Over the past two months, Government leaders have signed many decisions to supplement the planning and approved the policy of investment in infrastructure construction for industrial parks nationwide. These are very important decisions because according to firms, the land rental price in industrial zones has recently increased to become very high.

Enterprises always need land to expand production.
Photo: Nguyen Thanh

The price is too high

Recently, Le Van Thuy, Chairman of the Board of Members of Tri Cuong Co., Ltd., said many businesses have gradually recovered, but many other small-scale businesses are still very weak, facing great financial difficulties.

Regarding the difficulties of these enterprises, Thuy said that recently, the Prime Minister signed many decisions to expand industrial zones, but it is very tough for businesses to access production sites. Because these firms mainly have capital less than VND50 billion, while to invest in industrial zones, the investor must rent from 1ha or 10,000 m2, with a price from US$75-100 m2. That means the production site must cost about VND20-30 billion - too much for the financial capacity of small businesses.

He said that not only is the rental price of industrial zones expensive, but many industrial parks also control and set limits on investment capital. For example, for one hectare of land, enterprises must invest at least US$1 million in machinery, infrastructure. Therefore, the space for production is the biggest problem for businesses today.

Also, according to Vo Dinh Bao Quoc, Chairman of QuangDien International Joint Stock Company, the Covid-19 pandemic has created a shift in production assignment, so firms need space to produce and welcome "waves" of foreign investors. But the money to buy or rent land in industrial zones is still very tricky, while in many countries, this problem is being very favourable conditions. For example, in Hong Kong, the management agency is not only facilitated to access land, but also has built the premises, then businesses only must invest in business plans, expertise, labour and equipment.

Adjust to a reasonable price

According to a research evaluation by JLL Vietnam (specialises in providing real estate services and investment management), industrial zone real estate is seeing record growth in the past few decades while still attracting investment during the pandemic. In 2020, the rental price of industrial land increased by an average of 7.9% compared to the same period in prior years. JLL Vietnam predicts that this price increase momentum in the next 12 months will be equal to or higher than in 2020.

The experts of SSI Securities Company also forecast industrial land rental in Vietnam will continue to escalate in 2021. This is due to the fact that industrial land rental rates in Vietnam are lower than in some other countries. In the region, it is 25-30% lower than Indonesia and Thailand - two countries benefiting from FDI inflows. Therefore, the price of industrial land in Vietnam is expected to grow by 7-8% in the south and by 5-6% in the north.

Moreover, according to SSI, due to the shift of production from some countries to Vietnam, some big firms are planning to transfer a part of their production activities to Vietnam, such as Microsoft, Google, Panasonic, Sharp and Foxconn. In the first quarter of 2021, Oppo plans to rent 62.7 hectares in Nam Son Hap Linh Industrial Park and Pegatron will rent land in Deep C. IP. Along with that, the demand for industrial land will increase strongly because the new Industrial Park Plan of Vietnam in 2021-2025 can increase the area of new industrial zones in the future, especially for large industrial parks with a total land area of more than 1,000 hectares, meeting the requirements of FDI enterprises.

In another point of view, also talking about high land prices, Do Phuoc Tong, Chairman of HCM City Association of Mechanical and Electrical Enterprises, Vice Chairman of Vietnam Association of Supporting Industry, said land prices in the industrial zone are decided by the enterprise investing in the industrial zone, so the land price will be higher compared to small and medium enterprises. Therefore, if the land price is more reasonable and suits the needs of enterprises, it must be managed, invested and developed by the State.

However, with the increasing expansion of industrial zones invested by private enterprises, the management of land prices is still not an easy problem. Le Van Thuy suggested the State should have solutions to improve the capacity of domestic firms. Along with that, the management agency should have a policy to create conditions for businesses to focus on production, linking together for mutual development.

In this regard, according to Nguyen Kim Hung, Director of Vietnam Institute of Business Administration and Digital Economy (VIDEM), facing the difficulties of firms in terms of industrial park land, the management agencies need to have researches to reorganise and support businesses, especially in the difficult context of the pandemic and to catch the wave of FDI investment. Therefore, Hung proposed to set up a management board for industrial park land, to help businesses reduce initial costs when creating a land fund. Along with that, the management board will also add comprehensive support packages for land tax incentives, land rental fees, value added tax, business development tax and lending interest rates.

On March 6, the Government Office sent a dispatch to convey the Prime Minister's opinion on the assignment of the Ministry of Natural Resources and Environment to work with concerned ministries, branches and localities to research, evaluate and handle feedback that many localities are adjusting the land price list, the rise in land price list increases costs for businesses renting land.