.7% year-on-year, respectively.

The price increase is attributed to a change in calculating the floor area in line with Circular 3 dated April 8, 2014 by the Ministry of Construction. This circular forces housing developers to offer buyers the usable area instead of the entire area of an apartment including surrounding walls.

Marc Townsend, managing director of CBRE Vietnam, predicts apartment prices will remain stable for the rest of the year with more transactions to be forthcoming.

Duong Thuy Dung, associate director of Research and Consulting of CBRE Vietnam, forecasts the picture will grow positive with more stable selling prices.

Nguyen Ngoc Thanh, vice chairman of the Vietnam National Real Estate Association (VNREA), told the Daily that the low-cost housing segment has been faring well as such condos meet the demand of locals. The investors now are paying close attention to the projects intended for the low-income people rather than the high-class apartment projects as before.

Over 6,900 apartments available in Nha Trang

In a related development, the residential market in the coastal city of Nha Trang has more than 6,900 dwellings from 37 projects of land plots, villas, townhouses and apartments, according to the latest report by Savills Vietnam. Land plots dominate the city’s residential market, accounting for 51%, followed by apartments with 44%, and villas and townhouses with 5%.

Most of the projects are located in wards along the coast, one or two kilometers away from the beach.

Savills’s survey shows that the land plot segment includes seven primary projects with the offering prices from VND3.6 million to VND12.3 million per square meter. As for the apartment segment, there are four active projects along Tran Phu Street with prices ranging from VND32.8 million to VND70.7 million per square meter.

Most residential projects are developed with a second home concept that targets homebuyers from other provinces, especially from Hanoi and HCMC.

VPIC1 and Pinaco receive Q1 preferred quality award by Ford Motor

The Vietnam Precision Industrial No.1 Company Limited (VPIC1), a leading manufacturer of spare parts and accessories of automobile and motorbike, equipment using in hospital in Vietnam, just caved its name among preferred suppliers and was awarded Q1 certification by Ford Motor.

The award acknowledges suppliers for superior quality and delivery, and ongoing implementation of effective quality control system.

Q1 is evaluated based on system capabilities, on-going performance and the results of Q1 manufacturing site assessment of the plant.

All of these criteria take into account a comprehensive set of standards in diverse areas ranging from quality and asset management, delivery rating to environment management.

Accordingly, the award recognises accomplishment and dedication to quality and delivery and it represents Ford’s satisfaction and confidence in quality and delivery of its suppliers.

VPIC1 and Pinaco are two companies recently awarded Q1 certification by Ford Motor, followed by Harada, the world leading antenna manufacturer, which got the award in 2007.

“Q1 has great meaning to Ford plants all over the world. The award is also highly respected in the automotive industry globally,” said Jesus Metelo Arias, Ford Vietnam’s managing director.

“Receiving Ford’s Q1 award is an honor and we are very proud of this accomplishment,” said Yu Min Hui, chairman of VPIC1. “This achievement is a testament of our entire team efforts and celebrates our ongoing commitment to providing quality products and services surpassing customer expectations.”

Ministry wants to limit pepper area at 50,000 hectares by 2020

The area under pepper cultivation will be limited to 50,000 hectares in line with a master plan for the pepper industry by 2020 just endorsed by the Ministry of Agriculture and Rural Development despite the current area of 60,000 hectares.

In accordance with Decision 1442 on the zoning and development plan by 2020 and with a vision toward 2030, the area for growing pepper will be narrowed down to 50,000 hectares with average productivity of three tons per hectare and expected export revenue of US$1.2 billion to US$1.3 billion.

Binh Phuoc will have 10,000 hectares to become the country’s key pepper growing province, followed by Dong Nai, Ba Ria-Vung Tau, and Dak Nong each with 7,000 hectares, Gia Lai with 5,500 hectares and Daklak with 5,000 hectares, according to the Vietnam Pepper Association (VPA).

Other central provinces from Quang Binh to Ninh Thuan will also be allowed to grow pepper from hundreds to thousands of hectares only for each province.

The fact that prices of pepper have remained high over the past time has encouraged farmers to eliminate other crops such as cashew and cassava and switch to this profitable crop while the ministry still insists on an area of 50,000 hectares only.

The export goal of US$1.2 billion to US$1.3 billion is seen obtainable by VPA.

Statistics by the agriculture ministry show Vietnam exported 111,000 tons of pepper worth US$790 million in the first half of the year, a rise of 36% and 48% in volume and value respectively.

Multibillion-dollar property project in southern VN urged to speed up

Authorities in the southern province of Long An have asked the investor of a multibillion-dollar complex project in the province to accelerate development as its progress has fallen behind schedule.

The requirement came after an official inspection to review the progress of the $2.2 billion Happyland project implemented by Phu An Investment – Construction and Infrastructure Development.

Accordingly, Long An Provincial People’s Committee asked Phu An Co to map out feasible solutions, including completing legal procedures to invite more investors to join to resolve the deadlock on project financing.

On the other hand, the firm should actively cooperate with the local government to quickly solve problems in site clearance and handling the certificates of land use rights for those who were displaced for the project.

Admitting the difficulties in capital mobilization, An Phu Co continued to commit to carry on and put the project into operation part by part. It is expected that a part of the first phase of the project will be completed and put into operation in the 2014-2015 period.

With a total investment of $ 2.2 billion for the first phase, the Happyland entertainment complex has seen a disbursement of about $330 million.

Ho Chi Minh City-based Khang Thong Group, the former developer of the mega-theme park, lost its license to develop an industrial park in the southern province of Tien Giang in July last year.

Khang Thong, which initiated the development of the US$2.2 billion entertainment complex in neighboring Long An Province in 2011, had previously asked Tien Giang authorities for a return of the industrial project to the province, citing high land compensation expenses among their reasons.

In November 2011 Khang Thong broke ground on the Happyland entertainment complex, considered the biggest tourism project in Southeast Asia, in the presence of Joe Jackson, father of late pop king Michael Jackson, in Long An Province, south of Ho Chi Minh City.

Developed on a 338ha area in Ben Luc District, the multibillion-dollar project, inspired by Disneyland, will include a theme park that costs $600 million, a 3.7 km boardwalk, a shopping center, 3-5 star hotels, water parks, studios, indoor and outdoor theaters, restaurants, a floating market, and other facilities.

The project site along the Vam Co Dong River was once meant for a large-scale industrial park but Khang Thong then switched to a tourist attraction construction plan following environmental concerns.

The development is projected to be Southeast Asia’s largest attraction of its kind and to draw fourteen million visitors a year, including three million foreigners, when finished in April 2014.

In February 2012, Joseph Jackson, father of late pop king Michael Jackson, announced on his website that he would pull out of the massive entertainment complex Happyland. He had signed a deal to be involved in the construction of a major Happyland hotel in 2011.

His withdrawal from the development of the hotel was posted on his official website one moth earlier, and confirmed by Phan Thi Phuong Thao, board chairman of its developer Khang Thong Group.

The website said that Jackson decided not to proceed with any further investment or involvement in the project after ‘careful due diligence and discussions with his wife, family and advisers.’

He believed in the growth potential of Vietnam and would return to it for new opportunities soon, the website reads.

Meanwhile, Thao told the Saigon Times Online that Jackson signed a memorandum of understanding with Khang Thong in February 2011 to advise and help it find investors for the development of a five-star, 1,000-room hotel inside the complex.

The man has so far recommended two U.S. investors to Khang Thong but no deals have been clinched between them, the chairman added.

An American manager, former boxer and former musician, the 82-year-old man is best known as the father of American entertainers Michael Jackson and Janet Jackson, and the creator and manager of The Jackson 5, a Motown group comprising several of his children.

VND30-trillion home credit package to benefit more people

The Government has approved a Ministry of Construction proposal for allowing more people to gain access to the VND30-trillion home loan package to buy low-cost apartments.

Apart from those eligible to take out low-interest loans from the package, individuals and households that want to buy social houses for lease and re-sale to workers, low-income people and students, among others, can now borrow from the preferential loan program of the Government.

During his visit to worker dormitories in HCMC in May, Construction Minister Trinh Dinh Dung said he would ask the Government to relax the requirements for accessing low-interest home credit.

Industrial parks now employ around 2.1 million workers and millions of others work outside those parks, Dung said, and around 80% of them live in small, uncomfortable and shabby rented homes.

The minister said the problem has been partly solved since the Government issued Decree 188 last year on construction of housing for low-income urbanites.

However, Resolution 02 of the Government only regulates that low-interest loans from the package will be provided for only those wanting to buy commercial homes that are less than 70 square meters each and priced below VND15 million per square meter. The decree makes no mention of priority policy for low-income people such as workers and students.

A representative of a real estate firm in HCMC said the ministry’s move would make it easy for banks participating in the credit package to increase lending. Over the past year only 7% of VND30 trillion has been disbursed.

After the Government’s approval, the ministry would work with the State Bank of Vietnam to provide guidelines and set out borrowing requirements, said a Vietnam New Agency report.

Investors can get investment certificates at home in Q3

Investors can get investment certificates at home some time this quarter as HCMC authorities have committed to process investment applications online, instead of forcing investors to file their proposals in person.

The city’s Department of Information and Communications said investors could get feedback from authorities much faster than before thanks to the availability of an online application system. As such, they do not have to spend much time waiting at the Department of Planning and Investment.

The city’s Department of Planning and Investment, and People’s Committee Office are now working on a joint management program in which all investment documents and evaluations are be stored in computers. The program will officially go into operation some time this July.

The municipal government last March informed businesses of the detailed procedure of handling investment proposals by email in a bid to increase transparency.

The draft of the amended law on investment stipulates investors would be required to apply for an investment certificate for projects belonging to conditional business fields, so for other fields of business, investors would just need to register online and then start operations.

Dividends main source of income for post-equitization Vinatex

Vietnam National Textile and Garment Group (Vinatex) has said it will rely on dividends from its affiliates and associate companies as a main source of income after it undergoes equitization even though it will heavily invest in material production.

BIDV Securities Company (BSC), the consultant for Vinatex’s initial public offering (IPO), announced a report at a road show of Vinatex in HCMC last Friday saying Vinatex will invest VND3.4 trillion in eight fiber projects in 2013-2017 and VND6 trillion in nine fabric projects in 2014-2017.

The country’s leading textile and garment firm is looking to obtain revenue of nearly VND1.9 trillion this year and boost it to nearly VND8.7 trillion in 2016.

However, Vinatex estimates low gross profit, at only VND80 billion this year, VND197 billion in 2015 and VND313 billion in 2016. However, its after-tax profit is projected to rise from VND300 billion in 2014 to VND562 billion in 2016, buoyed by dividends from its affiliates and associate companies.

Le Tien Truong, deputy general director of Vinatex, said Vinatex’s strategy is to invest in material manufacturing plants, which will mainly supply its affiliates and associate companies in the original design manufacturer (ODM) chain. This will help the industry meet the Yarn Forward requirement in the Trans Pacific Partnership agreement, which Vietnam will sign with 10 other Pacific Rim countries – the United States, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Japan.

For instance, Viet Tien is a major shirt producer in the country but it has to import 70% of its cloth needs. Vinatex’s forthcoming cloth production factories will supply companies like Viet Tien, making it possible for those firms to sign ODM contracts with customers from the TPP countries, Truong explained.

Therefore, Vinatex’s investment in material plants will see low risk as it will not compete with other material providers.

As per the report, the parent firm Vinatex obtained VND116 billion in revenue last year. The figure included those from only three units.

Financial investments have always made up a large contribution to Vinatex’s revenues, including dividends from member companies and deposit interest sums. Last year it earned VND423 billion from financial investments, including VND322 billion worth of dividends.

Viet Tien contributed the biggest dividend with VND67 billion, followed by Viet Thang with VND29.6 billion and Phong Phu with VND48.1 billion. Vinatex had had 38 units as of end-2013.

The garment giant’s IPO would be implemented on the Hochiminh Stock Exchange on July 22 with nearly 122 million shares out of 500 million shares. With an initial price of VND11,000 per share, the IPO is expected to raise VND1.22 trillion.

Ford Vietnam posts best-ever June performance

Ford Vietnam late last week announced a record sales performance for the first half of the year boosted by a best-ever June and outstanding second quarter performance.

Led by continued strong demand for the Fiesta, Transit, Everest and Ranger, June retail sales of the company jumped 67% year-over-year to 972 units, capping off the best quarterly performance since the fourth quarter of 2009 with overall retail sales that soared 51% year-over-year.

Overall retail sales for the first half of the year also reached a record sales high of 5,264 units, rising 54% from the same period last year, according to the company.

“We continued to build on our momentum since the start of the year, allowing us to make further progress on our One Ford plan in Vietnam,” said Jesus Metelo Arias, managing director of Ford Vietnam in a statement. “With our expanding line-up of global Ford vehicles in our showrooms, we are reaching out to more customers, which in turn is helping to widen our brand appeal in the market.”

The segment-leading Ford Ranger and Transit continue their popularity among Vietnamese consumers, with both nameplates seeing best-ever quarterly performances. The all-new Ranger delivered a second quarter sales increase of 140% over the same period last year to 954 units. June sales for the all-new Ranger leapt 79% year-over-year to 295 units, making it the best-selling pickup in Vietnam

Quarterly sales of the Ford Transit shot up 131% to nearly 920 units following an impressive growth rate of 134% to 306 units in June.

The new Ford Fiesta also saw its best sales month since December 2011, fueled by strong demand for the Fiesta 1.0L EcoBoost – the engine technology which was awarded International Engine of the Year for the third consecutive year in June. Fiesta sales rose to 377 units in the second quarter, a 53% increase over the same period last year.

The Ford Everest family SUV recorded 149 units sold in June, a 414% increase year-over-year, leading to a total of 403 units sold this quarter, a 58% increase over the same period last year.

Ford continues its successful product-led transformation in Vietnam with the official start of assembly for the all-new EcoSport urban SUV at the company’s Hai Duong Province assembly plant on June 27, with customer deliveries to begin in July.

In the first half, Ford expanded its dealers and outlets network in Can Tho, Gia Lai and My Dinh. It also plans to open an all-new dealer in Binh Duong in the second half, bringing its Vietnam network to a total of 26 dealers and outlets nationwide.

Luxury hotels report strong profit rise

Luxury hotels in Vietnam have reported good business results with a significant increase in pre-tax profit in the last fiscal year, shows annual research on hotel services conducted by audit and financial consulting firm Grant Thornton Vietnam.

The research, released last week, reveals the EBITA (earnings before interest, taxes and amortization) index of three- to five-star hotels last year rose 5.8% over 2012 and accounted for 34% of their total revenues compared to the figure of around 28.2% in 2011 and 2012.

The profit increase resulted from the reduction of 1.1%, 1.3% and 1.7% in their management cost, general costs and fixed costs respectively.

However, revenue per available room (RevPAR) last year slightly decreased 0.4% from US$54.44 in 2012 to US$54.22 due to the fall in average room prices, which fell 2.7% from US$90.4 in 2012 to US$87.95 last year.

Five-star hotels suffered the strongest reduction of 5.5% in room prices, followed by four-star hotels with 4.7% and three-star hotels with 3.1%.

Rates of five-star hotel rooms slid steadily in 2007-2013, says the report.

In the last fiscal year, prices of hotel rooms dropped 7.5% in the central and Central Highlands regions, while those in the northern region slipped 2.6%.

Hotel room prices in the south, meanwhile, rose 3% to US$90.03 per night.

The general reduction of RevPAR was also caused by the sharp decrease of 14.6% in RevPAR in the three-star hotel segment.

Sugar firms fear further price fall on oversupply

Domestic sugar firms are worried the sugar price slide would extend in the coming time as the bumper sugarcane crop in 2013-2014 has sent sugar output surging to nearly 1.6 million tons, plus a large volume of smuggled sugar.

Local sugar demand is around 1.44 million tons a year as estimated by the Vietnam Sugar and Sugarcane Association (VSSA). On top of that, national sugar inventory in the year to June 23 had exceeded 567,000 tons, three times higher than in the 2012-2013 crop.

VSSA, however, said the high sugar inventory could be sufficient to meet domestic demand in the months up to the start of the 2014-2015 sugarcane crop in October if sugar smuggling is put under control.

More than 1.3 million tons of sugar was produced in the 2011-2012 crop. But domestic supply has since surpassed demand as a result of increased sugar production in the country and a huge volume of sugar smuggled in through the borders in the southwestern region.

The oversupply has sent sugar prices down to VND14,000 per kilogram from VND17,500. VSSA forecast prices at refineries would fall further to VND13,000 per kilo, almost the same as production cost.

VSSA chairman Nguyen Thanh Long said some 400,000 tons of sugar was smuggled into Vietnam last year and the volume might be unchanged this year.

The association has proposed the Government tighten its controls on anti-smuggling and trade fraud on sugar products as one of the measures to support sugar firms and farmers.

Demand for high quality manpower keeps rising

The need for high quality personnel, especially for senior positions, in the first six months of 2014 increased 23% over the same period last year. Especially in June, the number rose 38% against a year ago.

However, the supply slightly decreased and is predicted to rise again in the second half. These numbers were released last week by Vietnamworks.com, a leading recruitment website.

According to Vietnamworks, employers now are in need of experienced managers such as team leaders, supervisors, directors and the like. Meanwhile, fresh graduates and inexperienced candidates are less favored by employers.

The demand is especially high in sales, marketing and information technology sectors are the highest-ranking ones. In Vietnamworks’ accounting jobs, the competitive rate is one to 98.

The highest competitive employment rate is one to 67 in Dong Nai, followed by Danang with one to 58. Meanwhile in Hanoi and HCMC, the ratio is one to 52.

To celebrate its twelfth anniversary, Vietnamworks has launched a human resource portal at http://hrinsider.vietnamworks.com/. This website updates the movements in the human resource market such as the most attractive sectors to laborers, the highest competitive rate among professions, and the methods to draw attention of recruiters.

Since the beginning of July, this employment agency has opened a site to recruit employees for Japanese companies at http://japan.vietnamworks.com as the demand for manpower by Japanese companies is on the rise. In June 2014 alone, there were 300 vacancies offered by Japan-invested companies on Vietnamworks, with the average monthly wage offered by these companies at about US$1,000.

Office market more competitive as new supplies cut rental rates

After relatively good quarterly figures, the office market in Hanoi and Ho Chi Minh City is becoming much more competitive with the entry of new supply. According to CBRE Vietnam, asking rents in Hanoi continued to decrease across the market, achieving an average of $21.8 per square metre per month.

Grade A average asking rents decreased by 3.2 per cent quarter-on-quarter, while Grade B rents recorded a slight decrease of 0.4 per cent quarter-on-quarter. Both Grade A and Grade B buildings in Hanoi are suffering from a decrease in occupancy this quarter, primarily due to the opening of the new EVN office building close to the central business district (CBD).

“Grade A average vacancy rates stood at 23.1 per cent while Grade B buildings reached 34 per cent by the end of the second quarter,” said the CBRE report.

“More affordable and attractive incentives from landlords motivated commercial tenants to move from villa-type offices to professionally- managed office buildings. Delays in construction of several office projects made the overall picture less grim for market performance, however, supply still outweighed demand,” said CBRE Vietnam.

“Moving forward, projects in the west of the city are under further pressure from rent drops as current and future supply well outstrips demand. Average asking rents are expected to continue on a downward trend while vacancy rates will be on the rise as new supply comes on to the market. Grade A buildings in the city centre will achieve higher occupancy rates as tenants have limited options in this segment. However, older buildings need to future-proof their performance by renovating and upgrading to compete with new entrants,” said William Badger, associate director of the Office Service Division of CBRE Vietnam.

Cushman Wakefield Vietnam, another consultant also commented that in terms of average asking rents, Hanoi witnessed a slight decline while Ho Chi Minh City showed improvements after a consecutive period of decreases.

Specifically, Hanoi office Grade A buildings for the second quarter recorded an asking rent decrease of 0.7 per cent in comparison with the first quarter. Hanoi office Grade B rentals also decreased by 0.12 per cent quarter-on-quarter due to increasing vacancies.

“In Hanoi, rents continued to slip and with the introduction of the Lotte Centre into the market in the coming quarter, we expect this trend to continue as supply continues to outstrip demand and landlords are becoming more competitive,” commented Alex Crane, national head of the commercial agency, Cushman Wakefield in Vietnam.

In contrast, in Ho Chi Minh City, Grade A rents increased by 1 per cent quarter-on-quarter, while Grade B rents remained stable quarter-on-quarter but increased 1 per cent year-on-year.

“Rents across all grades in Ho Chi Minh City generally remained steady and we expect this to continue until the end of the year when the next wave of projects come online,” Crane said.

Total Grade B supply in Hanoi has risen to over 729,000 square metres, while stock for Grade A rentals remained unchanged at around 330,000 square metres.

The total Grade A stock in Ho Chi Minh City remained static at 157,000 square metres, while total supply of Ho Chi Minh City office space has reached 820,700 square metres, marking a nearly 2 per cent increase quarter-on-quarter and a 6 per cent increase year-on-year. In terms of occupancy rates, Cushman Wakefield said that Hanoi witnessed reversed trends between Grade A and Grade B.

While Grade A saw a climb of 1.33 percentage points quarter-on-quarter to 78.2 per cent, Grade B continued its downward trend with a 4.4 percentage point decrease over the quarter to reach roughly 72.0 per cent. In Ho Chi Minh City, average occupancy rates of both grades stood at around 91 per cent, remaining stable compared to the previous quarter.

Chinese vacancies push hotels to new markets

Vietnamese hoteliers are seeking alternative strategies to cope with the falling number of Chinese tourists due to recent tensions in the East Sea.

According to Truong Ngoc Thanh, senior PR executive of Furama Resort Danang, the resort has set its sights on a number of different markets and new solutions.

Thanh said the hotel was offering incentives to guests, such as its VietJet Air ticket promotion Travel First, Pay Later and was co-operating with the central city’s authorities to promote Danang as a MICE destination.

Moreover, Furama Resort Danang has also co-operated with the local authorities to push up direct routes to high potential markets such as Korea, Japan, Malaysia and others.

“We believe our efforts will get our business through the last months of 2014 until the market improves in 2015,” Thanh told VIR, adding that the tensions between China and Vietnam had led to a decrease in Chinese and Hong Kong guests to Vietnam, but that Furama’s targets of other markets helped keep its occupancy loss to only 15 per cent, leading to a revenue drop of just $600,000 against last year.

Bob Fabiano, general manager of JW Marriott Hanoi Hotel, admitted that Vietnam-China tensions had resulted in some travelers from across Asia changing their plans and postponing or even cancelling their visits.

“We are hopeful that in time this will be resolved and we will once again be a hot destination for all of our segments, from events and business travel to leisure and exploration,” Fabiano said.

He added that unfortunately hoteliers had suffered from several cancelled events from both leisure and MICE groups, as these were generally Asia Pacific attended and had a large representation of participants from China.

“Hopefully we will see a resolution sometimes soon that will place us back on track to achieve the 2014 targets,” said Fabiano.

According to CBRE Vietnam, since the end months of 2013 to now, Vietnam has seen a large number of investments, both announced and implemented in the hospitality sector.

In the second quarter of 2014, Hanoi’s five-star hotels posted upward performance compared to the same period in 2013. Average occupancy went up by a healthy rate of 2.3 per cent while average daily rate and revenue per available room recorded a strong increase of 9.7 per cent and 13.8 per cent respectively.

According to Richard Leech, executive director of CBRE Vietnam, on the demand side Vietnam welcomed 4.3 million international tourist arrivals in the first six months of 2014, representing an increase of 21 per cent on year.

This number, however, has been dropping since May due to the China situation. “It is time to switch to markets other than China be increasing our promotions, exhibitions, adverts, increasing flights and granting visa exemptions,” Leech said.

He added that despite the tensions, Vietnam still had great strengths for investors, particularly those who planned to build a long-term strong trust in the country’s real estate development.

Investments shifting to agriculture

Major businesses have been shifting their investments to agriculture in recent years though the sector is full of risks and promises little profit.

The shift of capital flows to agriculture has been seen in recent years at many enterprises like Hoang Anh Gia Lai, TH Milk, Thanh Thanh Cong and Thu Duc House which are traditionally active in the property and banking sectors.

Vietnam Seedling Association chairman Tran Dinh Long said these enterprises have gained success thanks to the large scale of their investment in the right things at the right locations; and the establishment of a value chain.

Commenting on foreign enterprises’ plans to invest in Vietnam’s agriculture like Japanese firms in catching and processing tuna, Long said Vietnam has diverse natural resources and typical tropical climate conditions not found elsewhere.

Vietnam has a wide range of plants, animals and fish. Besides, nearly 70% of the country’s population is in rural areas, which supplies abundant labor for the sector, according to Long.

However, Vietnam’s agriculture is facing huge challenges as it focuses too much on quantity but little on quality, while technology is outdated, production is poorly organized, input materials depend much on imports and agricultural investments are small.

Long noted foreign firms still see investment opportunities in Vietnam’s agriculture.

Nevertheless, Vietnam needs to formulate an appropriate agricultural development strategy. The strategy should identify what the country needs, and detailed information about pros and cons of the country’s agriculture should be provided for investors, according to Long.

Other difficulties which enterprises may encounter in agriculture are small production scale, too many categories of products, a lack of skilled labor and a loose linkage between enterprises, farmers and producers.

Meanwhile, supporting policies of the State are no longer appropriate and there is no specific preferential policy for those investing in agriculture.

As a result, Long said there should be policies in terms of credit, infrastructure development, technology and human resource training to develop high-quality and environmentally friendly products.

Businesses call on MoF to rein in petrol prices

The local business community was shocked to discover this week that the price of petrol had increased for the fifth time this year.

However, Ministry of Finance officials have said the price jump was necessary.

“The price had been restricted by using the price stabilisation fund to prevent adverse impact on the entire society, especially enterprises,” Nguyen Anh Tuan, head of the Ministry of Finance’s Price Management Department, said.

Speaking at a press conference on Tuesday, Tuan said that since June 23, international petrol prices had been rising, hitting US$126 per barrel on July 1.

Recently, however, the international petrol price fell $2-3 per barrel.

“The price increased by VND1,430 per litre and climbed to VND26,140 per litre or $1.2,” Nguyen Van Tiu, chairman of Tu Luc 1 Petrol and Oil Corporation’s management board, was quoted as saying in Tuoi Tre (Youth) newspaper.

Ngo Tri Long, an economics expert, said that Viet Nam should keep prices stable because of current economic difficulties for residents and businesses.

“Petrol prices will affect other prices, especially for essential goods, as well as inflation for the rest of the year,” Long said.

Long also criticised the way the petrol price is calculated, which is based on a 30-day period.

“Local petrol prices go up while international price go down,” he added.

The deputy minister of Industry and Trade, Do Thang Hai, said that management of petrol prices would be changed once a new decree is issued.

The decree will allow local petrol prices to be equivalent to international prices.

He also suggested that the Ministry of Finance cut petrol taxes, and to temporarily stop the requirement that companies must pay VND300 per litre for the price stabilisation fund. This would help reduce difficulties for enterprises.

With the new price of petrol, the Thang Loi International Garment Joint Stock Company will pay more VND1 billion ($47,000) every month.

“This won’t include prices for transport because many owners have informed us that they will increase transport fees very soon,” Ngo Duc Hoa, chairman of the company’s management board, said.

The cement industry will be hit strongly because its expenditures for transport for both materials and products are very high.

The head of one cement company’s business department said that his company has to pay VND20-22 billion ($1 million) monthly for transport.

“Transport and logistics businesses will suffer the most from the petrol price increase because petrol takes 30-35 per cent of expenditures,” Do Xuan Quang, chairman of Viet Nam Logistics Association, said.

“And of course, extra expenditures will be paid by end-users,” he added.

Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR

BUSINESS IN BRIEF 14/7