Vietnam: Is There a Future for the Green Building Industry?

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A newly released white paper on Vietnam’s Green Building done by Solidiance – a management consultancy firm focused on Asia region – in partnership with Vietnam Green Building Council (VGBC) outlines the current market overview  to pin down the possible future of the green building industry in Vietnam.

Until recently Vietnam had been enjoying energy at prices much cheaper than its South-East-Asian counterparts. Last year’s 5% electricity price hike already has businesses worried, and a further increase of up to 40% is expected by 2015. “Buildings consume up to 40% of energy and more sustainable ways to develop and construct buildings will drive future change in Vietnam”, said Heiko Bugs, the Partner Asia of Solidiance.

Apart from energy efficiency, several other market drivers are leading to the burgeoning of Vietnam’s green building industry. Home to branches of several MNCs, transition in global corporate guidelines towards green construction is fueling demand. Certified ‘Green’ buildings also act as a marketing strategy, enhancing building value and allowing suppliers to charge premiums. The market also perceives ‘green’ to be a sign of quality, further adding to its value.

LEED vs. LOTUS

When it comes to green buildings, rating tools play a key role in succinctly indicating the level of sustainability in a standardized, comparable way. Foreign rating systems such as LEED (made by US Green Building Council) have been in use in Vietnam, but in 2010, the Vietnam Green Building Council introduced its LOTUS rating system.

Although LOTUS and LEED are quite similar in their ability to promote sustainable practices, LOTUS is generally perceived to be less expensive to implement and is easier to obtain by the Vietnamese market. LOTUS training is provided by the VGBC and is thus more convenient than LEED, while on the other hand, LEED only appears to trump LOTUS when it comes to recognition.

Who and Which Sectors are Leading?

In Vietnam, 42% of the certified green buildings are factories owned by the multinational corporations, majorly due to the international green global guidelines they tend to adhere to. With another 20% of green buildings coming from the office building segment, MNCs have significantly impacted most of roughly 62% of green construction in Vietnam. Another important sector is hospitality which accounts for 19% of the certified green buildings. Hotels reap great benefits by going green not only because they save on operational costs, but also due to the fact that being green is a major marketing angle. The residential sector accounts for only 3% of the green buildings which is problematic. The issue stems from the lack of understanding of benefits amongst buyers.

Low Electricity Price, Underdeveloped Regulatory Framework are Among the Main Hindrances

Despite the positive market drivers and support from several industry sectors, the green building growth in Vietnam has a set of challenges behind its early developmental stages. Low electricity price in Vietnam serves as a big disincentive to promoting energy efficiency , and the government has not yet provided property developers with the short-term benefits either. The electricity tariff hikes have been planned by the government, but they will be done gradually to limit the impact on inflation, production, and low-income consumers.

Furthermore, the misperception of ‘building green’ as being more expensive is still prevalent. Property developers tend to focus on the short-term costs rather than long-term savings available to building users, and this is partly due to the lack of proper knowledge as well as the available skills in the market to pin down the topic correctly. There are also a low awareness and price-sensitivity among the domestic companies which add up to the list of growth hindrances in the green building industry in Vietnam.

What Lies Ahead…

The demand for courses on green architecture and sustainable development is on the rise and universities and training centers are responding. Melissa Merryweather, the Director of Green Consult-Asia mentions that there are a few number of good and related programs emerging in Ho Chi Minh City. The Vietnamese students are also starting to be very interested in green initiatives, indicating a promising view in sight.

As to what lies ahead, the graphic above depicts that there are several sectors of green construction that rank high in both financial attractiveness and growth while not being too saturated, hence may offer potential opportunities to tap on. The insulation and lighting sectors are the most appealing sector as there are only limited players currently operating in the market. Consulting, surfacing and architectural service industries are however, showing signs of saturation as they are already seeing high growth in the market. (AGB – PB)

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