South Korean construction companies are scrambling to make inroads into Vietnam in an effort to preempt a building boom in the fast-growing economy and find new sources of earnings amid weak construction business here, market watchers say.
The Vietnamese economy has been growing at an annual rate of over 7 percent since 2002, the second-highest in Asia after China, which has led to a boom in its construction market including the building of two large towns in and around the Vietnamese capital of Hanoi.
Such a boom has come as a strong magnet for South Korean builders' Vietnam push as they are looking for fresh profit sources because of a slump in the construction industry here, they say.
"Local builders are trying to secure a share of the Vietnamese construction market ahead of their foreign rivals," Ahn Kwang-seop, an official at the Construction Association of Korea (CAK), said.
"In addition, a series of strong government measures against property speculation have prompted domestic builders to look overseas to find new growth engines."
In a desperate effort to rein in soaring home prices, the Roh Moo-hyun administration has implemented the anti-speculation measures, including higher taxes for owners of multiple homes, which have led to the cooling of South Korea's construction industry.
South Korean builders started entering the Vietnamese housing market in the early 1990s but Seoul's 1997-98 financial crisis put a crimp in their efforts. However, Roh's state visit to Vietnam in October 2004 has spurred their moves to advance into the Southeast Asian country.
In January this year, a consortium of five South Korean builders won a contract from the Vietnamese government to participate in the development of a new town in Hanoi. The builders are Daewoo Engineering & Construction Co., Kolon Engineering & Construction Co., Keangnam Enterprises Ltd., Daewon Co., and Dongil Construction Ltd.
Under the Hanoi new town project that began in 1996, the builders will construct apartments and commercial-residential buildings, whose cost is estimated at US$1 billion.
On Dec. 18, POSCO Engineering & Construction Co. and Vietnam's state-run builder VINACONEX clinched a deal with the Hanoi government to build a new town in An Khanh near Hanoi. Ground will be broken for the town in May next year, with completion scheduled for 2020.
POSCO Engineering & Construction, the building arm of South Korea's top steelmaker POSCO, will construct a 75-story building and 7,600 apartments in the envisioned town's residential area at a cost of $1.4 billion.
"We will map out a master plan to build the new town ahead of the start of the construction in May. It will be a self-reliant town, not a dormitory town. The construction of a highway to connect the new town with Hanoi is underway, and is now 20 percent completed," said an official at the construction company on condition of anonymity.
Other South Korean construction companies are also stepping up efforts to tap the Vietnamese housing market.
Lee & Co Group got permission on Dec. 12 from the Ho Chi Minh municipal government to construct apartments in the city. Daewon Co. Ltd., a South Korean construction company, has been building apartments in Ho Chi Minh since 2004 in a joint venture with Vietnamese builders such as Thuduc Housing Development Joint Stock company.
Vietnam's construction boom is not the only reason why South Korean builders are pushing to enter the market. Some analysts say the weakness of the South Korean construction market has been another factor.
South Korea's construction investment has been contracting on a sharp fall in commercial building investment since the latter half of 2003, according to data released by the CAK.
However, total orders in the local market rose slightly to 1 percent from a year ago in the first nine months this year on a rise in private-sector construction orders, the data showed.
"The latest data suggest that the gap between big players and smaller ones in orders is getting bigger. So small and midsize builders are trying to tap overseas markets like Vietnam as part of their efforts to offset falling sales in the domestic market," Ahn said.
With South Korean builders hurrying to enter the Vietnamese market, some experts warn small and midsize companies against potential risks, urging them to make thorough preparations.
South Korea's state-run trade promotion agency, the Korea Trade-Investment Promotion Agency, cites difficulty in obtaining land for housing and the complicated approval process. In Vietnam, private ownership of land is banned.
"There are many restrictions in property business like a ban on foreign real-estate ownership as Vietnam is still a socialist state," said Lee Jeong-hak, head of Lee & Co Group said. "My company also had difficulties in obtaining business rights in the country for the last five years."
Seoul, Dec. 29 (Yonhap News)
S. Korean builders rushing to tap Vietnamese market |
