Challenges and solutions in selecting location and implementing investment projects in Industrial Parks

Recently, on October 27th, at the  Industrial Factories Investment and Construction Forum, speakers delivered highly valuable presentations and shared practical experiences with investors. Among them, Ms. Tran Van Khanh, a consultant from VKI Investment Consultation and Business Management Joint Stock Company (VKI), addressed the topic: “Practical experiences in choosing and implementing investment projects in industrial parks” which was very practical and attracted significant attention from many investors, leading to numerous questions being raised after the event.

1. Difficulties in choosing investment location

The choice of an investment project requires not only specialized knowledge but also practical experience. Furthermore, selecting a suitable location for constructing a factory depends on various factors.

Currently, Vietnam is classified as moderately competitive within the region. To achieve this status, infrastructure plays an immensely crucial role. 

Challenges arise from the disparity in demand among regions and the uneven supply of industrial real estate. According to the VARS report, there are approximately 563 planned industrial parks in 61 out of 63 provinces and cities nationwide. 397 industrial parks have been established and 292 industrial parks already operates, covering a total natural land area of over 87,100 hectares, with industrial land accounting for about 58,700 hectares. Additionally, 106 industrial parks are under construction, covering approximately 35,700 hectares of natural land, with industrial land occupying about 23,800 hectares. The industrial land bank is still increasing.

However, there are some challenges. The occupancy rates in active industrial zones are relatively high, while new and expanded areas have yet to complete infrastructure and legal procedures for handover to investors. Specifically, densely populated and well-established industrial regions such as Ho Chi Minh City, Long An, Binh Duong, Dong Nai, and Bac Ninh (these are also the five provinces with the most industrial parks in Vietnam) have occupancy rates exceeding 85%, notably Binh Duong, which boasts the country’s highest occupancy rate at 95%. “Clean” industrial land is becoming scarce, and investment demand in these areas remains high, leading to a continuous rise in industrial land prices.

Moreover, there are subjective reasons contributing to this situation, such as:

• Not clearly defining needs and purposes: This is the most crucial aspect to establish before initiating an investment project, serving as the guiding principle for all investment activities. Evidently, some investors have yet to determine the primary products their enterprises will manufacture. This leads to an inability to accurately calculate the required space for production lines and the number of employees needed.
• Lack of selection criteria and prioritization levels: The criteria encompass all aspects linked to the enterprise’s needs and the characteristics of industrial land that need consideration when choosing a location for constructing factories or workshops. Consequently, investors cannot evaluate potential options or determine priority levels when selecting sites, leading to prolonged decision-making processes.
• Failure to assess project feasibility: This step is crucial in making the final decision regarding investment choices. It involves specifying the economic efficiency, suitability, and contributions of the project once it becomes operational. Specifically, investors have not clearly defined revenue plans, sales projections, cash flow, and the project’s ability to recoup invested capital. Consequently, there are difficulties in evaluating the economic viability of the project and devising borrowing plans, among other things.
• Absence of professional consultancy: Consulting and brokerage firms often possess extensive experience in selecting locations and have knowledge about specific localities and regions. Investors not receiving advice or recommendations from experienced entities deprives them of valuable insights and information, leading to an inability to make the most suitable comparisons, analyses, evaluations, and decisions.

2. Difficulties in legal procedures

The investment and construction procedures involve multiple complex steps and are regulated by various legal documents, including:

• Investment Law
• Enterprise Law
• Construction Law
• Environmental Law
• Public Investment Law
• Land Law
• …….

Investment procedures for land outside industrial parks differ from those within industrial parks, and each project has its own legal characteristics (lease, transfer, renovation, etc.). Consequently, managing these procedures consumes a lot of time for businesses. Failing to ensure these legal procedures and documentation right from the start could lead to unforeseen risks later on.

Example for difficulties in classifying projects

3. Some solutions and attention for investors

VKI Investment Consultation and Business Management Joint Stock Company operates in the industrial real estate investment consulting field. Currently, VKI has branches in both Hanoi and Ho Chi Minh City to assist clients and establish connections with industrial zones in both the Northern and Southern regions of Vietnam. In terms of services, VKI takes on the role of an investor representative, leveraging its expertise and understanding to offer optimal and effective investment strategies for clients. Additionally, when clients require it, VKI conducts brokerage operations, facilitating successful transactions by connecting buyers with sellers and fostering deals to completion.

Moreover, VKI handles end-to-end procedures for investors, from project feasibility analysis and project efficiency calculations to construction permits. Currently, VKI is also exploring the expansion of services to include transaction procedures for project sales and transfers, with several transactions already in the later stages.

With our experience, VKI shared some notes for investors in the forum:

Businesses should note that while establishing evaluation criteria is essential, a location that meets 50-70% of these criteria is already quite suitable. Finding a perfect location amidst the current supply and demand landscape is extremely challenging. Waiting or spending too much time searching might lead to missing out on valuable business opportunities for these enterprises.

Some feasibility assessment criteria that VKI has applied and implemented for numerous clients include assisting clients in successfully securing loans from major banks in Vietnam.

At the conclusion of our sharing session, VKI evaluates that presenting challenges for collaborative discussion of solutions is essential. VKI is also striving to enhance its services to provide the most optimal solutions to its clients.

For consultation, contact VKI at: contact@vki.vn