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Building confidence   2009-03-28 - VietNamNet/VIR

Developers remain confident in the long term future of Danang although the dormant real estate market is impeding the construction of projects, writes Son Tran.


After a decade of running a kitchenware production factory in Ho Chi Minh City, Kreves decided to branch out into real estate and retail business. However, as a newcomer the Korean firm could not overcome stiff competition among developers to win projects in Hanoi and Ho Chi Minh City.


The firm headed to Danang to start its business expansion into Vietnam. Last year, it won a licence to invest up to $200 million in a mixed-use development on nine hectares by the Han River.


Kreves Development president Young-Cheon Kim said although it was easier to sell properties in the capital and economic hub than in Danang, it was more difficult and took more time to get a project running in the country’s two biggest cities. However, in Danang the company did not encounter major problems and received support from Danang Investment Promotion Centre, which coordinated all local relevant departments to make investment procedures easier.


“Here in Danang, we are offered reasonable land prices in good locations and a fast-track investment certificate approval,” said Kim. The local leadership openness and fast-track investment procedures are underscored by the Provincial Competitive Index, which ranked Danang at the top of all provinces and cities in terms of pro-business. Other developers such as Deawon, VinaCapital and Indochina Capital have also won large real estate projects in the central city in a short time.


Deawon is investing in two real estate developments in Danang, the biggest of them is Da Phuoc New Town, under construction where the Han River meets the Eastern sea. The mixed-use development will boast high-rise apartment buildings, hotels, offices, retail space and a golf course that will be able to provide homes for 70,000 people. Total investment for the seaside development is estimated at $250 million.


Kim Dong Hwan, executive director of Da Phuoc New Town, said Danang was a developing city that connected two parts of the country and was a gateway to central Vietnam, which was a prime location for an international standard township catering to the local population.


Next to Da Phuoc New Town is Blooming Tower, a twin tower development built by Korean Investment & Development Company and Doosan Construction. The 37-storey towers will feature 671 apartments for sale, two floors for retail and a swimming pool and fitness centre.


Company director Lee Kwang Won said the project was capitalising on Danang’s future development which would be promoted by its location as the end of the East-West Corridor cutting through Vietnam, Thailand and Myanmar. “Our company has targeted Danang for a long time as we believe Danang will grow much bigger than before,” he said.


The world’s destructive financial turmoil and the dormant real estate market in Vietnam are forcing a number of real estate developments in Danang to be put on hold or change investment plans. However, projects such as Da Phuoc New Town, Blooming Tower and Capital Square, are still going on as developers are financially capable and they are confident in a longer term future of the central economic hub.


The Korean developers are among the hardest hit by the world’s financial crisis as the won has depreciated by around 35 per cent against the dollar over the past year. Exchange rate fluctuations have made overseas Korean-invested projects more expensive and Lee Kwang Won said a number of Korean investors had not continued pumping cash from Korea into projects overseas.


However, Lee Kwang Won said his company had arranged finance for Blooming Tower before the financial crisis arrived and that was why the project had completed piling works while other projects in the city were delayed or left half-completed. “We are among a few Korean projects where construction is still going on during the crisis,” said Lee Kwang Won.


Kim Dong-Hwan said despite the difficult economic and financial conditions facing real estate developers, Deawon was still building Da Phuoc New Town as planned by using its own cash. To date, 19 per cent of work in the first phase has been completed and by the end of next year the project was scheduled for completion of ground leveling works and a sea breakwater. Once the infrastructure is completed, Deawon will start building its first residential towers and call for other investors to join the development.


“Although the project will take a long time to build, we are determined to continue with it to create a model town in Vietnam,” said Kim. In spite of being optimistic about a long term future, developers are still cautious about building. As the number of real estate projects in Danang is too big to be absorbed in a short time, developers have to carefully calculate what they and what others do in order to avoid an oversupply.


Young-Cheong Kim said Kreves initially planned to develop its project within five years. However, the economic and real estate market downturns have forced the company to redesign its investment plans. “We have to carefully calculate to match our development plans with the outcomes and the city’s development,” said Kim.


That is why Kreves will only plan to start building the first residential tower in the latter half of this year, almost one year after it received an investment certificate. With two projects in the city, Deawon also pondered what to start first. Kim Dong-Hwan said the company’s residential project near Tuyen Son bridge was too far from the city centre, so it would be constructed later. As Da Phuoc New Town was nearer, Deawon would make it a priority to build.


“Developers will be cautious with whatever they do. At first, we will carry out our pilot plans at Da Phuoc and if we sell well we will continue to build. If we build a lot at a time we may fail,” said Kim.


Developers are also carefully calculating sales prices. Danang is a small market, land prices are cheap and residents are not accustomed to living in high-rises. Therefore, pricing is important to attract customers as if developers price their properties high they will not be able to sell. “How to build a quality residential building with reasonable prices for local people is a mathematics puzzle our board of directors is considering,” said Deawon’s Kim.


Korean Investment & Development Company plans to start selling Blooming Tower in June and Lee Kwang Won said the company would first sell a limited number of apartments at better prices to examine purchasing power. “As our project has good views of the sea, river and mountains from all four sides, we should sell higher prices than the Indochina Riverside Towers, but not this time,” he said.


More than a year ago Indochina Riverside Towers started selling 95 apartments at $1,200 per square metre and now it was resold at around $1,500. Most buyers are foreigners and locals from Hanoi and Ho Chi Minh City. Developers in Danang are closely watching what the others do and will certainly look at Blooming Tower’s sales to anticipate how their properties will sell in the future.

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