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Business

Vietnam property developer Vingroup sees revenues surge

Luxury segment boosts 2016 earnings; group expands into affordable housing

Vingroup Times City luxury housing complex in Ha Noi

HO CHI MINH CITY -- Vietnamese property developer Vingroup logged a 72% increase in revenue to 58.5 trillion dong ($2.6 billion) last year, 30% higher than its full-year target. Key growth drivers were the real estate, retail and tourism segments.

Net profit attributable to shareholders of the parent company was up 27% to over 1.5 trillion dong from a year ago.

However, Vingroup's expenses more than doubled to 6.7 trillion dong, mainly due to the need to develop its retail segment including supermarkets and convenience stores, according to documents released by the company last week. Management expenses increased 47% to 5.7 trillion dong, as a result of charitable activities.

In 2016, the group marked its new expansion strategy with the launch of two affordable brands -- Vincom+ and Vincity -- aimed at lower-income consumers, especially in suburban and rural areas.

The first Vincom+ "one-stop" shopping outlet was launched last December in the rural district of Thong Nhat, in Dong Nai province, 50km from Ho Chi Minh City. This is Vingroup's fourth type of retail shopping center after Vincom Center, Vincom Mega Mall and Vincom Plaza.

Vingroup is aiming to open 20 Vincom+ outlets in Vietnam this year.

The year of affordable units

The affordable segment of the Vietnam real estate market is forecast to have a busy year in 2017 after overheating in the luxury segment between 2014 and 2016. The ratio of luxury apartments in the market increased to more than 45% in 2016, from 10% in 2014.

However, small-sized and affordable apartments are growing in popularity and are expected to account for as much as 70% of the total demand in 2017, according to the Vietnam National Real Estate Association.

Experts believe demand will stay healthy, supported by reasonable mortgage rates and government policies to encourage the development of lower-cost housing.

Some 70,000 new housing units are expected to be available in the two large cities of Ho Chi Minh and Ha Noi in 2017, although only about 40% of these will be classed as affordable.

The growing market has attracted foreign investors as well as local developers, especially those looking to get in via mergers and acquisitions. Foreign capital registrations in the real estate sector were reported at $297 million in January 2017, accounting for 24% of the total foreign direct investment in Vietnam in that month, according to the General Statistics Office of Vietnam.

However, analysts cautioned that tightening availability of credit will likely dampen the deal climate. The State Bank of Vietnam has revised regulations around the risk ratio on real estate loans, notably increasing the ratio from 150% to 200% since January. It has also reduced the maximum ratio of short-term funds used for medium- and long-term loans from 60% in 2016, to 50% from January 2017 and to 40% from January 2018. This might lead to limited credit access for developers as well as wholesale investors who are highly leveraged via bank loans.

(Nikkei)

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