In 2021, the complex Covid-19 outbreak had a significant impact on all sectors of the economy, including the building industry, particularly contractors and construction firms. However, with the government's adaptive management, construction firms were able to combat the Covid-19 epidemic pretty well. The construction sector now has promising forecast signals for the second half of 2022.
Overview of Vietnam’s Construction Industry
The Vietnamese construction sector grew by 0.6 percent in real terms in 2021, owing to a severe decline in the third quarter of 2021 due to stringent lockdowns in Vietnam's main cities and provinces. Construction activity is predicted to increase in 2022, driven by increased economic activity and government investment in transportation infrastructure and renewable energy projects.
About the Government
In addition to institutional enhancements, the Ministry of Construction (MOC) has enhanced grasping, monitoring, guiding, and inspecting in order to eliminate obstacles in construction investment operations. Furthermore, the Ministry is working to develop instruments for managing building investment costs and performing specialized activities in accordance with decentralization.
About the businesses
They are now experiencing some business issues. The first issue is the congestion and legal issues that continue to restrict the number of projects performed in 2022. The present fact is that construction firms do not want to conduct domestic projects and are particularly wary of public investment initiatives. The reason for this is that all construction sector input costs, such as iron, steel, cement, sand, or transportation expenses have risen significantly.
The second issue is that existing construction labor is extremely scarce. The third issue is the contract delivery method. Furthermore, building companies are subject to fire prevention and fighting regulations. Because our country's fire prevention and fighting requirements are on par with those of industrialized nations. So we must import some items, such as fireproof paint and fireproof glass, we pay several times more.
The audit and inspection procedure comes next. This procedure is still quite complicated and time-consuming in Vietnam, posing challenges for enterprises. The final concern is financial. Investors and contractors struggle to raise funds due to a lack of credit room. Due to the arrears situation, the price of building supplies grew, and the price was not reimbursed, causing the firm to incur increasing losses.
Forecast of Development Trends of Construction Industry in Second Half of 2022
Price of input materials
The construction material price storm is becoming a "nightmare" for firms and contractors, as they confront several problems in terms of progress and capital in the first six months of 2022. According to experts, the construction industry's status at the end of the year will not be very favorable because capital flows into this sector are severely limited.
According to several securities firms, raw materials account for 65-70% of the building cost estimate in the cost structure. Steel and cement are the two most essential elements in this context. Steel costs have recently dropped, allowing construction companies to gain greatly. Steel makers, including Hoa Phat Group, Vietnam - Italy Steel, and Vietnam - Germany Steel Pipe, cut steel prices for the eighth time in two months on July 9.
However, the cost of input resources like coal, power, gasoline, gypsum, additives, packaging, freight, and labor caused the cement price to rise to 1.65 - 1.7 million VND/ton. As a result, businesses are unable to remedy the situation.
In response to the aforementioned issue, specialists from Vietnam Assessment Report Joint Stock Company stated that, while construction businesses have made the initiative to respond, development remains modest. This shows that a crisis management strategy may be insufficient.
Government's support
The Minister of Construction proposed that the Ministry's units collaborate with companies, particularly while dealing with the Association of Contractors. This is the genuine voice in policy formation, state management, increased interchange, and the content listening process. The units agreed to increase contractor protection by conducting research and advising Ministry officials on specific suggestions, reasonable levels, and suitable restrictions that are compatible with legal obligations.
The MOC will engage with the General Associations and Associations on an annual basis to make adjustments and enhancements to reflect the current situation. The Minister recently collaborated with the General Association, the Association of Architects, and the Association of Contractors...
The MOC has also been made aware of the issue in terms of overdue debt. In the fixed unit price contract, the package contract, the law does not allow adjustment, unless the adjustment is required due to force majeure...
In terms of norms, the evaluation of norms is old, low, and new jobs are not available; there are more than 3,000 norms, of which 1,500 are from the MOC, the ministries, and the Provincial People's Committee; 1,800 are from the Provincial People's Committee. Over 1,000 old and obsolete standards have been examined and eliminated by the MOC. Hopefully, the Association will actively engage in the development of new standards in collaboration with the MOC.
Concerning fire prevention and fighting standards and regulations, the Science and Technology Department was tasked with continuing to engage with the Ministry of Public Security to urge them to resolve the issues presented by the Association.
Many new contracts signed by businesses
The new contract value at Coteccons Construction Joint Stock Company (Coteccons, stock code CTD) in 2021 is approximately 25,000 billion VND, which is 3.6 times greater than in 2020. Coteccons received many contracts for projects totaling more than 10,000 billion VND in the first quarter of 2022. The company won the Diamond Crown Hai Phong project in May 2022.
Hoa Binh Construction Group Joint Stock Company (Hoa Binh, stock code HBC) has a new contract value of VND 18,000 billion in 2021, which is double the amount in 2022. Hoa Binh won two bidding packages totaling VND 560 billion and VND 1,769 billion in the first six months of 2022.
Fecon Joint Stock Company (stock symbol FCN) was awarded bid packages totaling more than 1,190 billion VND in the fourth quarter of 2021. The value of Fecon's new winning bid packages reached about VND 2,288 billion from the beginning of 2022 and May 4, 2022.
Many additional companies, like Hung Thinh Incons Joint Stock Company (stock code HTN) and Ricons Construction Investment Joint Stock Company, have significant backlogs (accumulated value of newly signed contracts).
With increased backlog and steel prices predicted to continue to fall, the construction business group's financial condition is expected to improve in late 2022.
The construction industry in Vietnam remains turbulent as a result of the Covid-19 pandemic. However, there are still bright spots in the construction industry, especially in the second half of 2022. Viettonkin believes in its abilities and position in this field. We are ready to advise you and keep you up to date on changing market trends as well as government policies in the last 6 months of 2022. Contact us right now to increase exponentially!
