Can Vietnamese Construction Firms Thrive with Market Recovery?

December 6, 2024

Vietnamese construction firms have faced significant challenges in recent years, with around 70% of contractors either reducing operations or downsizing their workforce since the onset of the Covid-19 pandemic in 2019. This has been compounded by rising material costs, economic constraints, and a stagnant real estate market, severely affecting the cash flow of both small and large companies. Notable players like Hoa Binh Construction Group and Coteccons have reported substantial drops in revenue and profits. However, there is renewed optimism as indicators suggest a possible recovery in the real estate market and increased public investment on the horizon. These elements could present Vietnamese construction firms with fresh opportunities and the potential for revitalization.

Legislative Changes and Government Initiatives

One of the main drivers for recovery in the construction sector is the introduction of three new real estate laws that took effect on August 1. These laws aim to address long-standing legal bottlenecks that have hindered numerous projects, allowing them to resume. This regulatory shift is anticipated to unlock a significant number of stalled projects, providing a much-needed boost for the construction industry. The timing coincides with the Vietnamese government’s broader economic goal of achieving a growth rate of 6.5-7% by 2025. To meet this ambitious target, efforts are being made to overcome obstacles in various markets, including real estate. These government initiatives are likely to increase project activities, providing construction companies the chance to bounce back from the setbacks of recent years.

The emphasis on public investment as a crucial catalyst for economic growth highlights the government’s commitment to infrastructure development. This strategy is particularly focused on attracting foreign investment into industrial parks and economic zones. As a result, construction firms and developers like CII, Deo Ca, and Vinaconex are well-positioned to secure new projects. The implementation of infrastructure projects will not only generate business for these firms but also enhance the country’s economic landscape. Furthermore, the introduction of the national power development plan VIII (PDP VIII) promises to create new prospects in sectors like wind power, waste-to-energy, and nuclear energy, broadening the avenues for construction companies to explore and capitalize on.

Opportunities from Public Investment

Public investment is proving to be a lifeline for Vietnamese construction firms, especially as the government channels resources into infrastructural improvements designed to lure foreign investors. By developing industrial parks and economic zones, the government is laying the groundwork for a more robust economic environment where construction companies can thrive. Notable entities such as CII, Deo Ca, and Vinaconex are already strategizing to capture new contracts, with a significant portion of the anticipated growth derived from public-sponsored projects. The surge in public infrastructure projects can be a game-changer for these firms, potentially reversing the adverse effects experienced over the past few years.

The national power development plan VIII (PDP VIII) is set to open additional avenues for growth beyond traditional construction domains. This plan, which encompasses wind power, waste-to-energy, and nuclear energy projects, is expected to spark a wave of new developments requiring the expertise of construction firms. Investing in these burgeoning sectors could mitigate risks associated with a previously sluggish real estate market and enable companies to diversify their project portfolios. The recently approved laws, combined with a strategic push toward public investment and alternative energy projects, create a promising outlook for Vietnamese construction firms.

Future Prospects

Vietnamese construction firms have encountered major hurdles in recent years. Since the Covid-19 pandemic hit in 2019, around 70% of contractors have had to scale back their operations or reduce their workforce. This situation has been exacerbated by increasing material costs, economic limitations, and a sluggish real estate sector. Both small and large companies are experiencing significant cash flow issues. Prominent firms like Hoa Binh Construction Group and Coteccons have reported marked declines in both revenue and profits. Despite these challenges, there is renewed hope as several indicators suggest a potential recovery within the real estate market, and public investment appears to be on the rise. These factors could provide Vietnamese construction firms with new opportunities for growth and revitalization. Industry experts remain cautiously optimistic, believing that these positive developments could help the sector regain its footing and return to pre-pandemic levels of activity and profitability.

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