Thu Thiem facing obstacles in relieving Ho Chi Minh City’s infrastructural challenges

By Dang Hoa - Nov 25, 2017 | 05:45 PM GMT+7

TheLEADERUndersupply of grade A office stock in the central business district (CBD) has pushed office rents to levels not seen since 2008, indicates data from real estate consultancy firm JLL.

Thu Thiem facing obstacles in relieving Ho Chi Minh City’s infrastructural challenges

Thu Thiem, the proposed financial district and mixed-use urban area of Ho Chi Minh City, is set to become the largest inner-city development in Southeast Asia.

Thu Thiem will relieve some of the pressures Ho Chi Minh City currently faces. The infrastructure within Ho Chi Minh’s existing CBD is starting to buckle under the pressure of rapid expansion in the last three decades. The undersupply of grade A office stock in the CBD is pushing rents higher, reaching levels not seen since 2008. 

Traffic congestion has increased over the past five years, with the number of cars increasing 35 per cent annually from 2012-2016 according to Vietnam Automobile Manufacturers’ Association (VAMA) figures.

“The master plan for Thu Thiem is set to alleviate the lack of supply faced in the existing CBD,” said Stephen Wyatt, Country Head of JLL Vietnam. 

“As infrastructure improves within Thu Thiem, we anticipate that larger firms will start considering Thu Thiem as a viable alternative to the existing CBD and set up their head offices there.”

Lack of empty sites

However, whilst the majority of land has been allocated, several empty sites remain for developers and investors, with Thu Thiem’s sheer size posing several challenges. Thu Thiem’s developable space consists of 176 land parcels. This includes approximately 3.4 million square metres of commercial space, which can accommodate 217,000 employees; and 3.2 million square metres of residential space for a residential population of 145,000.

“It is critically important that developers pay careful attention to market conditions, as well as supply and demand dynamics to limit the risk of oversupply in the future,” said Stephen Wyatt.

He added that it is inevitable on a large mixed-use development site that the area would be a construction site for many years. Developers and purchasers of residential property will need to be mindful of this fact when investing in Thu Thiem.

There remains a gap in the market for school operators as well. According to the Thu Thiem master plan, ten land parcels have been set aside for schools. But the current lack of infrastructure and residential communities have meant a modest take-up rate from school operators so far.

Need government incentives

Also, unlike other new urban development areas in other countries, the lack of preferential policies and incentives are the biggest impediments to the development of Thu Thiem.

Developers and investors will need strong support from the government on legal and tax-related matters. Creating a more favourable and more transparent business environment will act as a catalyst, speeding up Thu Thiem’s development progress.

“In order to speed up development activity, we would like to see the creation of a special ‘economic zone’ with less bureaucratic red tape which will create a favourable environment. A sound legal and planning system will also catalyse the area’s development for investors and developers,” said Stephen Wyatt.