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Vietnam Real Estate Scene : A market in the making

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

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Vietnam Real Estate Scene : A market in the making

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  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

  4. Positive Fundamentals

  5. Young, motivated workforce Labour costs are low … 2005 GNI per Capita US$ … education level high Illiteracy Rate Percent, 2005

  6. 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

  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

  21. 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 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

  23. Hanoi Residential

  24. 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

  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

  29. 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

  33. 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

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