Foreign direct investment in real estates in vietnam

67 Chapter 4: Foreign Direct Investment Strategy in Vietnam Real Estates.. Recently, the foreign capital flows into real estates sector have always ranked as top receiving sectors, usual

MASTER IN INTERNATIONAL BUSINESS

MASTER THESIS

"Foreign Direct Investment in Real Estates in Vietnam"

Graduate student: Pham Anh Tuan

Supervisor: Dr Ly Dai Hung

HÀ NỘI, 2023

ACKNOWLEDGEMENT

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I would like to thank the Board of Rectors, International School, Vietnam National University, Hanoi for creating all conditions for me in the process of studying and completing the Master Thesis

I would like to thank the teachers who have dedicatedly taught the Master of International Business (MIB1) class

I would like to express my deep gratitude to my Supervisor, Dr Ly Dai Hung, who wholeheartedly helped and guided me throughout the process of writing this Master Thesis

I would like to thank all my friends, colleagues and family who have always supported, encouraged and created the best conditions for me to complete this Master Thesis

Thank you!

DECLARATION OF AUTHORSHIP

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I hereby declare that this Master Thesis was carried out by myself under the guidance and supervision of Dr Ly Dai Hung; and that the work contained and the results in it are true by author and have not violated research ethics The data and figures presented in this thesis are for analysis, comments, and evaluations from various resources by my own work and have been duly acknowledged in the reference part

In addition, other comments, reviews and data used by other authors, and organizations have been acknowledged, and explicitly cited

I will take full responsibility for any fraud detected in my Thesis

Hanoi, date 21 month 08 year 2023 Author

(signature and full name)

Chapter 2: Theoretical Background 12

2.1 Foreign Direct Investment 12

2.2 Real Estates ……….20

2.3 Foreign Direct Investment Strategy in Real Estates 26

Chapter 3: Foreign Direct Investment in Vietnam Real Estates 50

3.1 Foreign Direct Investment in Vietnam Economy 50

3.2 Real Estates Sector in Vietnam Economy 55

3.3 Foreign Direct Investment in Vietnam Real Estates 67

Chapter 4: Foreign Direct Investment Strategy in Vietnam Real Estates 78 4.1 Foreign Direct Investment Strategy in Vietnam Economy 78

4.2 Foreign Direct Investment Strategy in Vietnam Real Estates 83

4.3 Case Study: Capitaland Strategy in Real Estates in Vietnam 92

Chapter 5: Conclusion 97

5.1 Summary ……….97

5.2 Recommendations 99

5.3 Suggestions ……….99

List of Figures

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Figure 3.1 FDI in Real Estates in Vietnam 69

Figure 3.2 Area of Real Estates Purchased with One Million USD 77

Figure 4.1 Share of Real Estates in Total FDI into Vietnam 90

Figure 4.2 Correlation between FDI in Real Estate and Economic Growth

in Vietnam 91

List of Abbreviations

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FDI: Foreign Direct Investment

FDIRE: Foreign Direct Investment in Real Estates FPI: Foreign Portfolio Investment

FTAs: Free Trade Agreements GDP: Gross Domestic Product GI: Greenfield Investment GNP: Gross National Product GSO: General Statistics Office IMF: International Monetary Fund MNEs: Multinational Enterprises M&A: Mergers and Acquisitions USD: United States Dollar

VND: Vietnam Dong

TNC: Transnational Corporations

Chapter 1 Introduction

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1.1 Rationale of Thesis

The real estates are one crucial sector in an economy, for both advanced and developing economies According to the Vietnam Ministry of Construction (2023)(1), the real estates account for about 4.5% of output, measured by the gross domestic product (GDP) in 2022 In combination of real estates and the related construction sector, the joint contribution is about 11% of GDP, or about over 30 billion USD in current price This stylized fact proves the importance of the real estates in the context of Vietnam economy

Recently, the foreign capital flows into real estates sector have always ranked as top receiving sectors, usually as second or third position in total foreign direct investment in the Vietnam economy The foreign direct investment (FDI) flows directly affect the real estates sector, and also exert an impact on the Vietnam economic growth rate And on the process of implementing the foreign direct investment, the foreign investors penetrate the real estates market with various strategies, depending on the location and timing of entering the Vietnam economy

The Vietnam economy is currently an open economy with a quite in-depth international integration The trade openness, as the ratio of total exports and imports over GDP, is now nearly 190% (Vietnam General Statistics, 2023) And this economy has signed over 15 free trade agreements (FTAs) and is in process of several trade negotiations with other economies, such as Japan, European Union, China and the Republic of Korea The international integration also raises an optimistic trajectory for Vietnam to attain more foreign capital inflows in the future

The combination of significant contribution by real estates sector with the prospect of increasing foreign investment opens a research gap in the strategy of

foreign direct investment into the Vietnam economy And this Master Thesis aims to fill in this gap

1.2 Research Objective

The Master Thesis aims to investigate the strategy of foreign direct investment into the real estates in Vietnam economy In particular, the main research question is stated as follows:

Which strategies do the foreign direct investment firms employ to operate into the real estates in Vietnam economy?

To answer the main research question, the Thesis proposes the following small questions And the clarification of these small questions will constitute the justification for the main research question

What is the concept of foreign direct investment and real estates?

What is the theoretical mechanism underlying the foreign direct investment into the real estate sector?

How can the foreign direct investment firms operate successfully in the Vietnam real estate sector?

What are the practical implications for the strategies by the foreign direct investment firms in the Vietnam real estate sector?

On answering these questions, the Thesis will also review the theoretical and empirical evidence on the foreign direct investment inflows into the real estates sector, as well as the foreign direct investment firms' strategies in the Vietnam economy

On that basis, the investment is the impact of foreign direct investment into the host country, as well as the foreign strategies carried out by the foreign investors in the Vietnam real estates sector

Finally, the Thesis also provides some discussion about the appropriate public policy to enhance the foreign investment into the Vietnam real estates market

1.3 Methodology and Data

The research method is based on a combination of qualitative analysis and quantitative analysis The qualitative method examines recent literature on the real estates market, focusing on the context of the Vietnam case as one developing economy Then the quantitative method examines the dynamic pattern in the strategies carried out by the foreign direct investment firms in the Vietnam real estates sector

The research data is an annual time series sample of FDI inflows into Vietnam's real estates sector in the period 2006-2022 2006 was the starting point when Vietnam's economy started joining the World Trade Organization (WTO - World Trade Organization) Since then, Vietnam has experienced two cycles of Vietnamese real estates, the period 2006 - 2014, and the cycle 2014 - 2022 (average of 8 years per cycle) And the endpoint is 2022 when the Vietnamese economy is recovering from the recent Covid-19 pandemic and is also the latest year with data on foreign investment in the real estates sector

Foreign direct investment (FDI) in real estates is measured by disbursement value in billions of USD at current prices The contribution to the importance of FDI in real estates in the economy is measured by the proportion of FDI in the real estates sector to total annual FDI in Vietnam The data on foreign direct investment is obtained from the Foreign Investment Department, Ministry of Planning and Investment (2023)(2)

Economic growth (gGDP) is measured by the growth rate of gross domestic

product (GDP) over time at 2010 constant prices This data is collected from an online database line of the General Statistics Office (2023)(3)

With the collected data, the article calculates the correlation coefficient between the amount of FDI invested in the real estates sector with the economic growth rate over time

Pearson correlation coefficient (Pearson correlation coefficient, symbol r) (Wooldridge, 2015) is an index that measures the degree of linear correlation between two variables Usually, the Pearson correlation has a value ranging from -1 to +1 With r = 0: The two variables in the coefficient have no linear correlation With r = 1 or r = -1: The two variables in the coefficient have absolute linear correlation If r < 0: The correlation coefficient is negative This means that the values of the two dependent variables will be opposite, that is, the value of variable x decreases, the value of variable y increases and vice versa, the value of variable x increases, the value of variable y decreases If r > 0: The correlation coefficient is positive This means that the values of two dependent variables go hand in hand, that is, as the value of variable x increases, the value of variable y increases and vice versa, the value of variable y increases, the value of variable x also increases

With, the collected values of two variables x and y, the calculation formula of the correlation coefficient is as follows:

√[𝑁𝛴𝑥2− (𝛴𝑥)2][𝑁𝛴𝑦2− (𝛴𝑦)2]

Finally , on the graph, if r = -1 the data variables will be distributed on a straight line with a negative slope, r = 1 the data will be distributed on a straight line with a positive slope

1.4 Structure of Thesis

The Master Thesis intends to carry out an outline with the main idea in each chapter as following

Chapter 1: Introduction

The section discusses the motivation and associated overview of the Thesis on the foreign direct investment into the Vietnam real estates

Chapter 2: Theoretical Background

The chapter presents the theory about the foreign direct investment and the real estates investment strategy It examines both the recent theoretical and empirical evidence on the foreign direct investment into the real estates sector

Chapter 3: Foreign Direct Investment in Vietnam Real Estates

The chapter deals with the current situation of foreign direct investment into the Vietnam real estates sector with a dataset of Vietnam over 2010-2022 The main trends and key stylized facts about the foreign direct investment would be the focal points in this chapter

Chapter 4: Foreign Direct Investment Strategy in Vietnam Real Estates

The chapter investigates the strategies implemented by the foreign direct investment firms when they enter and operate in the Vietnam economy The content would focus on common strategies, especially regarding large foreign investment firms

Chapter 5: Conclusion

The section summarizes the Thesis and provides more discussion on the appropriate public policy to enhance foreign direct investment into the Vietnam

Chapter 2: Theoretical Background

2.1 Foreign Direct Investment 2.2 Real Estates

2.3 Foreign Direct Investment Strategy in Real Estates

Chapter 3: Foreign Direct Investment in Vietnam Real Estates

3.1 Foreign Direct Investment in Vietnam Economy 3.2 Real Estates Sector in Vietnam Economy

3.3 Foreign Direct Investment in Vietnam Real Estates

Chapter 4: Foreign Direct Investment Strategy in Vietnam Real Estates

4.1 Foreign Direct Investment Strategy in Vietnam Economy 4.2 Foreign Direct Investment Strategy in Vietnam Real Estates 4.3 Case Study: Capitaland Strategy in Real Estates in Vietnam

Chapter 2: Theoretical Background

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2.1 Foreign Direct Investment

The capital stock is an important component of the economic growth A country's total capital requirements are satisfied by not only the internal sources, but also the foreign sources In particular, the Foreign Direct Investment (FDI) and Foreign Indirect Investment (FII) are the two most common avenues by which foreign investors invest in an economy The FDI is the investment of foreign investors with the right to manage directly the operation of firms in a foreign country, while FPI means the investment of investors in financial assets without the management right such as stocks and bonds in another country

In general, the foreign investment capital includes foreign direct investment (FDI), foreign indirect investment (FII) inflows and debt capital flows (Debts), according to the classification of the International Monetary Fund (IMF, 2012) In addition, other sub-capital flows such as foreign aid (ODA), accumulation of foreign reserves (Foreign Reserves) are also aggregated by the IMF (2012) in the capital account balance of an economy Foreign capital tends to flow to the economies with high rates of return, such as the ones with high economic growth But other factors are also very important such as institutional quality, infrastructure, human resources and responsiveness in terms of technology level Even when institutional quality is poor, a high growth rate is not enough to attract FDI inflows This also leads to the trend that foreign investment flows, especially FDI, often move between developed economies with similar institutions, much more than investment flows from the developed economies into developing economies (Ly Dai Hung & Pham Anh Tuan, 2023)(4)

The FDI is the source of new production activities involving many types of assets such as technology, human resources and management skills And it is a major source of capital accumulation, which is channeled through Multinational Enterprises (MNEs) (Kim, 2019)(5) In another definition, foreign investment is

the movement of assets such as capital, technology, management skills from one country to another to do business with the aim of earning high profits on a global scale (Phung Xuan Nha, 2013)(6)

The foreign direct investment is a form of long-term investment by individuals or companies from one country to another by establishing production and business bases That foreign individual or company will take over the management of this production and business establishment About the required conditions, the investment enterprises must own at least 10% of the total number of shares of the capital-receiving enterprise to be recognized as FDI According to the provisions of Clause 22, Article 3 of the Investment Law 2020, Consolidated document 28/VBHN-VPQH (2022), regulations on FDI are as

follows: "An economic organization with foreign investment capital is an economic organization with foreign investors as members or shareholders"

Thus, it can be understood that the foreign direct investment is a form of long-term investment of individuals or companies of one country in another country by establishing a base business production for the purpose of profit Differently, the foreign indirect investment is an activity to buy foreign financial assets for the purpose of making a profit, the owner of the capital does not directly operate and manage the process of using capital From a financial perspective, foreign indirect investment (FPI) is the flow of capital that foreign investment funds invest in the stock and bond markets, sometimes for speculative purposes This capital flow is usually short-term, distinct from long-term foreign direct investment Regulations on foreign indirect investment subjects include: Organizations and individuals involved in foreign indirect investment activities in Vietnam; Foreign investors

are non-residents conducting indirect investment activities in Vietnam (Article 2 of Circular 05/2014/TT-NHNN )

The International Monetary Fund defines the Foreign Direct Investment (FDI) in its Fifth Balance of Payments handbook as a type of international investment with the aim of being permanently engaged in an enterprise located in

relationship between the investor and the foreign company and significantly influences the management of the latter According to these recommendations, FDI data in the Balance of Payments statistics are grouped under the following headings: share buybacks above 10% of equity, intra-company lending and direct

investment in real estates property (Carlos Rodríguez & Ricardo Bustillo,2008)(7)

The foreign direct investment improves the economic growth with an enhanced and stronger magnitude in countries that pursue an outward-looking trade policy than in those that adopt an inward-looking policy More open economies, thanks to the neutral trade policy and free movement of market forces, can facilitate the efficient allocation of FDI on the basis of comparative advantage and through competition mechanisms, while encouraging the benefits of learning (positive externalities) such as technology transfer and management skills and innovation Many studies have provided evidence of the positive effects of FDI on emerging open economies

The distinction between direct investment and indirect investment above is relative Today, due to the development of financial markets, the assets of many businesses are not only owned by one person but belong to many people Therefore, a shareholder can own a number of shares that are not large in absolute terms, but relatively large (accounting for a high percentage) compared to many other shareholders, then this shareholder has the right to directly run and manage the business Then, the indirect investors can become direct investors by accumulating enough voting shares of a firm In contrast, those who are directly managing their assets at the enterprise but when others buy them to expand their investment with an overwhelming amount of capital, making the value of their assets not enough to dominate the business, then, become indirect investors In fact, these forms always transform, intertwine with each other and in many cases are difficult to distinguish clearly (Phung Xuan Nha, 2013)(6)

Classification of FDI by investment purpose

By investment purpose, the FDI can be classified as the horizontal integration (HI) and vertical integration (VI) The horizontal investment (HI) is suitable for investors who have competitive advantages, such as technology, management skills in the production of a certain type of product With this advantage, they can control high profits when moving production of products abroad The purpose of this form is to expand and annex foreign markets for the same products that have a competitive advantage abroad, thereby leading to monopolistic competition In reality, this is a typical form of American outward investment and is made mainly among developed countries Moreover, the vertical investment (VI) is the investment abroad with the purpose of exploiting natural raw materials and cheap input production factors such as labor and land When investing abroad, investors often pay attention to exploiting the competitive advantages of the inputs between the production stages of a product Thus, the products are usually completed through assembly stages in the host country

By investment strategy, the FDI can be classified as the greenfleld investment (GI), and mergers and acquisitions (M&A) According to the degree of shareholding and the degree of participation in investment activities of foreign investors, FDI can be implemented in the form of enterprises with 100 percent foreign capital, joint venture enterprises, business cooperation contracts, build-operate-transfer (BOT) contracts, foreign-invested joint stock companies, mergers and acquisitions, parent and subsidiary companies, branches foreign company

Theories of foreign direct investment

The foreign direct investment can be explained by various theories In particular, the macroeconomic theory of foreign investment accounts for the total net foreign investment of an economy With the Open Economy Economic Growth Model, a country invests in another country if it has a higher marginal

investment between countries In particular, upon integration, the marginal product of capital must be balanced between the two economies Capital flows from an economy with a low marginal product to an economy with a high marginal product Capital will move between countries until the level of capital accumulation is equalized and the marginal product of capital is also equalized across countries Vietnam is a developing and fast-growing economy, so it will have lower capital accumulation in the long-run equilibrium, along with a higher marginal product of capital compared to developed countries develop Therefore, Vietnam is an attractive economy for foreign direct investment

There are also other microeconomic theories of foreign direct investment First, according to the Vernon's product life cycle theory, the foreign direct investment is divided into three stages, including: innovation, maturity and standardization (Vernon, 1992)(8) Accordingly, one firm in advanced economy can carry out the FDI into the other country with similar technology background at the end of innovation stage And the firm can make FDI investment into the economy with lower technology background to extract the benefit of low-cost labor force when the product enters the standardization stage

Second, the internalization theory is based on the assumption that the market is imperfect (Bucley and Casson, 1976) The internalization is characterized by exploiting a firm's monopoly advantages under imperfectly competitive market conditions The market defects have created opportunities for firms to monopolize prices and sell in markets where they have an advantage of scale Tariff and non-tariff barriers of importing countries have forced companies to transfer factors of production to the country Instead of exporting directly, companies move their production facilities abroad through foreign investment or licensing, thereby forming FDI and international production networks Uncontrollable characteristics of production factors: technology, management techniques, marketing, promotion of branch opening in foreign countries These elements can be stolen, imitated or lost technological secrets if transferred to

companies (especially competitors) abroad Opening branches abroad in order to directly transfer factors of production that are difficult to control within their branches

Third, according to Aliber's theory, the driving force behind firms to invest abroad is that the average cost in foreign countries is lower than the cost of the same type in the country itself Before deciding to invest abroad, the company must compare the efficiency of investment with exporting or leasing license Compare the cost or effectiveness of using the monopoly advantages of domestic and foreign firms This is close to the target motivation that drives companies to invest abroad (reducing costs to maximize profits)

Fourth, according to the Dunning's eclectic model (Dunning, 2000)(9), the conditions for a Transnational Corporations (TNC) to invest abroad are a combination of traditional factors: exclusivity, costs, transactions, and internal competence Group of OLI advantages includes the ownership advantage (O), location advantage (L) and internalization advantage (I) According to Moon and Roehl (1993), no general theory of FDI, except Dunning's eclectic theory, based on the OLI model, has succeeded in adequately explaining the international activities of firms The model states that the size, geography and industrial composition of the foreign manufacturing activity carried out by MNCs is determined by the interaction of three sets of interdependent variables: ownership, location and localization advantage, hereinafter referred to as OLI The OLI framework is an attempt to explain why companies decide to choose FDI over other possible forms of foreign investment, such as licensing, strategic alliances, joint ventures or exports.

There are also various empirical studies on specific economy Kamath (1990)studied the FDI capital in China He determined that the main goals of FDI policy in China are to stimulate economic growth, diversify the country's industrial base, transfer technology, and improve management and labor skills

only an important factor in China's economic growth, but also promotes China's economic transformation and has played an important role in helping China move up the technological ladder and industrial restructuring Tseng and Zebregs (2002) also find that FDI makes a significant contribution to China's GDP growth, while creating employment opportunities and building a dynamic and highly competitive manufacturing industry for exports

Dees (1998) found that the traditional determinants of FDI are related to China: domestic market size, cost advantages, and openness to the rest of the world His results support the view that FDI has a positive effect on China's growth Coughlin and Segev (2000) showed that the main factors of China's FDI are economies of scale, average productivity, coastal location, average wages, and illiteracy rate Cheng and Kwan (2000) determined that the main determinants of FDI in China are the size of the regional market, infrastructure investment, preferential policies and wage costs In addition to this list, Havrylchyk and Poncet (2007) added agglomeration effects and labor productivity as important factors for FDI However, Sun, Tong and Yu (2002) find that cumulative FDI relative to domestic cumulative investment has a negative impact on new FDI, suggesting that foreign investors may prefer a less competitive environment more competitive Moreover, Ren and Pentecost (2007) show that trade, exchange rates and taxes also have a significant influence on FDI at the national and regional level (Hui & Chan, 2014)(10)

Foreign Direct Investment (FDI) in real estates

Currently, the economic literature suggests that the foreign direct investment in real estates (FDIRE) will support the economic development of the host country by injecting financial resources, providing services on supply cost, quality and variety of services, creating additional competition, job creation and technology Furthermore, the FDIRE also contributes significantly to the rapid globalization of cities and facilitates changes in the urban development landscape

in terms of quality In addition, it is believed that FDI inflows make the real estates industry in the host country perform well

A study on FDIRE in China argues that foreign real estates investors promote the development of China's real estates industry by contributing capital, introducing new practices in real estates operations and affects domestic real estates developers through the spillover effect Furthermore, it is believed that increased FDIRE will increase tourism in host countries as tourism is the next step after purchasing a property abroad This, in turn, could affect tourism when a previous investment in real estates is introduced Since 1997, the investment in China's real estates sector by domestic and especially foreign investors has been the main driver of China's economic growth, by stimulating demand for many other industries such as electronics, machinery, steel and architecture

The FDIRE is also important to the host economies and consequently increasing international competition in attracting FDIREs Many scholars and policy makers have tried to understand the factors that influence FDIRE Various determinants have been identified that influence investment locations for foreign real estates investors Theoretical and empirical studies have determined that the size and growth rate of the market, physical infrastructure, the related FDI in other fields are important determinants of FDIRE Moreover, the political and economic stability, labor costs, exchange rate risks, real estates prices and tourism agglomeration have been identified as additional influences that can explain FDIRE (Fereidouni & Masron, 2013)(11)

The FDI in real estates is still dominated by the attractiveness of return on investment, which is a factor formed based on economic growth and stable economic and political environment at the macro level And moreover, real estates also has a unique characteristic, associated with the stability of people's work and life Thus, the FDI in real estates has two more important influencing factors compared to general FDI inflows

Firstly, the FDI in real estates is influenced by the development of the industrial sector, especially the manufacturing and processing industry As author Kim (2020)(15) pointed out, FDI in real estates from Korea to Vietnam is driven by the need for professional settlements of Korean experts and workers working in foreign companies, typically Samsung electronics company In particular, a household can live in a residential area in Hanoi and move daily to work in industrial zones in Bac Ninh and Thai Nguyen province

Secondly, the FDI in real estates also aims to serve the housing demand when the population size expands faster than the growth of the housing fund, especially in the high-end residential segment high-income people When the demand for increases faster than the supply, the shortage of housing is aggravated, leading to a tendency for housing prices to increase rapidly, even faster than the growth rate of income population average Moreover, the rapid increase in house prices at a stable rate attracts more investment flows into real estates to exploit business benefits from investment projects In particular, the FDI inflows tend to flow into projects in the high-end segment, with high-quality facilities and service systems, accompanied by a price much higher than the average

In summary, the prospect of high return on investment is the main driver of attracting foreign investment inflows, and in that, the FDI in real estates is associated with residents' need for job stability (Ly Dai Hung & Pham Anh Tuan, 2023)

2.2 Real Estates

Overview of real estates

Until now, most countries of the world have classified property according to the Ancient Roman Law, that is, the classification of property into "Property" and "Moveable" Thus, real estates is not only land and wealth in the ground, but also all that is created by human labor associated with the land such as construction works, crops, trees And all of these elements are related to the land

or attached to the land in three-dimensional space (height, depth, width) to form a material form with a definite structure and function

Most countries consider immovable property to be land and properties related to the land, inseparable from the land, determined by the geographical location of the land (Articles 517, 518 of the Civil Code of the Republic of China; Article 86 of the Japanese Civil Law; Article 130 of the Civil Law of the Russian Federation; Articles 94, 96 of the Civil Law of the Federal Republic of Germany) However, each country has different conceptions of what properties "attached" to land are considered real estates Article 520 of the French Civil Law stipulates that "the crop that has not yet been reaped and the fruit that has not been plucked from the tree is real property" Meanwhile, Article 100 of the Thai Civil Law stipulates that: “real estates is land and things attached to land, including rights attached to land ownership” (Textbook by Agricultural University, Education Publishing House, 2005) In Vietnam, the Civil Code stipulates that “real estates is assets that cannot be moved, including: Land, houses, construction works attached to land, including assets attached to land with such houses, construction works; other properties attached to land and other properties as prescribed by law” (Article 181)

The real estates have different characteristics compared to other goods such as immobility, increase in value, individuality and value depending on the purpose of use In details, the fixedness is the distinguishing feature between real estates goods compared to other goods This feature requires a different trading method and management of trading activities than other commodity markets With other goods, the seller and buyer can easily bring the goods to any place they want, but with real estates, its owner must move to the place where the real estates is located Real estates goods cannot be brought to the market (markets, supermarkets) for display like other goods, but often have to be introduced through descriptions by models, images or design drawings

The fixedness also makes real estates products have a very high "place" and "local" character In fact, the same type of real estates but in different locations has different values the same amount, but if there are different locations, their value will be different Similarly, the same type of real estates but real estates in big urban has a much higher value than that real estates in small cities and regions The fixedness poses the problem that the real estates market must be regulated differently than other commodity markets With normal goods, supply and demand can be adjusted by transferring goods from different places But with real estates, it is necessary to actively adjust supply - demand through forecasting and planning in accordance with the specific conditions of each locality and region other characteristics, such as: individuality and scarcity, especially of land; durability; interdependence

By economic classification, the real estates is divided into the following categories First, the residential real estates is a type of real estates used as a residence for families and individuals Second, the industrial real estates: including factories, warehouses, industrial parks Third, the agricultural real estates: including plantations, farms, logging forests, livestock farms, arable land Fourth, the commercial real estates: including office buildings, commercial centers, apartments for rent, hotels, restaurants, parking lots And for other types, the real estates used for special purposes including lecture halls, schools

The real estates market is a general economic category associated with the production and circulation of goods A developed market must have three elements: subject, object and intermediaries Economic experts, as well as domestic and international real estates researchers, have given the following concepts about the real estates market

The real estates market is understood as the place where real estates buyers and real estates sellers transact with each other Buyer and seller may be located in the same location, may contact through an intermediary (broker) or through

other means of communication, through which the price of the property is determined

However, nowadays, there are also many different conceptions of the real estates market It is argued that the real estates market is where decisions are made about who has access to real estates and how and for what purposes it is used In addition, there is a concept that the real estates market is the focal point for implementing and transferring the value of real estates goods or the real estates market is the "place" of real estates transactions, including activities of buying, selling, transferring, leasing, mortgage and supporting services such as brokerage, consulting

From the perspective of a Thesis, after synthesizing research results, it can be understood that the real estates market is as follows: The real estates market is a process between related parties, which is the place where the activities of buying, selling, transferring, leasing and mortgage related to real estates and services such as intermediaries, brokerage, consulting And among actors in the market, the state management has a decisive impact on promoting development or inhibiting business activities in the real estates market

Several classifications of the real estates market

Based on the use of real estates can be divided into the land market, the market of commercial works, services; industrial works market; housing market; special construction market

Based on the type of activity, it is possible to distinguish the market for buying, selling and transferring real estates; real estates rental market; mortgage market and real estates insurance; real estate service market; market for other transactions such as capital contribution to joint ventures, equitization

Based on the area, the real estates can be divided into the real estates market in the urban area; the real estates market in rural areas; and the real estates market in the border area

The real estates market has the following characteristics As the focal

market, it is closely related to many other markets of the economy, especially the financial market The real estates transactions are transactions of rights and interests contained in real estates The real estates market is regional, local, and cyclical The real estates market is difficult to penetrate, imperfectly competitive, prone to monopolies and requires intermediary services The real estates market is strongly influenced by legal factors

The relationship of the real estates market with other markets in the economy

The real estates market is an important market in the economy, closely related to other markets, such as the construction materials market, the labor market, the science and technology market, and especially the financial market According to the analysis and assessment of economic experts, in developed countries, if the investment in the real estate sector increases by 1 USD, it will promote other areas of the developed economy by 1.5 - 2 USD

With the real estates market, the financial and monetary market is the main source of capital for investment activities to create real estates, so the fluctuations in the financial and monetary market immediately have a strong impact to the real estates market In contrast, with the financial and monetary market, the investment to create real estates often uses a large amount of capital with a relatively long time to create real estates as well as a relatively long capital return, so for the real estates market When it comes to finance and currency, the real estates market plays the role of the largest output, and the fluctuations of the real estates market have a direct impact on the financial and monetary market An effective real estates market is the basis for mobilizing financial resources for economic development On the other hand, improving the efficiency of banks' loan regulation for real estates investment is a necessary factor for the real estates market to develop healthier and more efficient On the contrary, if the capital

market is restricted or tightened, the real estates market will find it difficult to promote its capacity, even falling into instability

The role of the real estates market

The real estates market is one of the important markets of the economy because it is directly related to a huge amount of assets in terms of size, nature and value in the national economy The real estates are important in every country The share of real estates in total social wealth varies from country to country, but usually accounts for about 40% of the material wealth of each country Real estate-related activities account for 30% of total economic activity According to the general assessment, the total value of untapped capital for real estates in emerging economies is very large, amounting to trillions of USD, many times higher than the total ODA support of developed countries for developing countries over the past 30 years The real estates are also imporatnt to every organization, household and individual, especially real estates houses and land In the market economy, the real estates not only function as a residence, where economic activities are organized, but also as a source of capital for development through mortgage activities

Real estates associated with urban development

Much of urban development is accomplished through real estates investment, involving financing, development and project management, which has long been part of the urban development process of cities and area In turn, it has become a prominent part of the global economy over the past few decades, especially in the Asia-Pacific region It is done by large real estates companies, financial institutions and individuals (super rich) as well as financial intermediaries such as REITs (Real Estates Trusts) The foreign direct investment has been recognized as having a major influence on urban development in emerging economies That recognition has grown around the impact of the industrial production bases of Multinational Enterprises (MNEs)

In many cities, the impact of this FDI has spread to the broader urban landscape through a second phase investment, which involves providing accommodation for low-cost labor in factories in these supply chains A striking example of this effect is the massive and rapid urbanization that accompanies the industrialization of the Shenzhen-Guangzhou corridor On the other hand, the manufacturing investment sector in the host country will entail a significant presence of skilled foreign workers or professionals and their accompanying family members who have special needs Different demand for commercial and residential space, thereby creating new opportunities for international real estates investment Then, the real estates investment raises international activities throughout the city and the whole region (Kim, 2019)(5)

The development of the real estates market contributes to mobilizing internal capital

This is an important content that has been confirmed by many researchers In general, they agree with the assessment that if a country has an effective solution to ensure that real estates is eligible to become a commodity and is scientifically valued, it will create a potential for that country's economy with a significant capital capacity to create a basis to promote the process of socio-economic development According to statistics, in developed countries, the amount of money that banks lend through mortgages with real estates accounts for more than 80% of total loans Therefore, the field of real estates investment and business plays an important role in turning assets into abundant financial resources to serve the requirements of socio-economic development, especially investment in system development infrastructure system

2.3 Foreign Direct Investment Strategy in Real Estates

First we clarify the concept of strategy In particular, the strategy is a comprehensive, overall plan which is established to achieve major goals and create competitive advantage It is the process of identifying key directions,

associated available resources and approaches to achieve the organization's long-term goals

Multinational strategy

Multinational strategy is a competitive strategy aimed at increasing the value of products (thereby increasing profits) of a business by adapting products to each foreign market In response to the pressure to adapt, each foreign subsidiary carries out almost all the important value-creating activities such as production, marketing, product development, etc This strategy is appropriate when there are significant differences between markets in preferences and tastes, and when the pressure to reduce costs is not high

Advantages and disadvantages

The main advantage of a multinational strategy is that it allows businesses to carefully research consumer preferences in different national markets, thereby responding quickly and effectively to changing preferences of consumers

The result that businesses expect when introducing new products is that consumers will perceive higher values compared to competitors' products, allowing the company to follow a multinational strategy to be successful set a higher price, gain a larger market share

The main disadvantage of the multinational strategy is that it does not allow businesses to exploit economies of scale in developing, manufacturing and bringing products to market

Pursuing a multinational strategy increases costs for businesses, forcing them to set higher selling prices to offset those costs Therefore, a multinational strategy is often not suitable for industries where the main competitive tool is price

On the other hand, high independence in branch operations can reduce opportunities to share knowledge and experience within the enterprise High cost

structures combined with duplication of manufacturing plants make this strategy unsuitable in industries with high pressure to reduce costs

Transnational strategy

Transnational strategy is a competitive strategy that aims to increase profits through cutting costs globally, while increasing value by adapting products to each market

Business units have high autonomy in performing basic business activities such as production and marketing, and at the same time, they also have closed coordination with each other to reduce costs A transnational strategy may be chosen when a business corporate faces great pressure both to reduce costs and to adapt to local conditions

The transnational strategy also has both advantages and disadvantages In particular, for the advantages, the outstanding advantage of a transnational strategy is that it helps businesses exploit location economies, scale economies and experience curve effects Another advantage is the implementation of global strategic cooperation, sharing and transferring core skills, knowledge, experience and tangible resources between the parent company, business units, and branches operating in different countries around the world

For the disadvantages, however, include the pursure of a transnational strategy which is extremely complex in terms of organization, mainly stemming from the conflict between the need to reduce costs and the need to adapt - adaptation often increases costs, leading to the elimination of cost reduction efforts

Global strategy

Global strategy is a competitive strategy aimed at increasing profits on the basis of reducing costs on a global scale Its main characteristic is that the businesses pursuing a global strategy often launch the same products and use the same marketing strategy in all markets Each value-creating activity such as

production, marketing, and product development is concentrated in a small number of locations around the world to exploit economies of scale and location This is a common strategy for businesses that sell standardized products that compete mainly based on cost - price such as electronic components, semiconductors, and semi-finished products The large corporations in the semiconductor industry such as Intel, Motorola, and Texas Instruments are considered typical examples of businesses pursuing a global strategy

The global strategy also exhibits both advantages and disadvantages In details, the advantage of a global strategy is cost savings because products are standardized and use the same marketing strategy Cost savings allow businesses to sell products at lower prices than competitors or compared to previous prices, thereby helping businesses expand market share in their market segment A global strategy also allows managers to share experiences and knowledge gained in one market with managers in other markets This strategy is appropriate where cost reduction pressures are strong and local response requirements are small

And the main disadvantage of a global strategy is that it causes businesses to ignore important differences in the preferences and tastes of buyers in different markets The global strategy does not allow businesses to change their products, except for insignificant changes in appearance such as color and packaging This can create an opportunity for competitors to step in and fill vacant consumer demand, thereby creating a new market This strategy is not appropriate where local adaptation is required

The multinational companies have implemented an investment strategy in international real estates based on the eclectic model (OLI) OLI stands for Ownership, Location, and Internalization These three potential sources of advantage can underpin a company's decision to become a multinational The eclectic model suggests that foreign direct investment (FDI) arises when three conditions are satisfied

First, the company must possess specific ownership advantages (O) that other companies do not have These advantages can be tangible, such as superior technology, patents for specific products or processes, or the size of domestic firms that create economies of scale and scope transfer Or the advantages may be intangible, may be embodied in brand names, marks or other marks of product quality, or stem from companies having access to specific customers

Second, the foreign markets offer a number of location advantages that make it more profitable to serve foreign markets with domestic production than to export This is a clear source of advantage for the cross-border real estates investor/developer In essence, the real estates development cannot be exported and domestic production is an obvious prerequisite for the FDI in real estates

Third, there should be an internal advantage that leads the company to believe that its ownership is best exploited internally rather than being provided to other companies through some contractual arrangement such as licensing, or establishing a joint venture or management contract In the real estates development, this would encourage a company to own the development rather than offer its services as a development manager through contract

Accordingly, the foreign real estates companies implementing real estate buying or development strategies can partner with domestic companies that own domestic ownership (O) or who understand the political environment The local authorities secure real estates development rights because local companies often have a comparative advantage over foreign companies on issues such as the government approval process for development Thus, three conditions of ownership, location and localization advantages held by cross-border real estates investors/developers depending on the nature of national and regional ownership laws area (Salem & Baum, 2015)(12)

The investment strategy by type of enterprise in the host country

When entering foreign markets, the international real estates

venture; Joint venture capital contribution; Joint development joint venture; Enterprises with 100% foreign capital

1 Joint Venture (EJV)

An equity joint venture is a form of partnership in which a company is established through the investment or contribution of common assets by two or more partner firms to create a new legal entity Profits and losses are shared between the parties according to each party's registered capital contribution It is one of the most common type of entry mode in China and the most popular in large-scale development projects in 2008, about 60% of all foreign enterprises were EJV by the end of 2000 (Hui & Chan, 2014)(10)

2 Joint Venture (CJV)

Joint venture can be made between two independent enterprises, or between an enterprise independent of the government, or with a foreign enterprise based on the agreement of the parties The participating parties will contribute capital to establish a company, or build a project and jointly manage, develop, and share profits as discussed and agreed upon In the Chinese market in the 1990s this was the most important input mode Each party bears its own responsibility In CJVs, the parties share investment and profits based on a partnership agreement

3 100% foreign owned enterprise (WFOE)

100% foreign owned company is a type of enterprise with legal person status, established by foreign investors, organized, managed, operated and fully owned by foreign investors outside and take responsibility for business results This was the pattern that was common in the 1990s in the real estates market in China when the law of the People's Republic of China on Sole Proprietorships with Foreign Capital was implemented in 1986 This created a The business environment is clearer, so many foreigners enter China in the form of WFOEs, especially those dealing in real estates (Hui & Chan, 2014)(10)

Investment strategy by region and geopolitical position

The real estates investors/developers plan and make investments in areas with good indicators, typical indicators indicated in studies such as: Political stability, GDP, indexes GDP growth, real estates market size, human resources, infrastructure, quality of national institutions and laws, liquidity of the real estates market

Invest in a politically stable market

By an econometric modeling, Salem & Baum (2015) shows that the political stability is the most important driver, which explains why some Middle Eastern and North African (MENA) countries are chosen to attract the most real estates investment than other countries Political stability is considered an important determinant and instability is a major obstacle to attracting real estates-related FDI

Real estates investors/developers focus their investments on countries with healthier economies, better education levels and living standards In addition, the quality of institutions and legal regulations is expected to play an important role in attracting foreign investors to the commercial real estates sector Political stability is seen as a prerequisite for planning, profitability and long-term success, while corruption creates high uncertainty and increases costs In general, weak institutions are believed to discourage FDI in real estate, while high-quality institutions attract this type of FDI

Invest in a country with large GDP and GDP growth

The gross domestic product (GDP) represents market demand/size, an important factor of foreign investment This is usually measured by GDP, GDP per capita, GNP, GNP per capita or the growth rate of these factors As the local economy develops, more business opportunities are created for foreign investment and thus investor confidence is boosted Hui & Chan (2014) (10), points out that GDP is the second most important factor, reflecting China's strong

economic growth that has pulled FDI inflows into China's real estates market This country increased The analysis results of the article show that GDP per capita is an important factor stimulating foreign investment in China's real estates market Subsequently, China's rapid economic growth has accelerated urbanization, which has boosted the demand for housing If the urbanization rate increases by 1% per year, it is estimated that there will be 13 to 15 million people buy new houses with an average area of 30 m2/person The high demand for housing attracts more foreign investment into the real estates market

The GDP growth rate also represents the health of an economy According to Kapas and Liang (2009), people have linked the size of a country's real estates market with GDP and GDP per capita Research shows that in developed and mature markets, the real estates market size can be up to 45% of GDP

Besides, the real estates investors/developers invest in the real estates market with good real estates liquidity The study uses a dummy variable that reflects the existence of real estates trusts (REITs) in the countries concerned as a proxy for market liquidity The results show that the existence of REITs negatively and significantly affects commercial real estates (CFDI) One explanation for this is that REITs can act as an alternative to FDI, if direct investment REITs are unattractive or unattractive (Salem & Baum, 2015)(12)

Overall, they found the relationship between real estates and the stock market to be strong and positive, although it varied from country to country It makes the most sense in the Asia-Pacific region with several European countries also having positive relationships Diversifying into international real estate sfor investors from these countries may not be beneficial However, according to Sirmans (2022), the US, Australian, Canadian and Hong Kong markets do not have a significant correlation between real estates and stock prices, suggesting that the investment in international real estates in these markets has diversification benefits Note that the monetary analysis was completed in this study All profits

free of charge This makes sense when the correlation between stocks and real estates is low, direct investment in real estates will be more effective

According to Hui & Chan (2014) (10), besides the above factors, in their investment strategy, investors make decisions and choose investment market based on the following factors: average salary, average real estate prices, land prices, level of transport infrastructure, number of real estates businesses, tourism, bank interest rates, exchange rates

There are also other factors determining the foreign direct investment in the real estates In particular, with the verage salary of employees, the labor costs are an important component of the total costs of many companies As a result, lower average wages will attract more foreign investment Many studies show that higher wages have a negative impact on FDI Moreover, the average house price per unit area Studies show mixed results on the relationship between real estates prices and foreign investment in the real estates market An increase in real estates prices in a country will spur foreign investment into that country's real estates sector Furthermore, the land price is calculated by dividing the total land purchase price by the total purchased land area Since higher land costs increase the burden on real estates businesses and thus seek foreign investment in real estates, land prices have a positive effect on FDIRE

Another factor affecting the FDIRE is the tourism, which is the number of foreign tourists arriving in a year International tourism allows potential investors to have first-hand experience of the host country's environment and to gain information about available investment opportunities Furthermore, detailed information about the competitors, legal environment, work ethic and culture of the host country is necessary in the FDI decisions of investors Tourism improves existing research on FDI and can thus contribute to the expansion of new FDI in the host country Therefore, tourism has a positive impact on FDIRE

The FDIRE is also affected by the interest rate When the interest rates increase, the cost of borrowing money of foreign businesses will be higher Then,

the foreign investment will be hindered Previous studies have often shown a negative relationship between finance costs/interest rates and foreign investment (including real estates), with higher financial costs/long-term interest rates having an impact negative impact on foreign investment in real estates Interest rates have a negative impact on FDIRE

And the FDIRE can be also affected by the average exchange rate of the local currency in US Dollars for a year As Sirmans and Worzala (2002)(13) have pointed out, the foreign investment in real estates is very sensitive to exchange rates When the currency of the host country appreciates, the cost of investing in that country increases and thus foreign investment will be hindered Therefore, the exchange rate has a negative effect on the foreign direct investment in real estates

Strategies for investing in geographical areas within each country

In countries with converging markets with favorable conditions, real estates investors choose the most favorable areas to make investments According to He and Zhu (2010) used panel data of 35 major Chinese cities for the period 2002-2008 to investigate the overall association between FDIRE, local market opportunities, and natural economies Their results show that the FDIRE is popular in large cities with larger populations, foreign investment and tourists

The analysis showed that the top 10 regions contributed most of the total investment completed during the boom period of the Chinese market The majority of the top 10 are those core areas (mainly coastal areas) In particular, in 2010, Guangdong accounted for the largest share of total investment from Hong Kong, Macau and Taiwan enterprises, and the second largest share of total investment from other foreign enterprises One of the main reasons is that Guangdong has the highest population and largest GDP of all the provinces in China This is already a well-developed economy and has a large market, attracting foreign investors to invest in the province Guangdong has shared an

even larger share of all investments from Hong Kong, Macau and Taiwan businesses (Hui & Chan, 2014)(10)

In particular, the investors also move geographical areas according to

beneficial factors such as low production costs According to Hui & Chan (2014),

Guangdong China dominates in the field of real estates investment, but over time Liaoning has risen to become the province receiving the most investment capital from foreign investors And the reason Liaoning belongs to the Bohai Coastal Region is that it has lower costs than the Pearl River Delta and Yangtze River Delta regions

Investment strategy according to the openness of the host country's market policy

The foreign direct investment in the real estates blooms and shrinks according to the policies of the host country, such as tax policies, investment laws, policies related to land and housing

According to the research paper of Nelson Chan (2007)(14), in China, the foreign real estates investors retreated after the communist government came to power in 1949 The real estates market then went into a dormant state when all private real estates assets were held then confiscated and handed over to the public for possession It was finally revived after the introduction of the 'open-door' economic reform policy in 1978 The amount of foreign direct investment (FDI) increased rapidly Since 2002, FDI inflows into China have exceeded $50 billion, surpassing the United States to become the largest recipient of FDI inflows in the world The inflow of FDI also led to an increase in real estates investment in China The real estates prices increased rapidly along with the boom of the economy However, the escalation in real estates prices was temporarily halted in 1993 after the introduction of macroeconomic control policies Then the price started to rise again From 1997 to 2004, commercial house prices increased by 42.40% and affordable housing prices by 28.85%

Notably, in July 1979, the law on joint ventures between domestic and foreign companies was implemented, giving foreign investors legal entities in China The foreign investors are entitled to tax incentives in special zones and key economic zones In 1980 China changed its law that transferable land ownership is separate from state ownership The foreign investment in China's real estates market has continued to grow at a dizzying pace The real estates industry is the second largest FDI attraction in China

In 1986, other measures such as tax incentives were introduced to encourage more investment Within the first 5 years (1979 - 1984) of accepting foreign investment, the total actual used foreign direct investment (FDI) was 4.1 billion USD After that, the amount of FDI capital increased significantly Since 2002, annual FDI inflows into China have exceeded US$50 billion, surpassing the United States to become the largest recipient of FDI inflows in the world (Nelson Chan, 2007)(13)

According to the study, the two largest cities in China, Shanghai and Beijing, shared a relatively large share of the total investment in 2005, but this share declined over the next five years This may be due to their higher costs compared to most other regions in China In particular, Beijing experienced a much sharper decline in its share of investment between 2005 and 2010 than Shanghai Beijing was even excluded from the top 10 regions for other foreign businesses in 2010 This is because Shanghai is designated by the Chinese government as a world financial center hence its importance is even greater than Beijing

Moreover, there has been a significant increase in investment in some fast-growing regions such as Sichuan and Chongqing This has two main implications Firstly, the foreign enterprises continue to exploit new markets to diversify risks Second, in recent years, the Chinese government has put more effort into developing the economies of these new, fast-growing regions and has opened the

Kling and McCue (1987) examined the influence of macroeconomic factors on office building in the US They used vector autoregressive models to assess monthly office construction, money supply, nominal interest rates, output (GNP) using personal income as a proxy, and aggregate prices CPI) They conclude that overcrowding of offices and market cycles as a result of falling nominal interest rates increases developers' GNP projections and future demand for space at an economic level macro They also demonstrate the impact of the tax act of 1981 on stimulating office building

The investment strategy associated with manufacturing, processing and manufacturing FDI

According to another strategy, the foreign direct investment in real estate (FDIRE) is linked to direct investment in manufacturing The FDIRE is specifically organized to meet the requirements of community development and expatriate-focused neighborhoods Foreign direct investment (FDI) has been recognized as having a major influence on urban development in emerging economies As production focus shifts towards higher skills and advanced technology, highly skilled expatriate employees of Multinational Enterprises (MNEs) begin to play an important role in projects FDI projects and investment cities began to experience the process of urban development associated with residential development and community service for the settlement of these foreign employees

Foreign technical and management teams are essential for the quality control and security of complex products and processes Issues around senior employee mobility have long been part of management thinking in MNEs For companies, the main concern is the willingness of employees to stay for a long time That willingness seems to focus on the perceived quality of the built environment in the destination city or region International assessments have been developed to compare destinations, but at the individual employee level, livability often leads to a comparison between the facilities available at the FDI destination

and what is available available at home This often translates into a preference for high-quality family accommodation, along with language-specific retail and community services The availability of these is important to the foreign employee's decision to commit to the project for a longer period of time As a result, an additional need has been created for modern residential and commercial activities, which are often very different from those that exist in cities of developing countries (Kim, 2020)(15)

Cyclical investment strategy

The real estates cycle is relevant, has significant and measurable effects on investment returns and risks, and is therefore of important strategic significance to investors For national economies tied to real estates, economic cycles affect a large portion of national wealth As in the US in 1997, the total amount of fixed reproducible tangible assets (real estates) in the US is about three times greater than the annual gross domestic product Therefore, the link between this large percentage of national wealth and the activity of the business cycle is important (Roulac, 1999)(16)

Distinguishing between the real estates cycle in terms of macroeconomics and microeconomics

Macroeconomic cycle studies are defined here as those where the focus or focus of the primary cycle is at the national, international, or regional level The general business cycle, the inflation cycle, the money cycle, the population and employment cycle, and the technology cycle are examples of cycles often categorized under macroeconomic categories Cycles (absorption), supply cycles (construction), usage cycles, long cycles and short cycles, when studied at the regional or national level, are also considered macroeconomics for the purpose of classification target

In contrast, the microeconomic cycle studies are defined as those where the primary cycle focuses or emphasizes on metropolitan area markets, submarkets,