Vietnam Real Estate Scene : A market in the making

1
Vietnam Real Estate Scene A market in the
making

• Margaret Brooke, FRICS FHKIS
• CEO, Professional Property Services
• 10 April 2007

2
Renaissance of Economy

• Large population of 83 million
• One of the highest real GDP growth rates in Asia
  8.4 in 2005 and 8.2 in 2006 with HCMC at
  about 11
• Low labour costs two thirds of Mainland China
• 70 of population below 35
• Highly motivated work ethic
• Strong entrepreneurial spirit

3
Strong and Consistent Growth
GDP Growth 2005 2006
China 10.2 8.2
India 8.4 9.2
Vietnam 8.4 8.2
Singapore 6.4 7.9
Hong Kong 7.3 6.8
Malaysia 5.2 5.9
Philippines 4.8 5.4
Thailand 4.5 5.0
4
Positive Fundamentals
2005 2006
GDP growth 8.4 8.2
GDP per capita US571.3 US725
Consumer price index 8.3 6.6
Industrial production growth 25.5 6.8
FDI US4.1bn US7.66bn
FDI as of GDP 11.0 10.2
Exports US32.2bn US39.6bn
Imports US36.8bn US44.4bn
Foreign reserves US7.2bn US9.0bn
External debt US18.0bn US20.5bn
External debt as of GDP 34 32.8
Tourist Arrivals 3.46mm 3.58mm
5
Young, motivated workforce
Labour costs are low 2005 GNI per Capita
US
education level high Illiteracy Rate Percent,
2005
United States 43,740
Japan 38,980
EU 31,915
Singapore 27,490
Malaysia 4,960
Thailand 2,750
China 1,740
Vietnam 620
China 11
Malaysia 11
Vietnam 9
Singapore 7
Thailand 7
6
Positive drivers

• Cultural factors are positive ..
• Highly motivated labour force with strong work
  ethic
• More than 106,000 SMEs registered since 2000
• Culturally and socially quite European and open
• Many speak English
• Minimal ethnic or religious divisions
• Labour force more motivated than militant

7
Ho Chi Minh City
8
Hanoi
9
Origins of Real Estate Market

• Pre 1990
• Communist system all land owned by the State
• Virtually no real estate market as no laws
  regulating the use and private control of
  property
• Housing distributed by State
• 1986
• Doi Moi and slow movement towards a more open
  and market economy

10
First land and property laws

• 1990 1998
• First land laws introduced concept of private
  ownership
• Widespread speculation, land prices soared
• Foreign developers flocked to Hanoi and
• HCMC - numerous commercial and luxury
  developments

11
Development of Real Estate Market

• 1998 2004
• Revised Land Laws to prevent speculation
• Asian financial crisis many projects collapsed
• Small local developers emerged
• No new major projects
• Little or no interest from foreign investors

12
2004 Changes

• 2004
• Increasing incomes emerging mortgage market
• Shortage in all sectors
• Still difficult for local developers to find
  finance
• New Land Law to attract increased foreign
  investment and enhance real estate funding options

13
More Recent Improvements

• 2004 -
• Land use rights to be auctioned when State sells
  land
• Improvements in mortgage lending up to 15 years
  and 70
• JV developers permitted to build apartments for
  sale
• Adjustment of compulsory purchase compensation
  closer to market value

14
New Enterprise andInvestment Laws

• 1 July 2006
• New Common Investment Law (CIL)
• Unified Enterprise Law (UEL)
• Introduction of common legal framework for all
  types of enterprise and provides equal treatment
  to all investors. However, real estate is to be
  regarded as conditional investment.
• Still uncertain as to how new law will be impact
  market foreign investment projects subject to
  registration procedures and evaluation by
  licensing authorities.

15
Hanoi
16
Land Tenure System (1)

• All land held by the State
• Distributed through land use rights
• Vietnamese citizens can have effective freehold
  ownership no time limit on land use rights
• Foreigners restricted to 70 years by law
  (infrastructure projects) but only granted 50
  years for other uses

17
Land Tenure System (2)

• Foreigners allowed to lease land directly from
  Government or from Vietnamese companies for
  development
• Individuals only permitted to lease completed
  houses to foreigners
• Land use rights can be leased, mortgaged,
  exchanged, transferred or inherited
• Large development projects require approval of
  Prime Minister

18
Drivers of future growth
19
City Hall
20
HCMC Along Waterfront
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Major Investment Opportunity

• Property market is evolving and forecast to
  experience continued capital growth
• Not only growing from a low base but also
  increasing demand as a result of
• Strong growth in tourism
• Rising urban population
• Burgeoning middle class
• Legal reform
• Accession to WTO

22
Residential Market (1)

• Large latent demand driven by ..
• Rising incomes of burgeoning middle class from
  2000-2004, HCMC GDP per capita increased 32 from
  US1,365 to US1,800
• Development of banking sector and availability of
  mortgages
• Legal reform more favorable for real estate
  development
• Space of 10 sqm per person compared to 15 sqm per
  person in Shanghai

23
Hanoi Residential
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Residential Market (2)

• Rapid urbanization HCMCs population is
  expected to increase from 7mm in 2005 to 14mm in
  2020
• Additional need for 60m sqm of residential space
  of which half is for young families moving out of
  their parents homes, and the remainder for
  incoming city residents
• Current supply stands at 53m sqm

25
Diamond Plaza
26
Office Market (1)

• Limited supply in both Ho Chi Minh City and Hanoi
  since 1998
• Only recently have large projects (over 10,000sm)
  started construction
• Continuously rising rents reaching the same level
  as Shanghai
• High occupancy rates of 95 in both HCMC and
  Hanoi city centres

27
Office Market (2)

• Some 540,000sm and 150,000sm of new office space
  estimated to be required in HCMC and Hanoi
  respectively by 2010
• Assuming growth in new businesses continues
• Vietnamese companies upgrade to keep up with
  rising standards of professionalism
• Arrival of foreign companies and expansion of
  existing ones

28
Old Shop Houses
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Retail Market

• Nascent market with modern formats just starting
  to emerge
• Retail space will need to expand 5 times over
  next 5 years to match stock to population ratios
  in other Asian cities
• HCMC only has 2 department stores and 2
  hypermarkets, 70 supermarkets, 50 convenience
  stores and no real shopping malls

30
Omni Saigon Hotel
31
Leisure and Hotels

• Vietnam billed as the next Thailand - 25
  increase in visitor numbers since 2004
• Over 3,000km of coastline suitable for resort and
  villa developments
• High 4/5 average hotel occupancy rates peaking
  to 90 during holiday periods
• Opportunities for international operators to
  improve returns

32
HCMC Convention Centre
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Other Sectors

• Industrial
• Close to 100 occupancy of all HCMC industrial
  zones
• Extremely low supply of ready built factory
  premises for lease and international companies
  mostly have to build own facilities
• Townships
• Latent land value in townships yet to be
  conceived and developed in areas surrounding
  existing urban centres

34
The Challenge

• Still a lack of experienced property market
  professionals
• Absence of local companies with suitable track
  record
• Few investors wish to take direct investment
  position
• Most investors prefer to put toe in water and to
  do so in joint venture with other funds the
  herd mentality

35
Scope for Hong Kong Involvement

• Bringing development expertise
• Sourcing/investing in development opportunities
• Packaging projects
• Raising funding
• Designing and project managing developments

36
Scope for Hong Kong Involvement

• Selling and leasing finished projects
• Providing property and facilities management
  services
• Valuing property portfolios
• Providing asset management services to Vietnam
  funds

37
Thank you

• Professional Property Services Limited