Slim Pickings in Vietnam’s Real Estate Commercial Market

Published as a cover story in the Vietnam Economic Times February 2007. Mr. Daniel Fancey, Senior Manager of Corporate Services at CB Richard Elllis (Vietnam) takes a look at what office real estate space exists in the country’s major centres.

With Vietnam officially becoming a member of the WTO at the end of 2006, demand is high for office space and commercial real estate in a market with little quality supply. Surprise awaits newcomers as the lack of availability forces rents to a much higher level than elsewhere in South East Asia. The strong demand in commercial real estate is also due to successful Vietnamese companies that are upgrading to higher quality office space. Hanoi and Ho Chi Minh City are the main office locations, but other cities in the country are moving forward as well. Da Nang, in particular offers real estate space in new real estate developments for the growing demand in the international standard office space.

Ho Chi Minh City Real Estate

Ho Chi Minh City possesses only five Grade A buildings offering just above 73,000 square metres of office space – 28 per cent of the total office stock. All located in District 1, these Grade A buildings are full and the occasional available space is currently offered at a minimum of $32 per sq m per month (inclusive of service charges) an 8 per cent increase form a year ago. New supply in Grade A commercial real estate space will come online in 2008-2009. Until then, companies in need of expansion have to consider Grade B and C or decentralised alternatives. Foreign companies entering the real estate market are quickly snapping up the voids created when such movements occur.

A limited new supply of quality commercial real estate space in 2007 is of Grade B quality at monthly rates ranging from $25 per sq to $30 per sq m (inclusive of service charges), dpending on location and features. Occupancy in the 11 Grade B buildings in Ho Chi Minh City commercial space is at its peak. Of the new buildings, the 9 Dinh Tien Hoang buildings offer an excellent column-free floor plate of sufficient size for medium and large size companies.

There are numerous small buildings comingon to the commercial real estate market, typically with 1,500 to 2,000 sq m of useable space. They may become a viable alternative for large occupiers as a single-tenant option only if they offer a good location and an acceptable quality level. It is critical for real estate developers of such buildings to understand the needs of an international clientele in order to ensure adequacy in terms of space, tenant management and retention. This real estate commercial market segment may not succeed in influencing the quality office market by eroding the demand for larger buildings with international standard features.

Hanoi Commercial Buildings

Hanoi was on centre stage in November with the APEC meeting and the official announcement of Vietnam becoming the WTO’s 150th member. Demand for commercial office space in the capital is high and new quality real estate supply is scattered in and around the city centre. The capital is the logical address of many multi-national companies, diplomatic missions, international organisations and growing number of global-savvy Vietnamese companies.

The total leaseable stock of Grade A building commercial space in Hanoi stands at 84,000 sq m in nine buildings, that ended the year at full occupancy. An additional 22,000 sq m is coming online in Hanoi in 2007 with Pacific Place and the Opera Business Center. Nevertheless, monthly rentals are at $30 per sq m and up (exclusing service charges and VAT) in Grade A commercial buildings due to strong demand for high quality space.

The opening of the HRS Building and Hoa Binh International Towers pushed the Grade B sector stock close to 145,000 sq m from the previous 115,000. The sector in commercial real estate in Hanoi ended the year with a vacancy rate of about 8 per cent due to the new supply. Several new commercial buildings are under construction, like North Asia Tower, Viglacera Tower, VIT Tower, and Kinh Do Building and The Manor, all of which will add another 65,000 sq m to the commercial real estate market in 2007. Most of these new commercial buildings already have more than 60 per cent commitments from tenants with monthly rentals in the $15 to $20 per sq m range depending on the features and the location’s attractiveness, with most being in the city’s new clusters.

New Grade B commercial real estate supply in Hanoi will relieve some of the pressure on average rentals in Hanoi, but strong demand for quality features and location will remain the driver of any increases.

Da Nang Real Estate

The fourth largest city in Vietnam is clearly moving forward and tremendous change has been seen in recent years. Quality infrastructure, an international airport, port facilities, and industrial zones, proximity to major heritage sites and famous beaches for tourism all contribute to impressive GDP growth of 13 per cent over the last five years in Da Nang.

Total commercial real estate office space in Da Nang doubled in 2006 and the year ended with nearly 20,000 sq m of supply. Occupancy is at 96 per cent and demand is increasing, notably from the financial insurance and education secotrs, as well as from major distributors involved in central Vietnam and transport and logistics companies.

Located on the busiest street in Da Nang, just five minutes from the airport, Vinh Trung Plaza (VT Plaza) is currently under construction and will bring 6,000 sq m of international office space at the best location in the city in Q2 this year.

The IndoChina Riverside Tower will add more than 6,000 sq m of international standard commercial real estate office space in a high-quality mixed used development in the middle of 2008.

Banks Clamour to Provide Housing Loans in Vietnam

Vietnam real estate properties market is again on the rise as the younger generation has seen an explosion of economic times in the country's largest cities like Hanoi and Ho Chi Minh City.

Hanoi - Banks are in a race to offer home loans on the back of rising demand for real estate property that sees consumers not only buying new real estate but also refurbishing their current residences.

Asian Commercial Bank (ACB) expects to increase the maximum an individual is allowed to withdraw without a mortgage to VND200 million (US$12,500) at 1.1 - 1.15 per cent interest rate per month, said Bui Tan Tai, director of the bank's Indidivudal Consumer Division. All that clients have to do is prove their ability to repay the real estate loan based on their monthly incomes.

ACB is one of the local pioneers in offering home loans without consumers having to take out a mortgage, and plans to offer more non-mortgage based financial services for clients in the mid to upper middle income bracket.

Orient Commercial Bank (OCB), Viet Nam Technological and Commercial Joint Stock Bank (Techcombank) and Sai Gon Thuong Tim Commerical Bank (Sacombank) are also focusing heavily on the home loan real estate market as people mirgrate to urban centres for work, increasing demand for apartment units.

In comparison, these banks are willing to finance up to 70 per cent, or between VND800 million to VND2 billion, of an apartment's value, with instalments made over 15 - 20 year period.

Real estate market in Vietnam expected to further revive

Ho Chi Ming City – The country’s World Trade Organisation (WTO) accession and the fast development of the stock market has helped revive the real estate market in Vietnam, according to industry insiders.

Do Thi Loan, general secretary of the HCM City Real Estate Association (HoREA), said the local property real estate market showed signs of picking up after Vietnam became an official membership of the WTO in January.

Independent real estate market watchdogs said the number of real estate purchases in the last quarter of 2006 increased more than 20 per cent over previous quarters. On the first days of the Lunar New Year, transactions at local real estate companies picked up dramaticaclly, they said.

Vo Dinh Quoc, deputy director of the Asian Commercial Bank’s Real Estate Company, said the company recently concluded a real estate transaction worth up to VND 100 billion (US $6.25 million) on the first working day of the real estate company in the new year.

A representative of the Phu My Hung joint venture in Sai Gon South also revealed that the real estate company had to refuse hundreds of potential customers as they expressed their wish to buy real estate apartments.

“Most of these customers are ready to pay in cash to buy our apartments, but we have no more,” he said. A similar situation was also seen as many other apartments trading companies.

Luu Thanh Huong, director of the Linh Phong Real Estate Construction, Investment and Development Company, said: “We have sold out about 1,500 real estate apartments and houses located in residential areas on District 7’s Nguyen Van Linh Street.

“This year along, we plan to build 700 more apartments of different kinds to fill customers’ orders,” Huong said.

The prospect of WTO membership has inspred new waves of foreign investment and has revived the dormant property real estate market in Vietnam. Experts said investors’ concerns over the country’s legal system and stability of the business environment have begun to dissipate recently.

As most real estate activities often require a great deal of capital, investors in real estate want the Government to ensure that their investments are protected. WTO membership will require that international trade rules be followed, they said.

Trade Minister Truong Dinh Tuyen said at a recent press conference WTO accession proved that the country’s doi moi (renovation) had been recognized by the international community. Tuyen said that institutional reforms and revamped real estate legal system have been the renovation process’s most significant achievements.

Foreign real estate investment experts have said that the Government’s recent politics on foreign investments, particularly in terms of property and housing, have encouraged more investors to do business in Viet Nam.

Loan of the HoREA said that her association had received more than 20 delegations representing major real estate companies from countries and territories including South Korea, the US, Australia, mainland China, Singapore, Hong Kong and Taiwan.

Most were very interested in real estate property trading in VietNam, particularly in big cities like HCM City, Loan said. Office buildings, luxury apartments, shopping centres, and housing for low-income earners were the primary interest, she said.

“there have been several memoranda of understanding and business contracts signed between Vietnamese and foreign property enterprises during the HoREA visits.”

Loan and other real estate market experts have the same view that the strong development of the domestic stock market, with many people earning high returns within a single day, has also contributed to the recovery of the real estate sector in Vietnam.

“Many of these people flocked to invest in the property market. This change has provided the real estate market in Vietnam with a new source of potential customers,” she said. Loan also predicted that the domestic property market will change as the government allows Viet kieu (overseas Vietnamese) to participate in the property market.

Quoc from the ACB said tha thte governemtn should issues policies allowing domestic investors to transfer their property projects to foreigners and simplify the property-related procedures.

Tran The Ngoc, director of the HCM City department of Natural Resources and Environment, said the city would adjust real estate property trading and management policies in ways that would make the local market develop, and encourage foreign and domestic investments in real estate. - VNS