Wednesday, July 16, 2008

Devalued dong and a double-digit inflation rate deter developers

Firms slow vietnam investment

Published on July 15, 2008

Thailand's property developers, Preuksa Real Estate and Prinventure, who had earlier planned to expand their investment in Vietnam, have announced a suspension of these plans for this year as the country's economy overheats.

Preuksa Real Estate chief executive Thongma Vijitphongphun said the company has decided to suspend its investment in Vietnam after studying the market. It had earlier planned to invest US$10 million (Bt336.34 million) in the country this year.

"We have to wait and see what will happen with Vietnam's economy after the country's government devalued the dong last month," he said.

Meanwhile, Prinventure, a joint venture between Prinsiri and Univentures, which had earlier planned to develop a residential project in Vietnam, has also suspended its investment, a company source said.

Vietnam's economy has shown strong growth since 2005. Because of this, a number of overseas land developers expanded their investments by setting up joint ventures with local partners. These companies included Capitaland's Vista, Keppel and Tien Phuoc's Estelle, several of Hoang Anh Gia Lai's developments and Phu My Hung. Besides Prinventure and Preuksa Real Estate, Amata Corporation, which develops industrial estates, was another serious Thai investor.

However, last month's announcement that Vietnam's economy had overheated and inflation had risen to 26.8 per cent - Asia's highest - following a rise in fuel price, threw a spanner in the works for these developers.

Vietnam's inflation has been in double digits since November, triggering public anger and fuelling labour unrest.

In March, the communist government imposed temporary price controls on 10 goods and services controlled by state-owned enterprises, which included water charges, school and hospital fees, and bus, rail and air travel.

The continuation of the price controls means Vietnam's government, already running a large public deficit, will have to absorb the rising costs of energy and commodities.

Vietnam has also been hit by a ballooning trade deficit, which reached a record high of $14.8 billion in the first half, raising fears of a balance-of-payments crisis and putting downward pressure on the dong.

However, Thongma said the company is studying the market and will revise its plan in the last quarter.

The company's investment in India has been going according to plan and it will start investing there in the last quarter of the year, he said.

Earlier, Preuksa announced that its overseas investment would start with a focus on Vietnam and India. This is part of the company's strategy to become the market leader in the industry on the basis of strong research-and-development capabilities.

At a glance

-- Preuksa and Prinventure have announced a suspension of investment in Vietnam this year.

-- Preuksa had plans to invest Bt336 million in the country.

-- Prinventure had planned to develop a residential project there.