No Real Estate Vacancy in Vietnam

From the Vietnam Economic Times for Feb 2007. Most serviced apartment complexes in Hanoi and Ho Chi Minh City are full and rents continue to rise, presenting an opportunity for real estate investors and developers. Linh San reports.

After announcing in late 2006 that it would acquire a 206 unit serviced residenced from the HOa Binh Co., Ltd. in Hanoi’s Cau Giay District, the Singapore based Ascott Group’s portfolio in Vietnam rose to 794 units in five properties of real estate. The acquisition of Somersat Hoa Binh was timely given the limited supply of good quality accommodation real estate in Hanoi.

“There is a shortage of internationally managed Grade A serviced apartments in Vietnam, especially in Hanoi, “Mr. Cameron Ong, Ascott’s Managing Director and CEO told Vietnam Economic Times. The average occupancy rate across Ascott’s Vietnam real estate properties is above 90 per cent, he said, while the real estate market average is about 85 per cent. “It is clear that there is potential for growth,” he believes.

Mr. Peter Dinning, Director of VinaCapital’s property investment real estate activities is of the same mind. “Our research suggests that almost all serviced apartment projects in Hanoi and HO Chi Minh City are full and rents continue to rise, with real estate projects such as Bitexco’s The Manor in Ho Chi Minh City now completed and attracting many international tenants,” he said. VinaCapital’s $205 million real estate investment fund Vinaland has invested in 14 real estate projects in Vietnam’s key population areas, including Hanoi, Ho Chi Minh City and Da Nang.

There are 46 buildings from Grade A to C in Ho Chi Minh City, according to Chesterton Petty Vietnam, including 2,425 international and local serviced real estate apartments for relase, with nearly half of these being two bedrooms apartments and approximately 1,0000 are villas in various districts. The 30 buildings from Grade A to C in Hanoi now have 98 per cent occupancy rates.

“In general, the serviced apartment markets real estate in both cities are performing very well,” said Mr. Brett Ashton, Deputy General Director of Chesterton Petty Vietnam. “Occupancies are near 100 per cent and rents are rising. Demand for real estate is coming from new expatriates entering Vietnam as well as some Vietnamese peple now renting.” He added that with so many real estate developers deciding to change to apartments for sale, few new serviced apartments will be coming on to the market in the next few years.

According to CB Richard Ellis, Hanoi’s serviced apartment real estate market will be bolstered by 520 new units in 2007, with projects such as Skyline Tower in Dang Dung Street, Elegant Suites in Ha Hoi Street, DMC Tan Long in Kim Ma Street, Atlanta in Hang Chuoi Street and Syrena in Xuan Dieu Street.

Skyline Serviced Apartments, overlooking Truc Bach Lake will be the latest serviced apartment real estate building to come online when it opens in January. Eighty eight much needed serviced apartments will be added to a sector that is almost fully occupied and in great demand. Due to the shortage of serviced apartment condominiums in the city and the relatively high price per square metre, CBRE has noticed a trend for expatriates to consider moving out to Ciputra International City, where furnished and unfurnished apartment condos and villas can be rented from $600 to $3,500 per month from local homeowners.

New real estate condo projects in Ho Chi Minh City include Indochina Park Tower in Nguyen Dinh Chieu Street, Pasteur Court in Pasteur Street, the Lancaster in Le Thanh Ton Street, Phuong Nam Swiss Attis Riverside in Saigon South, Times Square in Nguyen Hue Street and Kumho Plaza in Le Duan Street.

“The supply of luxury real estate residential units in Hanoi and Ho Chi Minh City has remained fairly static throughout 2006,” Mr. Martin Roumens, General Director of Chesterton Petty Vietnam said. “Notable additions include Elegant Suites in Hanoi, which was leased within four months of opening with only one or two units remaining.”

He noted further that real estate vacancy rates are slightly higher in Ho Chi Minh City than in Hanoi, which ahs very few condo units available, mainly due to the natural turnover of expats. “As the real estate property management company of the largest number of high-end units int eh country, we have seen demand continue to rise in 2006 and we expect this to continue in 2007. Hanoi will see a significant amount of new condominium supply this year, mainly in the West Lake area with Syrena Apartments leasing 171 apartment condos onto the market. We expect over 400 new units in total before the second quarter, which will have an impact on occupancy rates, but this will adjust with high demand so rentals will not be affected.”

Chesterton Petty predicts that serviced apartment condominiums rents in Ho Chi Minh City will remain stable until 2008 and thereafter will decrease as more apartment real estate developments are completed. Overall the company expects to see occupancy levels remain at around the 90 per cent mark.

Real estate investors have judged that the serviced real estate condo apartments in Veitnam is still in its infancy compared with other regional cities, and so has great potential. “The serviced apartment market in Vietnam is at a very early stage of development real estate with total stock of units being very small compared with cities such as Manila, Jakarta and Bangkok, and as a result rental levels of real estate are much higher than the other cities due to the limited supply but high demand,” said Mr. Dinning. “We expect this trend to continue for a number of years to come, making the real estate development of serviced apartments more profitable than in other regional cities.”

Mr. Ong from the Ascott Group agrees. “With GDP growth of 8.2 per cent in 2006, we see great opportunity here and Vietnam will continue to be a key real estate market for Ascott,” he said.

Other real estate investors are optimistic about serviced apartments in Vietnam. Recently, Lee and Co Development received a licence for a residential real estate and clean industrial complex on an area of 24.7 ha in Ho Chi Minh City’s District 7. The $76 milion real estate project involves two Vietnamese partners: Saigon Electric Construction and Investment and Khanh Gia. The real estate joint venture involves five high-rise apartment buildings with some 2,000 units, in addition to recreation, health and school facilities.

In mid December, Posco Construction and Engineering and its partner, the Vietnam Construction Import-Export Corporation (Vinaconex), received a licence to develop Bac An Khanh, a new urban centre in the northern province of Ha Tay. The real estate development project of $1.4 billion is epected to be the most modern in Vietnam and be developed through to 2020, with 7,600 apartment condominiums and houses and a 75 storey office block and other facilities.

Both CBRE and Chesterton Petty believe that Vietnam’s WTO entry have a positive impact on the serviced apartment sector. So do real estate investors. “With Vietnam joining the WTO, we expect it to experience continued growth in terms of FDI,” said Mr. Ong. “With more expatriates coming to Vietnam, we expect the hospitality industry to experience growth in tandem. In the short term we see occupancy and price in the hospitality industry soaring until a significant level of new supply in the real estate market eases the demand.”

“The signing of the TWO has an overall impact on real estate in Vietnam by providing more demand for property in every sector, whether that be industrial, commercial offices, retail or residential,” Mr. Dinning said. “This continuing rising demand stimulated by the WTO entry will allow serviced apartment real estate developers to increase in number and still provide a decent return on their investments.“

The Time Is Now

With FDI almost certainly continuing upwards, the shortages found in Vietnam`s real estate market offer a golden opportunity to foreign investors writes Le Cam Le.

More than at any other time in the past, Vietnam’s real etate market has become an attractive investment destination for foreign investors. In just the opening weeks of the new year, a wave of foreign direct real estate investments (FDI) has poured into not only major cities like Hanoi and Ho Chi Minh City but also to other areas not previously regarded as magnets for real estate investments.

Amberlamb, an independent online publication featuring expert overseas property investment research, advice and information, has assessed Vietnam’s two largest centres – Hanoi and HO Chi Minh City – as investment destinations of potential. Hanoi, Amberland wrote, has opportunities in the residential real estate and commercial rental markets and offers developers a chance to create anything from office and retail space to satellite towns to service Hanoi workers with affordable and desirable suburban condo properties. Ho Chi Minh City, meanwhile, has grown to become the largest centre in the country and accommodation issues are beginning to push real estate rental prices upwards.

A number of key factors have made real estate become more attractive in the eyes of foreign real estate investors. “As a direct consequence of the total absence of FDI in real estate for about ten years from 1995, Vietnam’s cities are now facing a chronic shortage of all types of space, including office and commercial accommodation,” said Mr. Rick Mayo Smith, Managing Director of Indochina Capital. “Office rentals have roughly doubled over the past five years and are now more or less on par with Singapore. Space shortages and inevitably, rental real estate increases look set to continue in the short term.”

This drives interest among foreign investors in developing sites – especially large plots close to the city centre where many perceive that rentals and values will continue to increase and remain consistently strong – and most insist on “owning” 100 per cent FIE licences of at least 50 years. However, the shortgage of suitable sites and the numerous legal obstacles have sufficiently deterred most from investing in real estate and so rentals have now climbed in both the main cities.

Described by Mr. May-Smith as the “Country of the Year” Vietnam’s official admission into the WTO makes it able to bring in higher levels of FDI. As the financial services sector better develops, more capital will be found for real estate investments in commercial real estate. “Because of the demand and supply imbalance and because office properties are the preferred real estate investment of many developers, we anticipate an enormous amount of new stock will come onto the market over the next 10 to 20 years,” said Mr. Mayo-Smith.

Therfore, while the domestic real estate market has become stagnant, many foreign investors see that now is the right time to develop real estate projects in Vietnam. Indochina Land with over 15 years of experience, is in a strong position to succeed. The company has financed and developed over $1 billion in real estate in the past and will build another $1 billion worth in the next five years.

In just a short period of time, more than 20 foreign invested projects real estate valued at hundreds of millions of dollars have flocked into Ho Chi Minh City. Those such as Saigon Sport City, invested by a Singaporean company and worth $130 million, the Taiwanese invested $428 million Saigon Happiness Square, and the Bonday Ben Thanh Tower belongs to Hong Kong real estate investors and worth $55 million. SP Setia, Malaysia’s biggest real estate group, came to Vietnam in October last year and is planning some major projects in the south of the country. Indochina Land has been a pioneer in Da Nang and has some key projects in this economic hub of the central region including Riverside Tower.