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Vietnam Real Estate Scene :
A market in the making
Margaret Brooke, FRICS FHKIS
CEO, Professional Property Services
10 April 2007
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
PPS
Strong and Consistent Growth
GDP Growth
China
India
Vietnam
Singapore
Hong Kong
Malaysia
Philippines
Thailand
2005
10.2
8.4
8.4
6.4
7.3
5.2
4.8
4.5
2006
8.2
9.2
8.2
7.9
6.8
5.9
5.4
5.0
Positive Fundamentals
2005
2006
8.4%
8.2%
US$571.3
US$725
Consumer price index
8.3%
6.6%
Industrial production growth
25.5%
6.8%
US$4.1bn
US$7.66bn
11.0%
10.2%
Exports
US$32.2bn
US$39.6bn
Imports
US$36.8bn
US$44.4bn
Foreign reserves
US$7.2bn
US$9.0bn
External debt
US$18.0bn
US$20.5bn
34%
32.8%
3.46mm
3.58mm
GDP growth
GDP per capita
FDI
FDI as % of GDP
External debt as % of GDP
Tourist Arrivals
Young, motivated workforce
Labour costs are low …
… education level high
2005 GNI per Capita
Illiteracy Rate Percent, 2005
US$
United States
43,740
Japan
38,980
EU
31,915
Singapore
27,490
China
11%
Malaysia
11%
Vietnam
9%
Malaysia
4,960
Thailand
2,750
Singapore
7%
China
1,740
Thailand
7%
Vietnam
620
Positive drivers
Cultural factors are positive …..
Highly motivated labour force with strong work
ethic
More than 106,000 SME’s registered since 2000
Culturally and socially quite “European” and
open
Many speak English
Minimal ethnic or religious divisions
Labour force more motivated than militant
PPS
Ho Chi Minh City
Hanoi
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
PPS
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
PPS
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
PPS
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
PPS
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
PPS
New Enterprise and
Investment 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.
PPS
Hanoi
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
PPS
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
PPS
Drivers of future growth
City Hall
HCMC Along Waterfront
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
PPS
Residential Market (1)
Large latent demand driven by …..
Rising incomes of burgeoning middle class: from
2000-2004, HCMC GDP per capita increased
32% from US$1,365 to US$1,800
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
PPS
Hanoi Residential
PPS
Residential Market (2)
Rapid urbanization – HCMC’s 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
PPS
Diamond Plaza
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
PPS
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
PPS
Old Shop Houses
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
PPS
Omni Saigon Hotel
PPS
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
PPS
HCMC Convention Centre
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
PPS
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
PPS
Scope for Hong Kong
Involvement
Bringing development expertise
Sourcing/investing in development
opportunities
Packaging projects
Raising funding
Designing and project managing
developments
PPS
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
PPS
Thank you
PPS
Professional Property Services Limited