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On October 5th, twelve Pacific Rim countries including Vietnam, reached a historic deal on the most sweeping trade liberalization pact after five years of negotiation -The Trans-Pacific Partnership (TPP).
HCMC, Vietnam. Photo: Lucas Nguyễn
On October 5th, twelve Pacific Rim countries including Vietnam, reached a historic deal on the most sweeping trade liberalization pact after five years of negotiation -The Trans-Pacific Partnership (TPP). This deal will cut trade barriers and set common standards for member countries that comprise 40% of the world’s economy and over half of global production.
What is TPP?
The Trans-Pacific Partnership (TPP) is the world’s largest free trade agreement on goods and services between 12 countries bordering the Pacific, including: Brunei, Malaysia, Singapore, Vietnam, Japan; Canada, Chile, Mexico, Peru, USA; Australia and New Zealand. The notable China is not involved in this negotiation. The TPP aims to reduce trade barriers among these countries by lowering tariffs on goods such as trucks, rice, and textiles.
The TPP is not only a pure free trade agreement, but it also requires participating countries to adopt certain legal standards, including but not limited to stricter labor and environmental rules, common framework for property, stronger legal protections to drug companies, and the prolongation of copyright protection term.
The TPP is the expanded version of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP), which was signed by Brunei, Chile, New Zealand, and Singapore in 2006. In2008, the other eight additional countries joined the discussion for a broader agreement. The TPP reached its landmark deal after 19 official rounds of meeting with more than 20 Chief Negotiators Meetings and Ministers Meetings.
How TPP affects the property market in Vietnam? Which sectors (Industrial Park, Logistics, and Commercial sectors)? Why? And to what extent TPP affects these sectors?
The Trans Pacific Partnership is the largest trade agreement in history, with an aim to reduce tariffs and increase the efficiency of doing cross border business within the 12 member countries making up approx. 40% of the global economy with a combined output of almost $30 trillion. It is widely reported that Vietnam stands to be one of the biggest winners and will be one of the countries that stands to make the most gains from this agreement, potentially boosting GDP by 11% by 2025 and exports growing by 28% within the same period.
We anticipate that Vietnam will establish itself as a manufacturing destination, due to relatively low labor costs and high levels of productivity, this will undoubtedly entice more and more companies to set up new businesses in Vietnam, potentially from the likes of China. If these predictions come to fruition, the property market in Vietnam is set for a considerable increase in activity, especially within the industrial, warehouse and logistics sectors. In addition, we can also expect to see an increase in activity with the office, residential and retail markets as this new investment will create additional jobs, which will ultimately increase consumer spending etc.
How long does it take for TPP to affect the property market in Vietnam? It takes long or short, do you think? Right after the agreed TPP? Some months or some years after the agreed TPP? Why?
The TPP agreement has been in negotiations for 5 years and whilst an agreement has been sealed, we understand that each country will need to ratify the agreement by their own lawmakers, in addition, the TPP also needs to gain approval from congress in the US, so it is difficult to put any timelines when the TPP will come into effect. JLL is already receiving a large number of enquiries from foreign companies that are starting to explore opening new operations in Vietnam, however, it is unlikely that we shall see any immediate effects, apart from strong positive sentiment. We anticipate significant investment will be made in all sectors of the property market over the next 5-10 years.
Advantages and disadvantages to the property market in Vietnam when the country becomes part of TPP?
Overall, this is a very positive move for Vietnam as a country and for the property market. From a foreign investor point of view, the TPP agreement will raise the profile of Vietnam as it becomes a more mature market and continues its journey towards international integration. The main beneficiaries will be industrial parks as we anticipate more manufacturing companies will want to set up new businesses in Vietnam and relocate or downsize their operations in other Asian countries. It is difficult to see many disadvantages when TPP takes effect in Vietnam, as we expect considerable foreign investment will help both domestic and foreign groups alike.
It is very early days and difficult to gauge the impact of the TPP agreement, suffice to say this a major step forward for Vietnam and expect the property market to benefit enormously from this agreement.
How should Vietnamese developers prepare?
The great thing about TPP is it moves the reputation of Vietnam up. There is going to be a larger need for development of industrial parks, commercial and residential projects, as well as the country’s infrastructure to build better roads, better ports, and better connecting services. There are going to be a lot more activities for developers across the fields, and they should prepare well in advance in terms of their labor force, technical transfer and training, productivity and compliance to front-run these golden opportunities.
In conclusion, development of the TPP is undoubtedly a valuable boost for the Vietnam’s export-focused economy. The next couple years will definitely be very exciting for Vietnam only if the pact is passed in other member countries.
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