Luận văn real estate market and property consultancy in hanoi some strategic solutions for vietnamese property consultancy companies

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS 4 Nguyen Trung Dung REAL ESTATE MARKET AND PROPERTY CONSULTANCY IN HANOI, SOME STRATEGIC SOLUTIONS FOR VIETNAMESE PROPERTY CONSU

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

4

Nguyen Trung Dung

REAL ESTATE MARKET AND PROPERTY CONSULTANCY IN HANOI, SOME STRATEGIC SOLUTIONS FOR VIETNAMESE

PROPERTY CONSULTANCY COMPANIES

MASTER OF BUSINESS ADMINISTRATION THESIS

Hanoi - 2007

VIETNAM NATIONAL UNIVERSITY, HANOT

SCHOOL OF BUSINESS

Neuyen Trung Dung

REAL ESTATE MARKET AND PROPERTY CONSULTANCY IN ILANOL SOME STRATEGIC SOLUTIONS FOR VIETNAMESE

PROPERTY CONSULTANCY COMPANIES

MAJOR: BUSINESS ADMINISTRATION

CODE: 60 3405

MASTER OF BUSINESS ADMINISTRATION TIESIS

SUPERVISOR: DR TA NGOC CAU

HANOI - 2007

TABLE OF CONTENTS

TABLE OF CONTENTS ues cscssesesstseesistasicarinusinisiicnisianinan stasis

SCOPE AND LIMITATIONS OF THE STUDY seo đ METHODOLOGY se pectuenenatasieeiitieiatianirsnsseen &

1.6 Linc of Real Fstate Related Businoss - "1 L2 THE PROPERTY CONSULTANCY

1.2.1 Why Property Consultancy?

1.2.2 Traditional and Modem View

2.2 ANGI REAL ESTATE MARKET | 28 2.2.1 Residential Markel

2.2.2 Serviced Apartment Market

3.2.11 Real Fatale Investment

3.3, DEMAND AND KEY CONSIDERATIONS IN SELECTING CONSULTANT 65

3.4.2 Key Maotors In Determining Choice of Consultant - 7

3.4.1 Market Shure & Supplying Compete - - 73

vũ

LIST OF ABBREVIATIONS

GDP: Gross Domestic Product

FDL Foreign Direct investment

WTO: World Trade Organization

Colliers: Colliers International

Savills: Savills Vietnam Ltd

CBRE: CB Richard EHis

viii

LIST OF TABLES

Table 2.1: Hanni’s population from 2003-2006

Table 2.2: Hanoi’s GDP from 2003-2006

‘Table 2.3: Transaction Rate by Kind of Itroperty

Table 2.4: Price of Sales by Grade

Table 2.5: Rental of Apartments Including Tax (Not serviced apartments) Table 2.6: Supply af Ttanoi Serviced Apartment Market

Table 2.7: Classifying Office Buildings

Table 2.8: Standard Arca & Average Rental Rate for Retail Models In Hano’

‘Table 2.9: The Rate of Retail Format by Area Use

Table 2.1: List of Markets Will Re Canverted Into Shopping Centers

Table 2.11: Hotels in Hanoi 2006

Table 2.12: Average Rental of Industrial Zones

Table 3.1: Reasons for Using a Cansultant

Table 3.2: The Type of Clients That the Consultants Deal With the Most

Table 3.3: The Way CHents Got Real Estate Consultant

Table 3.4: Evaluate the Performance of Current Consultant

LIST OF FIGURES

Kigure 1: Thesis Outline

Figure 1.1: The Adjustment Mechanism of Real Estate Market

Figure 1.2: Traditional and Modern View of the Real Estate Market

Figure 1.3: Porter's Five Forces Madel

Figure 1.4: Another Model of Industry Analysis

Figure 1.3: SWOT Analysis

Wigure 2.1:

Inusing Supply Vs Actual Demand in Manat

Kigure 2.2: Hanoi New Stock For 2008-2010; 7,634 units

Figure 2.3: Trend of Apartment & Villa Supply 2007-2020

Figure 2.4: Demand and Rentals of Hanoi Serviced Apartment Market

Kigure 2.5; Limited Supply during Period 1998-2007

Figure 2.6: Future Supply of Hanoi Serviced Apartment Market

Figure 2.7: Monthly Take up and Occupancy Rate of A&R Office

Figure 2.8: TĨanat's New Supply of Grade A&D Office

Figure 2.9: Average Rental (Net) of Grade A&B Office

Figure 2.10: New Stock of Grade A, B&C Office (2007-2010)

LA PER MON FI)

Kigure 2.12; RETAIL SALES & YEAR ON YEAR GROWTH RATE DURING 1996-2007

Migure 2.11: INCOME GROW’

IER CAL

Figure 2.13: Hanoi’s GDP per capita & Population

Figure 2.14: Leaseable Area and Rental Rates of Shopping Centers in Hanci

Figure 2.15: Stgnificant Future Shopping Center in Tanot

Figure 2.16: Comulative Stock and New Supply of 4, 5 Star Hotel Room

Figure 2.17: Requirement for Hotel Room (2005-2010)

e Consultant with Best Reputation for

Wigure 3.1:

Kigure 3.2: The Consultant with Best Reputation for Open Brokerage/Agency

Figure 3.3: The Consultant with Best Reputation for Tenant Representation

elusive Agency

Figure 3.4: The Consultant with Best Reputation for Property Management

Kigure 3.3; The Consultant with Best Reputalion for Research

Figure 3.6: The Consultant with Best Reputation for Valuation

Figure 3.7 the Consultant with Best Reputation for Investment Sales&e Acquisition

The Consultant with Best Reputation for Vraject Devetapment

¢ Consultant with Best Reputation for Legal issues

Figure 3.10: The Consultant with Best Reputation for Financial Services

Figure 3.11: The Consultant with Best Reputation for Real Estate Investment Figure 3.12: Most Common Complaint from Clients

Figure 3.13: Importance of Factors Determining Cholce of Consultant

Kigure 3.14; ow Well Cousullants Understand Their Clients

Figure 3.15: Fee Structure Preferred by Clients

Figure 3.16: Market Share by Turnover

Kigure 3.17; Revognition of (ie Consulling Companies

APPENDIX

APPENDIX B: Questions for Clients

APPENDIX B: Questions for Consultants

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INTRODUCTION

1 BACKGROUND

Hanoi is an important center of real estate industry in Vietnam and Asia as well

‘Due to great potential, Hanoi real estate market is becoming a favoured destination for domestic and (orcign investinent During the end of the year 2007, real estate market in Hanoi has recovered from a long time of freezing and showed new fever

“It is the third fever” It is easy to see that price of all properties is rising strongly

Tn order to explain the situation and give oul the forceast for the upcoming years, il

is necessary to analyze the market deeply and carefully based on mix-factors Although, it has fluctuated strongly in the pass, ITanoi real estate market is still been scen as a primary market “Boom” demand and positive policies that make Hanoi

real estate market more attractive for investment, especially foreign investment

Hanzi real estate market will continue to boom in many years upcoming that brings great opportunities and threats, Hanoi real estate market is always a center public discussion especially for problems such as: Shortage of supply, escalation of price, speculation, uncleamess of market, and effects of new policies However, practical and theoretical researches on Hanoi real estale markel are few, immaterial and

unsystematic

The properly consultant is an important factor of real ostale markel that leads or plays the role of conductor in real estate market Thanks to the real estate market, property consultancy in Hanoi has become a profitable business Today, the demand for property consultancy in Hanoi is diversified and increasing very fast that put a strong pressure on consultants Key clients those who are users of real estate related consultant services including property developers, property companies, domestic

institutional investors, international investors and larger domestic corporations The

foreign consultancy firms with their good reputation and brand, high

professionalism that become market leaders Forcign consultants can provider a diversified list of services or highly specific services Vietnamese consultancy companies arc also improving their compelence to hold the markel share However, Vietnamese consultancy companies still haven't clear strategies that help them to win in an environment of full opportunities and challenges So far there aren’t still any professional researches on the subject of property consullaney in Vietnam or

Hanoi

2 OBJECTIVES OF THE STUDY

The objectives of this thesis focus on:

For Hanoi real estate market, the general objective of the thesis is to present and

analyse key issues of inarkel at this present time and make some forecast about the

trend of market in the near future in order to get the general objective, the thesis

focuses on the following specific objectives:

e Analyse the effect of macro-environmental factors such as: Political, economic, social, legal and policy

«Analyse the characteristics of demand and supply as well as factors which alTeet demand, supply and price of Hanoi real estate market al this present time ‘The analyses also provide some forecast for some upcoming years,

especially [or the period af 2007-2012

Vor property consultancy in Hanoi, the general objective of the thesis is to present and analyse key issues of property consultancy market and the comparison between

foreign and Vietnamese consullancy companies Ta order to get the generat

objective, the thesis focuses on the following specific objectives:

Analyze the development of property consultancy in Hanoi

@ Present.and analyze key services which are offered in Hanoi

Analyze the demand, key clients and customer behaviour in determining

choice of consultant

Analyve the market share, supplying competence and internal environment

of property consultancy companies in Hanoi

From the presentation and analyses of real estate market and property consultancy

in Hanoi, this thesis will make some strategic solutions thal, can apply for

Vietnamese property consultancy companies to improve their business

3 SIGNIFICANCE OF THE STUDY

‘The presentation and analysis for key issues of Hanoi real estate market at this present time and outlook for some upcoming years in this thesis will has the

following significances

Tay the foundation for researches on Hanoi real estate market in a

methodical, comprehensive and systematic view This thesis will be a good

basis for further researches

Systematize separate researches on Llanoi real estate market

Help to explain some public discussions especially for problems such as escalation of price; the trend of supply and demand; effects of economic growth, financial markel, foreign investment and new policies

Help to provide useful and selective information for making decisions related

jo the rea) estate business and mvestment as well as new pohcics

‘The presentation and analysis for key issues of property consultancy in Llanoi at this

present line in this thesis will has the following signiliances:

Lay the first foundation for research on this subject

Telp to understand the role of consultant in real estate market

Bring deep knowledge on property consultancy in Hanoi

¢ Provide usefil and selective information for clients, investors and property

consullants

« Help to make some strategic solutions for property consullancy compares,

especially Victnamese companies, which aro playing in a big game full of

opportunities but also full of challenges

4 SCOPE AND LIMITATIONS OF THE STUDY

This study is focused on the presentation and analysis for key and basic issues of

Hanoi real estate market and property consultancy in Hanoi and making some

strategic solutions for Vietnamese consullancy companies lo improve their business

ina market of full opportunities and challenges ‘The research is focused on key and

basic issues; i doesn’ L enter the specific branches of real estate market and property

consultancy The recommendations on strategic solutions also stand on the basis of

overall view

5 METHODOLOGY

5.1, Rescarch Mcthod

Both qualitative and quantitative methods were used in this research Tn some parts

of the research consists of, amongst other data, observation of the real estate maket and consultants business and therefore a descriptive method was used In the other

parts of Ihe rescarch is of boll a qualitative and quantilative nature Qualilative, as it

‘nies to describe the real estate maket and views of actors in real estate consultancy and clients with regard to future trends Quantitative as certain sections of the

stalistical data, queslionmaires were formulated ina way that they could be grouped

and results were given a numerical value

5.2 Data Collection and Analysis Method

The research was conducted by reviewing available literature that was relative to the subject, though this material was primarily limited to articles from the pross and real estate-related industry magazines, paper Several masters thesis within similar fields were found and certain information contained within them was used and relied upon The lack of research, published papers and data relating to the subject

area, has meant that it was not possible to carry out an empirical study

The information used in the sections of this research was gathered from real eslate

market, informal discussions with staff members at the choson companies (primary data) ‘this was supplemented by using publicly available information (secondary data) about the real estale market and property consullaney companies [rom sources such as: Web sites, brochures and marketing information and market reports when available In addition, some figures were obtained from Ilanoi Statistios Department

and other internal information The accuracy of the data received from these

person/company/department before being relied upon

Allboogh observation was used in the most parls of the sludy, the main focus was placed on the primary data received from the interviews / questionnaires In order to

improve response rate and increase the amount of data collected, the questionnaires

were not mailed In most cases the questionnaires and related discussions were

conducted face-to-face, though some of the questionnaires were conducted by

telephone, email Questionmaires and informal interviews were conducted with buth

the consultants and the clients, one consultant considered as ten clients The

companies that were interviewed on the “consultant side” were placed into the

categories such as: Domestic and international property consultants, legal and

aveountancy firms On the “vhient side”, those users of property related consultant

services that were interviewed were: Property companies, property developers,

domestic institutional mvestors, international investors and large domestic

corporations, ‘I'he data was collected using a structured survey with numbered questions and for mos answers there were mulliple-choice responses Two separale: questionnaires were constructed, one for the property consultants and one for the

clients

6 THESIS'S LIMITATION

recently and in the near future

« Professional properly consultancy is slill quite new in Vietmam, so representative features may be not popular It is still new and becoming developed dramatically

ia 5 past recent years

The questionnaire is conducted with the purpose on interviewing key clients and

consullants and in some ca ome relevant interviewees can nol allend the

interview thus collecting and analyzing information is not extremely exact

© Othor restriction is that recommendation is for only key strategic solutions that help Vietnamese property consultancy companies to improve their business

7 GUTLINE

The thesis is divided into three chapters

Introduction

Chapter 1: Literature Review

Chapter 2; Hanoi Real Estate Market

Chapter 3: Property Consultancy in Hanoi

Conclusions and Recommendations

Figure 1: Thesis Oulline

Chapter 2 Hanvi Real Estate

CTTAPTER 1: LITERATURE REVIEW

1.1 REAL ESTATE MARKET

1.1.1 The Definition for Real Estate & Real state Market

Real estate is a logal term that oncompasses land along with anything permanently

affixed to the land, such as buildings [lowever, in some situations the term "real

estale" refers to the land and fixtures together, as distinguished [rom “real property,"

referring to ownership rights of the land itself

Real estate market is place where exchanges or transactions of real estate such as buying, selling, leasing, investment lake place thal define the price and volume of real estate exchanged ‘he real estate market is broadly divided into three categories residential, commercial, and industrial by purpose of use Some main foalures of real estate markel are: decentralization, imperfect market, supply Tiniled, supply responds slowly to shifts in demand

1.1.2 The Main Participants in Real Estate Market

«@ Owner/User - These people are both owners and tenants They purchase houses or cormmercial properly as an investment and also to live m or ublize

as a business

« Owner - ‘These people are pure investors They do not consume the real estate that they purchase Typically they rent out or lease the property ta

someone else

« Renter - These people are pure consumers

« Developers - These people prepare raw land for building which results in

product for the market

that facilitate the purchase, sale and lease of real estate

e Government - Affect the real estate market by making, implement and

control the policies relaled lo real estale

The owner‘user, owner, and renter comprise the demand side of the market, while

the developers comprise the supply side Facilitators and government, comprise the both sides of the market

is suppliedto the market is known as the supply relationship ‘The main determinants of the supply for real estate are:

®© Land resource

¢ Real estate development and business costs

* Policy

1.1.5 The Adjustment Mechanism

In the diagram to the right, the stock of housing supply is presented in the left panel

while the new flow is in the right panel There are four steps in the basic adjustment

mechanism First, the initial equilibrium price (Ro) is determined by the intersection

of the supply of existing housing stock (SH) and the demand for housing (D) This

rent is then translated into value (Ve) via discounting cash flows Value is

calculated by dividing current period rents by the discount rate, that is, as

perpetuity Then value is compared to construction costs (CC) in order to determine

whether profitable opportunities exist for developers The intersection of

construction costs and the value of housing services determine the maximum level

of new housing starts (HSo) Finally the amount of housing starts in the current period is added to the available stock of housing in the next period In the next period, supply curve SH will shift to the right by amount HSo

Figure 1.1: The Adjustment Mechanism of Real Estate Market

1.1.6 Line of Real Estate Related Bu: ess

Real estate consultancy/agency

©) Markel research

« Valuation/ating

©) Lawyers, iax consultants, auditors

© Real estate agerts/ageney

Real estate development

© Other fancial insbtulions

Corporate real-estate management and property operators

Office real estate

Retail real estate

Recreational real estate

Industrial real estate

Hotels and restauranis

Logistics real estate

Tofrastruciure real estatc

Pubhie sector

Service real estate/Social real estate

Residential real estate

Real estate investment

©) Open-end real estate finds

«) Closed-cnd real estate funds

«) Share-bascd vchicles eg REITs

« Insurance companies

«© Tnsurance companies/Pension funds

«Pension funds

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1.2, THE PROPERTY CONSULTANCY

1.2.1 Why Property Consultancy?

Main reasons consultants are hired are:

«Insufficient expertise in-house

« Independent/objective advice

¢ Gaining additional help/resources

«© Tosufficiont manpower in-house

© Quick resolution of issue

When clients come knocking upon the door of a consulting firm, they are looking for something they have not the capacity to do or undertake in their own firm

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1.2.2 Traditional and Modern View

Figure 1.2: Traditional and Modern View of the Real Estate Market

‘the key difference between traditional view and modern view of the real estate market is the appearance of international scope and property consultants When the real estate market is close the intemational scope is absent that happen at period of low developed market in general and real estate market in particular At period of high developed market, it also means the appearance of international factors and professional eonsullants

1.2.3 Market Maturity

Property markets may be analyzed with relation to how “mature” they are Market maturity defined as a fiction of the degree of diversification of user and investor

opportunities, flexibility of adjustment of property interests, market openness the

existence of information and research systems, professionalism and standardization

of property rights and market practices This evolution follows a roughly common

direction, i.e towards the development of market structures and practices more akin

to those prevailing in the fully mature property markets of the world’s financial centers What can be seen is that a “mature” market, in general, displays the

following characteristics

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« A diversified rental sector

« A complex property investment market

«Openness to non-local players

©) More transparoney in the (functioning ol the market

« = Avwide use of sophisticated valuation procedures

« Information gathering systems

Pethaps another aspect of market maturity is that other actors come onto the market

and offer services that were once the domain of real estate professionals/specialists

This carn be scen im more recent limes as many professionals thal are cdueated within other disciplines have moved into the market Lawyers, accountants and management consultants are a few examples of these “other” professions The trend

is thal more fins are moving into the market and offering services they didn’t before,

1.2.4, Services Offered

The services offered by consultants can generally be placed into one of five main

‘business areas: Valuation, investment, leasing, sales, management and corporate

services Some of these categories were expanded im order thai the differen sub-

markets within the specific fields could be included, e.g Property management which was divided into three sub-groups; residential, office and shopping centers

13 ENVERONMENTAL ANALYSIS

Lnvironmental scanning is a concept from business management by which businesses gathor information from the environment, lo belter achieve a sustainable

competitive advantage 'o sustain competitive advantage the company must also

respond to the information gathered from environmental scanning by altering its strategies and plans when the need arises Environmental scanning usually refers

14

just to the macrocuvironment, but it can also include industry analysis and the

company’s internal environment

1.3.1 Societal (Macro-environmen(} Analysis

It is a part of the external analysis when doing market research and gives a certain

overview of the different maero-environmental factors that the company has to take

into consideration ILis @ useful strategic tool for understanding market growth or decline, business position, potential and direction for operations Models that often

used as PEST, STRP, STERP, PESTEI., PESTLE, IEPBST, STEEPLR,

STEEPLED Some key factors of Macro-cnviremment are

« Political factors include arcas such as tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability

« Economic factors are economic growth, iicome, investment

© Social factors often look at the cultural aspects and include: population,

lifestyle, social issues, the habits of the consumer

« Legal factors refers to goverument legislation that places constraints or

obligations upon a business; businesses must adapt to changes in the law

quickly in order to avoid prosecution

1.3.2 Industry Analysis

Tndustry analysis is the analysis made ma specific scvtor or industry Industry

analysis investigates the general fundamentals of the equities within the industry but amore importantly investigates the state of extemal factors and how they should

affect the particular industry or sub sector Industry analysis means defining the

industry; identifying the dominant economic characteristics, the forces of change at work in the industry as well as the key survival factors and evaluating the

altracliveness of the industry Porter's 5 [forces analysis is a framework for industry

analysis and business strategy development,

Bargaining power of

Figure 1.3: Porter’s Five Forces Model

[Emmw STPA1

[STRUCTURE AND | IVALAY

An intemal environmental scan involves looking at the present capabilities of the

organization (infrastructure, hardware, personnel, abilities, structure, etc) and that

information can be compared to what the organization will need in the future to

achieve its strategic goals Identify the company’s resources, capabilities, core

competencies, and value chain activities Evaluate its financial results/condition

Identify the company’s key result areas, current strategies and objectives

Firms have assets that are tangible and intangible Tangible are financial, physical,

human and organizational (formal reporting structure and systems) Intangible are

technological & reputation or product name These resources represent inputs into

production of a good or service The firm’s ability to achieve a competitive

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advantage is reflected in its knowledge base and the ability of its resources to

successfully exploit its capabilities Core competencies are resources and

capabilities that are a source of competitive advantage for the firm They should be somewhat unique to that organization These resources have strategic value when

they contribute to the development of capabilities, core competencies, and

ultimately to a competitive advantage

1.3.4 SWOT

Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis are a strategy

development tool that matches internal organizational strengths and weaknesses

with external opportunities and threats SWOT Analysis is the key component of

strategic development It can prompt actions and responses Successful businesses

build on their strengths, correct their weaknesses and protect against internal

vulnerabilities and external threats They also keep an eye on their overall business environment and spot and exploit new opportunities faster than competitors SWOT

analysis is a tool that helps many businesses in this process SWOT analysis is

based on the assumption that if managers can carefully review such strengths, weaknesses, opportunities, and threats, a useful strategy for ensuring organizational success will become evident to them

Figure 1.5: SWOT Analysis

CHAPTER 2: HANOI REAL ESTATE MARKET

2.1 MACRO-ENVIRONMENTAL FACTORS

2.1.1 Introduction

Hanoi — located in the center of Red River Delta in the North, Hanoi is the political, economic, and cultural capital of Vietnam It is the second largest city in the

country and the motive force in the socio-economic development and international

integration of Vietnam Recently Hanoi has made great advances in all the fields and especially this is a very potential city for economic development

2.1.2 Political Factor:

Hanoi is the political capital of Vietnam, a city of political stability and security

Recently Vietnam has become membership of WTO and UN Security Council,

which helps Vietnam to fully integrate with world life Those achievements are the

basis for for the socio-economic development of Vietnam

2.1.3 Population and Life Style

Table 2.1: Hanoi’s population from 2003-2006

Unit: Person

(Source: Hanoi Statistics Department)

With 3.3 million people, Hanoi is a populous city with young population, the population growth rate is high, the high population density especially in the inner

districts, that causes great pressures on local land usages, housing, arcas for retail

and leisure

Hanoi 1s also the concentration of thousands of Intemational and Victyamese political, economic and social organizations and this number increasing continuously, which leads to increasing demand for offices, commercial and

indusiial properlics

‘A greater and increasing number of domestic and foreign visitors to Hanoi (5.9 rnillion in 2006, 15% of increasing per year) leads 10 increasing demand for liotels, serviced apartments, restaurants, commercial and leisure centers, and public places

Overpopulation leads to the overload of properties’ operation causing deterioration

and rapid depreciation Properties in Hanoi have short use Gime vot only by overload

but by quality of construction and the natural conditions Repair and maintenance is

often, reconstruction or rebuilding after 15 to 20 years

Hanoi is the capital, the cultural, political and economic couter of the counly Hanoi has the highest Human Development Index among, the cities in Vietnam Thanks to ils geography, history and culture, the Hanoians have a liberal and modem lifestyle, promoting a "cultural lifestyle", have received support from local people and been maintained

Hanoians tend to spend more money for shopping, amusement activities and

especially accommodation Ilanoians have the habit of investing in fong lasting and stable properties like real estates This is a preat advantage for the real estate market

mì Hanei

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2.1.4 GDP

Table 2.2: Hanoi’s GDP from 2003-2006

Unit: USD

(Source: Hanoi Statistics Department)

GDP increases about 11.5% annually, requiring more properties for commerce and

industry An increase in GDP means an increase in scale of manufacturing and

trading, increase in the number of economic organizations in Hanoi Now Hanoi is

experiencing a serious shortage of offices, hotels, retail & showroom areas,

factories, workshops and warehouses

An increase of 12% in GDP per capita every year leads to a significant increase in

residential demand Recently, there have been some projects for accommodation

operating, but they still have not met people’s diversified needs for housing

2.1.5 Foreign Investment

Hanoi is a center attracting foreign investment (15% of FDI growth rate every year)

WTO access takes an unprecedented opportunity for foreign investment Real estate

projects are among most successful and biggest projects now in Hanoi such as:

Ciputra International City, Pacific Place, Golden Westlake and upcoming projects

such as: Keangnam Landmark Tower, Hanoi Plaza Hotel, West West Lake Urban

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Area, Yon So Park, Red River New Urban Area, Hanoi City Complex Besides, there are many small and medium sized projects that also bring good results The

great impact of foreign investment on real estate market in Hanoi can be shown

in the following main points:

In general, forcign mvestment in Hanoi goes up along with the increase in scale and number of businesses, especially foreign businesses, which leads to higher demands (or propertics

Foreign capital inflow helps increase the domestic economy’s purchasing power and volume, so demand for properties increase in general

Along with the merase in [oreign investmanl, there will be a rise i mumber

of foreigners visiting, working or living in Vietnam These foreigners are

able to afford higher cost for accommodation, so demand for high class

properties increase

Foreign investment in real estates helps solve the problem of capital shortage

for projects, which helps speed up the development of the projecls At present, it is common that the foreign investors cooperate with domestic real

estate investors and developers in big projects The Vietnamese parlners are

knowledgeable about domestic market and have good relationships to get the city’s big projects ‘I'he foreign partners have financial potential, technology

and high ranking professional management Tn short, foreign investment

helps increase real estate supplying competence of the economy

However, foreign investment also has side effects as follaw:

Toreign investment in real estate increase dependence of real estate market

on foreign capital Therefore when this source of capital decreases or is withdrawn, the real estate market may deteriorate

Foreign investment can cause price la inerease, which makes it more difficult for demand and supply to balance

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¢ Foreign investment without good management may lead to overproduction

and ineffective investment

2.1.6 Legal and Policy

Real estate market in Hanoi is affected strongly by legal and policy factors as

follow:

Land Law, Civil Law: There have been regulations applied for real estate market in

land law and civil law but the regulations are still not clear and enough The Land

law has provisions on land transfer, land auction but it has been regulated only for

primary market (transaction between the government and organizations or individuals), whereas there have been few conercle regulations for the real estate

transaction in the secondary market (transaction between individuals or individuals

and organizations) Tn general, the two laws have noi met the multiform

soquirements for real estate business in the new period So a professional real estate

law is necessary for the development of the real estate market in Vietnam

Real Estate Law, Housing Law, Investment Law: Real estate trading law came ta

effect on January 1", 2007.in order to rule and motivate the better development of

the real estate market The law stipulates which are considered estate commodities,

veal estate trading activities and real estate business, rights and obligations of

organizations and individuals doing real estate businesses, brokerage, consultancy,

and series of regulations on real estate services

Several new and prominent features that should be noted in the above mentioned laws:

« Organizations and individuals operating businesses have to set up companies

or cooperalive societies with legal capital of VND 6 billion and business licenses approved by the law, However, organizations and individuals having,

22

been issued business licenses are permitted to contunuc businesses without

registering for business again

Investment capital rate of Investors must be no less than 20% of the whole

approved investment capital for projects of constructing new urban area and lechnical infrastructure of industrial zones For projects of constructing

accommodations, this rate is 15% if land use areas of less than 20 ha and no Jess than 20% if land use areas of 20 ha and larger

Investors of projects of new urban areas, accommodations and technical

infrastructure of industrial zones have rights to transfer projects through

contracts and approval of authorities issuing investment permit, The new

investors must follow all the conditions in line with law on real estate trading

and commil in wriling 10 conduct the projects al the approved rale of

progress

To increase supply for the market, avoiding holding back projects The

decree regulates projects are withdrawn in case investors do not follow the

projects properly or do nol carry oul the projcets afler 12 months since being

handed over the land or delay the projects for over 24 months according to

the rate of progress approved In addition, investors who have projects withdrawn are not permitted to invest in new real estate projects for 2 years

dating from the date of withdrawn projects ‘The offices issuing investment permit for projects decide to withdraw and select new investors for the

projects

The buying and selling of properties in form of prepayment in the future

should be done by installments The first installment is paid when investors have completed infrastructure construction l'or accommodations, the first installment should be paid when the foundation of the buildings have been

completed and the total money mobilized before handing over is no more

than 70% of the total sum expressed in the contract

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To clarify the market, real estate business law stipulates that organizations and individuals doing real estale businesses must sell, lease houses and buildings through real estate exchange floors

Brokerage and agency organizations must have at east one staff’ member with an approved certificate in the field Individual brokers are also required

lo register in line with laws and rnusl have brokerage cortifieales

Some limitations of the above mentioned laws

Foreign investors have been permitted in real estate investment and services

relating to real estates They are allowed to cooperate with domestic individuals and organizations, forcign organizations and individuals and Vietuamese people residing in foreign countries in real estate businesses Foreign investors have not been permitted to: buy accommodations,

huildings for sale, lease and purchasing lease, rent houses and buildings [or

lease; get transfer of land use rights, invest in infrastructure building for

transfer, lease, rent use rights of land with completed infrastructure for lease

However, according to the decrees and under law projects, a proportion of

foreigners and Vietnamese people residing in foreign countries will be

permitted to buy accommodations in the near fixture

There has been no policy to Limit speculation, causing the real estate market

to be up and down because of high pric

Local Policy: In the development orientation of the city, real estate development is focused on and granted priority The city government has issued many policies

aiming at improving infrastructure Lo creale gond conditions [or real estate

businesses ‘Ihe policies aim at improving factors of real estate market, promoting

real eslale projects, allract and create good condilions for foreign mvestmen in real

estates However the superfluous and bureaucratic administrative procedure and corruption are great issues limiting the development of real estate business in Llanoi

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2.1.7 Financial Market

Financial market plays an important role and has a close relationship with the real

estate market In Hanoi, besides domestic banks and investors, there arc some big

foreign banks and investment funds in operation ‘hese financial institutions supply

a remarkable amount of capital for real estate market by means of project loans or loans for buying house Recently, there has been a conlrasL mm Hanoi”s teal estate

market: While banks tighten loans for real estate investment to check and assess the

credit so as to find a suitable solution to collect loans at the due date, but investment

funds invest more capilal into real eslale market in Hanoi Banks offering big Toans

for real estate investment are DIIB, BIDV, MB Big real estate investments funds

are Vinaland, Indochina Land Holdings

At present, in Hanoi, there are some financial companies participating in real estate

market via investment in big real estate development companies such as PETRO

VIETNAM FINANCE (PVFC), PT FINANCE, EVN FINANCE

Recently investors have realized the close relationship between stock market and

real estate market in many aspects Before the issue of Decree N°109/2007/ND-CP

on July 26, 2007 about tansferring 100% stale owned companies into joint-stock companies, the value of land use right was not included in the company value, which leads to stare prices of equitized companies lo increase lens of Limes compared with the starting price thanks to advantages of land Since the issue of the decree, the value of land use right has been included in the whole value of the companics, (herefore the in the future, it will be more difficult for new cquitized companies to issue the shares to the public because a “big hole” in the process of valuation has been filed up [lowever, there is still a long gap between the valuated price and the market price Normally, the market price is many times higher

the stock market and the real estate market are like communicating vessels In

Hanoi, the relationship of these two markets can be seen as follaw:

« The real estate market in Iianoi is highly stable Lately, the price of

registered shares in the slock market increase sharply ma short period of

time, which helps a number of people become rich quickly hese people

will look for a less risky investment channel, and so the investment in real

estate market is a good choice because this markel is also very dynamic Al this time, many small and individual investors drew money from stock

market to invest ina more traditional market, the real estate market

« Investors in Ilanoi are standing in front of two big opportunities of

investment: the stock and real estate market While the stock market has

shown signs of instability and unpredictability, the real estate market is booming with rapidly and stably increasing price and high demand A

remarkable amount of capital is transferring from stock market Lo real estate

market

in the real estate market via stock market ‘I'his investment current creates a

remarkable source of capital for real estate projecls i Hanoi The issue of

these shares also shows the professionalism in the real estate economy

2.1.8 Master Urbanization Plan

Today, Hanoi is bigger with arce of 920,97 Jan? including 9 inner districts: Hoan Kiem, Hai Ba ‘Trung, Ba Dinh, Dong Da, Tay Ho, Cau Giay, Thanh Xuan, Long Bien, Hoang Mai and $ outer districts: Tu Liem, Gia Lam, Dong Anh, Thanh Tri, Soc Son, Hanvi’s master plan to 2020 is to extend both sides of the north and south Red River, Hanoi will extend and link with the Northem provinces

Development direclion to the soulht of Red River including some wards of Tay Ho

district, the area of southem Thang Long bridge linking with Latay’s urban development projects, the south of Hoang Mai district

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Development dircetion to the north of Red River is to become an integrated industrial-commercial-service center linking with the northem key economic zones such us Bac Giang, Buc Ninh, Hung Yen, Hai Duong, Hai Phong and Quang Ninh Northen Red River urban area project will be forwarded with vision to 2020 In the northern areas of Thang Long Bridge, by 2020, the area for urban construction

is sbout 3.850ha This is a new urban area with general functions: concentrated

industrial centre, amusement centre, green parks, sports centre, residential area and

International Timance Centre

Tndustrial parks are operaled in wo directions with the purpose of ervaling capability for economic development, combining with the neighboring areas,

transforming the present industrial parks, rearranging mdustrial parks in accordance

-with the municipal program., constructing some concentrated industrial parks such

as Sai Dong A and B industrial parks, North and South ‘thang Long, Dong Anh, Soe Son industrial parks, transforming Due Giang, cau Buou, Phap Van, Cau Dion industrial parks The area of Jand proposed for industrial park construction is approximately 3000 ha

Public cenler system includes presenl centers and centers which are going lo be constructed in the near future such as Tay Lo Commerce and linance centre, Southwest Thang Long, Phuong Trach, Van Tri, Gia Lam, Southwest Co Loa and

Xuan Trach centers

According to the projects approved, Road traffic system will be widened as follow Completing belt vosd Number 3, constructing Bell road Number 4 Ta additions, Axes of North Red river, Cau Chui Dong Im Co Loa North Thang long 1- junction will be constructed Five new bridges including Thanh Tri, Vinh Tuy, Nhat Tan, Tu Lien, Thuong Cat will be built in Hanoi

2.2 HANOT REAT ESTATE MARKET

2.2.1 Residential Market

Hanoi’s population wilh over 3.3 million people (Average growth rate of 27% per year) is one of the most densely populated cities and young population and with 3.490 people / km2 living in poor conditions (75% of population living in inner districts) Urbanization rate is high (57.7% in 2000, 66% in 2005 & projevled 76%

in 2010), There is an increasing exodus of people moving from neighbor provinces

to Hanoi

Increasing international integration leads to a considerable rise in mumber of foreigners living and working in Ianoi Foreigners have been permitted to rent

houses or aparuments and in the near fulure a proportion of foreigners will be

allowed to buy houses or apartments in Llanoi In addition, more favorable policies for overseas Vietnamese have led to inereasing number of overseas Vietnamese Tpluming 1o Vielrtam to work and live At presenl, a proportion of overseas Vietnamese have been permitted to buy houses but the actual number of buyers is

low

There is a sharp increase in per capita and houschold income and in number of high income individuals According to the traditional opinion, buying houses is one of the most important milestones in a person's life, especially with married people Hanoiaus tend to save money to buy houses buy themselves or with the assistance

of their families Recently, the financial assistance policies of banks and other credit

agencies have offered more opportmities for people to buy properties

According to some estimation, Hanoi needs about 1.000.000 accommodations in the period of 2006-2010 In the present situation the housing supply still can’t meet the

housing demand

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Table 2.3: Transaction Rate by Kind of Property

(Source: Megaland)

Land, Houses In The Inner Districts And Old Apartments For Residence: There

are still high demands for this kind of property, especially those in the inner city

Most of this property have been used for a long time and can be used immediately

There will be few and limited number of new property in the future Demands for

this kind of property are high but supply is limited and will decrease in the future

due to the trend of moving residents into new urban areas or new apartment

buildings Land in the inner districts will be used for big real estate projects Due to

the difference between demand and supply, the prices for this property are high and

in reality, there are few buying and selling transactions of this kind of property The

number of renting and leasing transactions for this property is still very high,

especially for those in the city center Recently there has been a trend of hunting for

old villas under good conditions to meet the demands of foreigners and overseas

Vietnamese

New Urban Area, New Apartment Building: Hanoi strongly encourages the policy

of moving people from the imner districts to new urban areas and this is main trend

of the housing demand in Hanoi today People are increasingly attracted to the

concept of living in new urban areas which offers the full range of services and

good living environment New urban areas are the best solution not only for new accommodations but also for resettlement (People their properties are confiscated

by city’s projects)

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This property can be divided into high-class, medium-class, and apartments for low

income people Most of the Vietnamese final users mainly buy or rent medium or

low-class apartments High-class apartments, houses and villas are bought by rich

Vietnamese people and then they also can sell to others for good prices or leased to

foreigners

Currently, there are 131 residential projects, which are in various stages of

development for various budgets of buyers in Hanoi Most apartments were sold

off-plan Some condominiums offer units as shells and some offer fitted units

Majority of residential apartments constructed in Hanoi are of a medium class

These apartments sold quickly to middle class families with the medium sale price

Due to the supply shortage of residential apartment, units are sold off-plan and then

re-sold, many times prior to completion,

The high quality projects such as: Ciputra, Pacific Place, The Garden, Chelsea Park, The Manor, West Lake, Trung Hoa-Nhan Chinh, 93 Lo Duc, TSQ Overseas

Vietnamese Village, West West Lake The medium quality project such as My

Dinh, Thang Long International Village, Van Quan, Linh Dam, Trung Yen, Trung Hoa, Cau Giay, Viet Hung, Phap Van Project for low income households such as: Nghia D6-Dich Vong, Cau Dien, Xuan La, Xuan Dinh

Housing Supply Vs Actval Demand in Hanoi

4 20,000 4 -—-

(Source: CB Richard Ellis)

Figure 2.1: Housing Supply Vs Actual Demand in Hanoi

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The market is existing two price level, the first is the origin price directly from

investors and the second is price level at secondary market In 2007 the demand for

all kinds of apartment's increased especially high class apartments in the center and

apartments are sold out faster than expectation The rental and sales price of houses

and villas in new urban area are often higher apartment’s 1.5-2.5 times at the same

Many medium and high-class properties are transacted and the prices increase

ceaselessly because of the following reasons:

Vietnam’s membership of WTO has had great impact on the real estate

market development Payment capacity for real estates increases and

demands for real estates for foreigners rise steadily This factor had great

influence on the development of real estate market

Due to the sensitive relationship between real estate market and stock

market, some investors have chosen to tum into investing in real estate

market to preserve their capital

Legal corridor for real estate market is becoming clearer and appropriate,

making it more convenient for trading than before Real estate trading Law,

real estate registration Law, Land use Tax Law, accommodation Law,

policies for overseas Vietnamese to buy houses have been improved and

come into effect Price frame stipulated this year by the government is about

30 to 50% higher than before The newly approved preferential finance

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policies for accommodations such as loans for house purchase, house or

apartment purchase by installments have helped increase demands with high

payment capacity,

© People tend to move to urban areas and new apartment buildings

© There are two levels of prices in the market, one is the price bought directly

from the investors, and the other is the higher price through intermediary (in

secondary market) Therefore real estate prices are being pushed higher than

the actual value and out of most customers’ affordability, With experience,

relationship with investors and capital, speculators hold almost all new

supplies in the market and control the prices

¢ Serious supply shortage is due to slow growth rate of real estate development

in the past years Supply of apartments for sale in Hanoi this year is

considerably limited, and is not able to meet the increasing demand in the

time to come Normally, a large scale project takes at least 3 years to come

into full operation