Performance of the vietnam listed real estate sector 2007 2012

PERFORMANCE OF THE VIETNAM LISTED REAL ESTATE SECTOR 2007 – 2012 In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION... Research follows study

PERFORMANCE OF THE VIETNAM LISTED REAL ESTATE SECTOR

2007 – 2012

In Partial Fulfillment of the Requirements of the Degree of

MASTER OF BUSINESS ADMINISTRATION

2007 - 2012

In Partial Fulfillment of the Requirements of the Degree of

MASTER OF BUSINESS ADMINISTRATION

To complete this thesis proposal, I have been benefited from the following people: Dr.Ho Diep, School of Business of the International University - Vietnam National University HCMC I am particularly grateful for his valuable guidance and support

To all teachers, office staff of the International University - Vietnam National University HCMC and to all my friends with their kind support

Hochiminh City, September 2013

I would like to declare that, apart from the acknowledged references, this thesis either does not use language, ideas, or other original material from anyone; or has not been previously submitted to any other educational and research programs or institutions I fully understand that any writings in this thesis contradicted to the above statement will automatically lead to the rejection from the MBA program at the International University – Vietnam National University Hochiminh City

This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognize that its copyright rests with its author and that

no quotation from the thesis proposal and no information derived from it may be published without the author’s prior consent

© Truong Quang Long Trieu/MBA02039/2013

CHAPTER 1: Introduction 1

1.1 THE RATIONALE OF RESEARCH 1

1.2 THE RESEARCH’S PURPOSE 8

1.3 SIGNIFICANCE OF THE STUDY: 9

1.4 THE RESEARCH OBJECTIVE AND THE SCOPE OF RESEARCH 9

1.5 RESEARCH QUESTION 9

1.6 STRUCTURE OF THE THESIS 9

CHAPTER 2: LITERATURE REVIEW AND RESEARCH MODELS 11

2.1 THE THEORETICAL CONCEPTS AND LITERATURES 11

2.2 OVERALL BACKGROUND OF VIET NAM REAL ESTATE SECTOR 16

2.3 PRIOR STUDIES 24

2.4 THE RESEARCH MODELS AND THE HYPOTHESES 26

CHAPTER 3: RESEARCH METHODOLOGY 29

3.1 RESEARCH DESIGN 29

3.2 RESEARCH VARIABLES 30

3.2.1 Dependence variables 30

3.2.2 Independence variables 33

3.2.2.1 Fixed assets 33

3.2.2.2 Capital structure: 34

3.2.2.3 Enterprise Scale (Size): 35

3.2.2.4 Enterprise Age: 36

3.2.2.5 The Enterprise’s Position, Location 36

3.3 REGRESSION MODEL 38

3.4 THE METHOD OF DATA COLLECTION 39

3.5 THE METHOD OF DATA ANALYSIS: 40

4.1 DESCRIPTIVE STATISTICS 41

4.1.1 Sample description of model 1 42

4.1.1.1 Ratio of profit (EBITDA) on total assets 42

4.1.1.2 The sample description of independent variables 44

4.1.1.3 Independent variables 45

4.1.2 Sample description of model 2 44

4.1.2.1 Index of market value TOBIN’S Q 44

4.1.2.2 Independent variables 45

4.2 CORRELATIVE ANALYSIS 46

4.3 REGRESSION ANALYSIS AND HYPOTHESIS VERIFICATION 49

4.3.1 EBITDA Model (Model 1) 49

4.3.2 TOBIN’S Q Model (Model 2) 56

4.3.3 The verification of statistical hypothesizes 63

CHAPTER 5: THE CONCLUSION AND RECOMMENDATION 69

5.1 THE CONCLUSIONS 69

5.2 RECOMMENDATIONS 71

5.3 THE LIMITATION AND ORIENTATION FOR NEXT RESEARCHES 73

5.3.1 The research’s limitation 73

5.3.2 Next orientation of research 73

References 75

Appendices 79

CPI Consumer Price Index

MPI Ministry of Planning and Investment

REIT Real Estate Investment Trust

VSIC Vietnam Standard Industrial Classification

TABLE 1.1 FDI INTO VIETNAM FROM YEAR 2009 TO 2013F 2

TABLE 4.1 DESCRIPTIVE STATISTICS OF VARIABLES IN THE MODEL 1 FOR WHOLE RESEARCH SAMPLES 43

TABLE 4.2 DESCRIPTIVE STATISTICS OF RATIO OF PROFIT ON TOTAL ASSETS ACCORDING TO GEOGRAPHICAL ZONE 43

TABLE 4.3 ABOUT DESCRIPTIVE STATISTICS OF VARIABLES IN THE MODEL 2 FOR WHOLE RESEARCH SAMPLES 45

TABLE 4.4 TOBIN’S Q DESCRIPTIVE STATISTICS ACCORDING TO GEOGRAPHICAL ZONE 45 TABLE 4.5 CORRELATIVE MATRIX OF RESEARCH VARIABLES IN THE MODEL 1 47

TABLE 4.6 CORRELATIVE MATRIX OF RESEARCH VARIABLES IN THE MODEL 2 47

TABLE 4.9 REGRESSION RESULT OF POOLED METHOD IN THE MODEL 1 52

TABLE 4.10 REGRESSION RESULT OF FEM IN THE MODEL 1 53

TABLE 4.11 REDUNDANT FIXED EFFECT TESTING RESULT OF THE MODEL 1 53

TABLE 4.12 REGRESSION RESULT OF REM IN THE MODEL 1 54

TABLE 4.13 HAUSMAN TESTING RESULT OF THE MODEL 1 55

TABLE 4.14 DESCRIPTIVE STATISTICS OF VARIABLES (NOT INCLUDE DUMMY VARIABLES) IN THE MODEL 2 FOR WHOLE RESEARCH SAMPLES 56

TABLE 4.16 REGRESSION RESULT OF POOLED METHOD IN THE MODEL 2 58

TABLE 4.17 REGRESSION RESULT OF FEM IN THE MODEL 2 59

TABLE 4.18 REDUNDANT FIXED EFFECT TESTING RESULT OF THE MODEL 2 59

TABLE 4.19 REGRESSION RESULT OF REM IN THE MODEL 2 60

TABLE 4.20 HAUSMAN TESTING RESULT OF THE MODEL 2 61

Figure 2 1 Overall Organizational Performance as a Second-Order Construct 14Figure 2 2 Structural Representation of the Financial Performance Construct 14 Figure 3 1 The steps of research procedure 29

This thesis analyze the performance of Vietnam listed real estate sector through examine the impact of chosen factors on performance measures The research use an unbalanced panel of 61 listed real estate enterprises on both Hochiminh Stock Exchange and Hanoi Stock Exchange over the period of 06 years from year 2007 to

2012 with 339 observations Research follows study of Klauss Hammer and Yinghong Chen (2004) about Performance of the Swedish real estate sector market with applying in conditions of Vietnam A panel regression model is set up on the basis of many prior studies, extended and improving and adapting the research requirement and condition by adding a variable Tobin’s Q which is market index of corporate performance The research found clear evidence that the different real estate enterprises has different performances, the difference was not due to regional differences but are due to the impact of the capital structure (negatively) , enterprise’s age (negatively) as well as a portion of the impact of enterprise’s turnover (positively), etc The results are also shown that Vietnam listed real estate firm have the proportion of fixed assets on total assets (tangibility) at low level and tangibility isn’t impact on firm performance This thing should be noted due to a one of factors which Vietnam’s Banks consider when lending that are fixed assets The findings can offer hints for improving performance of Vietnam real estate firm

Keywords: performance, real estate, panel data

CHAPTER 1: INTRODUCTION

This chapter presents the reasons lead to the subject of the research, the necessity of the research, discloses the purposes and goals of the research, identify research objectives and scope as well as practical implications that research can achieve, at last presenting the layout of the thesis

1.1 The rationale of research

Real estate (RE) market has an important role in the economy and it directly impacts on various markets such as financial and monetary market, the construction market, building materials market and the labor market, etc RE market is linked to a huge amount of assets in terms of scale, nature and value In the world, RE market is one of the important markets of the economy The proportion of RE on the total value

of national assets is different depend on each countries, but usually accounting for around 40% of the total value of national assets of each country The activities related

RE field accounted for 30% total activities of their economy The development of the real estate market has important implications for the economy, creating driving force

to perform building infrastructure of the country For illustrative, we have some facts and figures of the USA real estate market as follow:

“Real estate generates nearly one-third of U.S gross domestic product (GDP), creates jobs for nearly 9 million Americans, and is the source of nearly 70 percent of local government revenues The total contribution of the housing sector alone approaches 20 percent of GDP Real estate construction, construction permit activity, and real estate sales figures are closely watched by investors on Wall Street because

of the effect real estate has on the nation’s economy Real estate also represents a significant share of our accumulated national wealth The total value of owner-occupied housing and investible commercial real estate in the United States is

estimated to be $26 trillion Approximately $19 trillion of this represents the value of owner-occupied housing Housing alone represents approximately 27 percent of U.S household wealth and is the single largest asset category of households” (Real Estate Principles: A Value Approach, 3/e, David C Ling, 2010, p.15-16)

Vietnam does not collect as much statistics as the US, but we can refer to some facts and figures from foreign direct investment (FDI) into Vietnam through the years (see Table 1.1 below) According to Report of real estate market 2012 from Phuong Nam Securities Corporation, FDI inflows into Vietnam continuous increasing capital

is poured into the real estate market and accounts for a high proportion of FDI This indicates that Real Estate Market Vietnam very attractive to foreign investors This is one of the main sources of capital contributing to supports the growth of real estate sector In 2012, FDI reached $ 13 billion, of which investment in real estate sector accounted for 14.2% of total capital investment reached U.S $ 1.8 billion, ranking second after FDI investment in the processing - manufacturing industry

Source: Historical data GSO, SBV, SJC, MPI, ANZ, HSBC, JP MORGAN

(According to Report 2013 of CBRE Vietnam)

Table 1.1 FDI into Vietnam from year 2009 to 2013F

In Vietnam, real estate companies are accounting for a majority of fastest growth rate enterprise on TOP 500 fastest growing enterprises in Vietnam for period

2011, with the average growth rate: 10%-60% (according to Ranking Report of FAST

500 2012) The RE industry is growing strongly to meet the larger demand for building housing and physical infrastructure in period of modernization and

industrialization of the country However, the rapid development of real estate sector

in the context of its causes is the real estate market boom as government policies to boost the real estate and economic development of Vietnam received inflows of foreign direct investment poured into This development also has its own imperfection So we need to look at the development process of the real estate market

in Vietnam

Formed after 1990, the Viet Nam RE market has experienced three times of booming and declining (1993-1999; 2001-2006; 2007 up to now) Although the characteristics of each period is different, but in general, the same thing in each period

is the formation speculative growth which lead the market to inflated prices and when the bubble burst the RE market declining and/or become frozen, leading to the collapse of a lot of the real estate companies In all three periods, the RE market downturn on condition of shortage of liquidity and the imbalance of supply-demand structure in term of quantity and structure Vietnam's real estate industry is too immature, needs a lot of investments, need to draw on experience to develop In particular, Vietnam RE sector needs to orient the development in the specific conditions of Vietnam to develop toward the right approach and appropriate way The Vietnam RE market is developing and is forecast to strongly developing in future under many factors, such as:

Economic Development: Economic development of a country inevitably increase the demand for land use in the manufacturing sector, the demand for office space, business center Moreover, with economic development, income of people will increase and thereby increasing the demand for housing

Population: population growth also means increased demand for goods in the market, to meet for the industry expand, the development of scale which in turn increased the demand for land use

FDI capital: FDI capital into Vietnam constantly increasing, in which capital flows into real estate market produce relatively high proportion This demonstrates that the Vietnamese real estate market very attractive to investors abroad

Law: Law can be considered as important factors affecting the formation and development of the RE market

Economic, finance and currency policy of the Government: Economic Policy

of the Central Government and the Local Authorities are also sensitive factors affecting the real estate market

Urbanization: Vietnam is in transition from an agricultural-based economy to

a manufacturing-based economy causing a constant migration from the countryside to cities According to the Vietnam Urbanization Review by the World Bank, Vietnam is urbanizing at a rate of 3.4% per year

At present, on Vietnam’s stock exchange the real estate market has sixty one real estate joint stock companies with forty one companies listed on HOSE and twenty companies listed on HNX with the first trading day from 2006 to now (according to website: www.cophieu68.com) Although, economic experts predict the real estate market are not optimist, it is facing the major problems of lack of capital, fluctuations in the market, human management along with weak macroeconomic, limitation in legal frame etc, it still has high profit People have high demand on this sector, Vietnam’s population is increasing though land is limited, real estate is still the potential business Looking at the income statement of several real estate companies, few have positive profit, however; most have losses

In the current crisis, after a period of bubble growth, the real estate market went down and freeze In which, the total value of the REs inventory is about 111,963 billion VND (due to 2012 Real Estate Market Report - the Ministry of Construction) Specifically, the warning sign is the high real estate inventory: Housing, inventory 42,230 homes, Office space : 92,800 m2; Commercial center : 98,407 m2; Land : 7,922,485 m2; Commercial land : 1,951,033 m2 Along with that, there are 2,600 enterprises (include construction firm and real estate firm) has stopped or dissolved Furthermore, outstanding-loans of real estate (to 31/10/2012) are 207,595 billion VND, up 3.6% (compared to 31/12/2011) Non-performing loans accounted for 6.5% of total real estate loans, but the vast majority of business real estate loans are unlikely to pay when due from unsold products (synthesized from Reports of the State Bank of Vietnam)

Attracted by the high and fast returns (super profit but temporarily), many companies have invested in the real estate market but not many firms have had success Developers are facing difficulties in carrying out projects Why succeed? Why fail? In a competitive and difficult business environment as well as the RE sector, there are a lot of opportunity to develop but also there are many risks Normally, enterprise must examine the performance to recognize factors affect to its performance and to have correcting policy And this process is especially significant

in Vietnam, during a period in crisis

Through 20 years of development, the Vietnam real estate market has undergone three times of boom and bust The volatility of the real estate market is generally associated with macroeconomic policies and events in the economy The failure of the real estate firms in business partly reflects the professionalism of the real estate firms in Vietnam is still low Many real estate firms race to investment in the

project while the schedule of RE project is very complex and required enormous resources, especially money Government's focus is on solutions mainly to curb inflation, stabilize the macro-economy and ensure social security, issued guidelines

"implemented tight monetary policy " (11/NQ-CP Resolution dated 24/2/2011) In the process of implementing, this policy has also caused a statement in which the capital thirsty of economy has pushed many firms into difficult situations

In March 2011, The State Bank of Vietnam (SBV) has taken a series of measures to control interest rate ceilings on deposits in Vietnam Dong (VND) On April 2012 the inflation is just reduced, together with applicable interest rate ceiling, the SBV has taken measures towards cash flow to the manufacturing sector, limits the credit on the non-manufacturing sector (including the real estate sector), while interest rates could be adjusted for different objectives at a high level In 2011, outstanding interest rate is 18.3%/ year on average In 2012, the SBV has significantly reduced operating rates, with 5 interest rate reduction from 14% to 8%

With that interest rate policy the consumer price index (CPI) was controlled, the CPI increased by only 6.81% in 2012 vs 12/2011 and increased 9.21% over the 12 month average in 2011 However, the downside of tight monetary policy is many companies do not have access to bank credit funds There were many barriers to firms

in accessing bank loans The first and largest is the high interest rates 78.5% of firms had to pay interest rates of 16% or more; more than half of the firms have to pay interest rates of 18% or more In addition, controlling the ratio of loans to non-production areas should not exceed 16% of total loans by tight monetary policy of the SBV to direct capital flows into the production region directly is essential, but also affect the project investment priorities as social housing segment, housing relocation, housing for low-income people in the first half of 2012 Late 2012, early 2013, higher

interest costs pushed higher capital firms, leading to efficient of business operations decline Meanwhile, the business situation of enterprises is difficult, market output shrinking, increased inventory, efficiency of most companies at very low levels Number of enterprises that went bankrupt and/or closed skyrocketed In 2011, about 53,000 firms, firms 2012 is approximately 58,000 (source: GSO)

The insolvency status of the firms has led to appropriated funds worsening, increasing bank loans The capital structure of the Vietnam enterprise became very risky As reported at the 2012 Conference by Bridge Investments Magazine held on 08/16/2012, in the Ho Chi Minh city, the payable rate on the equity Q II/2012 average

of 647 non-financial companies listed, up to 1.53 times, the construction industry and real estate liabilities total more than 2 times equity (207%) and the lowest consumer goods industry with 80% This leads to non-performing loans and bad loans of commercial banks to increase Bad debt is the underlying cause that congests flow of capital in economy, cash flow not in rotation makes it a difficult situation In that situation, the real estate enterprises need to have many solutions to attract capital from social and improve the skill of business and management

After the success and failures of RE market also as RE firms, the requirements

of examining RE firm’s performance is essential from both microeconomic and macroeconomic points of view From the firm’s perspective, it is an issue of existing and increasing business performance in an increasingly difficult environment From the economic perspective, it is the stability and development of real estate market – an important market of the economic

The real estate industry have an important role in the economy but there have not been many studies on RE firm’s performance done in Vietnam, only a few macro-economic study have been performed In order to evaluate the performance of

Vietnam RE sector among the hot stage of developing Vietnam’s economy, it is essential to conduct a formal analysis This study attempts to provide empirical evidence on the performance changes of Vietnam RE sector arising from economic crisis over the past six years So, we think further study of real estate firm’s performance to examine the RE industry in period of before and during crisis and on how this relates to main factors Aim to find out the evidence of its affect on performance of RE firms Using the panel data regression (unbalance panel data) investigates the performance of all listed RE companies (up to now, there are 61 listed companies which to analyze the profitability)

Therefore, I want to conduct study on the performance of real estate firms, the topic as “Performance of the Vietnam Listed Real Estate Sector " In order to help enterprises have a proper view of management, quantify the impact of main factors to provide a basis for the appropriate improvements Through that, improve and upgrade real estate companies more and more powerful and effective developing real estate market as well

1.2 The research’s purpose

The study aim to solving issues arises as follow:

To investigate and study of the performance of the Vietnam listed real estate firm (follow the approach of Klaus Hammer and Yinghong Chen, 2004)

To analyze and assess the impact of the main factors on the performance of the Vietnam listed real estate firm

Through these goals in order to improve the performance of Vietnam listed real estate firms

1.3 Significance of the study:

The performance of the real estate sector in one country not only concerns the creditors, investors, policy makers and tax authorities in that country, but also their counterparts in other closely related countries The study would provide insights in structure of profitability of real estate companies

1.4 The research objective and the scope of research

The research objective is Vietnam listed real estate firms that is operating on the real estate market of Vietnam, including 61 real estate joint stock companies with 41 companies listed on HOSE and 20 companies listed on HNX with the first trading day from 2006 to now

This study is using similar approach with Klaus Hammer and Yinghong Chen (2004) with considering specific characteristics of Vietnam economy Applying Ordinary Least Squares (OLS) to examine the performance of Vietnam listed real estate sector

1.5 Research question

1 How are performances of Vietnam listed real estate sector over last 6 years through performance measurement by Tobin’s Q (market’s view) and by ROA (enterprise’s perspective)?

2 Following by Klaus Hammer and Yinghong Chen approach, what is the status of performance determinants of the Vietnam listed real estate sector?

3 What is a solution to improve performance of Vietnam listed real estate firms according to this research result?

1.6 Structure of the thesis

To achieve the research objectives we proposed, the thesis is organized in the layout which consists of 5 chapters and specific contents are as follows:

Chapter 1: Introduction

Chapter 1 presents the reasons lead to the subject of the research, the necessity

of the research, discloses the purposes and goals of the research, identify research objectives and scope as well as practical implications that research can achieve, after that to present the layout of the thesis

Chapter 2: Literature Review

This chapter reviews theoretical concepts, literatures related to firm performance, followed by summarises and discusses the prior researches related to the research title, presents the overall background of Viet Nam real estate market, after that established research models and research hypotheses

Chapter 3: Research Methodology

This chapter presents the procedure of research implementation, definition and measurement for research variables, building regression model Next, present the basis of choosing research object, data source, and method and used to analyze research data

Chapter 4: Data Analysis and Findings

This chapter presents the results of analysis and explains those results The analyses include descriptive statistics, correlative analysis, and recurrent analysis of table data to verify research hypothesizes

Chapter 5: Conclusions and Recommendations

This chapter presents collected conclusions and research results, brings some orientations of improving the effectiveness, output for real estate enterprise The chapter’s final part will present last limitations and orient next researches

CHAPTER 2: LITERATURE REVIEW AND RESEARCH MODELS

This chapter reviews theoretical concepts, literatures related to firm performance, followed by summary and discusses the prior researches related to the research title, after that established research models and research hypotheses

2.1 The theoretical concepts and literatures

Theories of firm performance

There are several concepts related to firm performance According to the open encyclopedia Wikipedia, in economic point of view the term of performance refers to the using of resources so as to maximize the production of goods and services An economic system is said to be more efficient than another (in relative terms) if it can provide more goods and services for society without using more resources”

And, “In absolute terms, a situation can be called economically efficient if:

• No one can be made better off without making someone else worse off (commonly referred to as Pareto efficiency)

• No additional output can be obtained without increasing the amount of inputs

• Production proceeds at the lowest possible per-unit cost

In these definitions of efficiency, the main idea is that “a system is efficient if nothing more can be achieved given the resources available” These definitions are general meaningful, in practice we need more specific definitions

In accounting, the business performance relate to the concept of Profit: “profit is the difference between the purchase and the component costs of delivered goods and/or services and any operating or other expenses” (Wikipedia)

There are several kinds of profit measures:

Gross profit = sales revenue – cost of goods sold (COGS);

Net profit = gross profit – expenses

In comparing companies of different sizes, we use finance ratio The performance can be measure by profitability ratio It reflects the efficient of resources usage or reflects the corporate governance performance Profitability ratio measure how efficiently a firm uses its assets and manages its operation (the book of Fundamentals of Corporate finance)

Profit margin = Net income / Sales

Return on Assets (ROA) = Net income / Total assets

Return on Equity (ROE) = Net income / Total equity

Through using of profitability ratio, it can capture the actual situation of performance of the enterprise

Firm performance measurement

According to the theory of organization and strategic management (Murphy et

al, 1996), accurate and appropriate performance measurement is critical to understanding corporate success and failure As organizational performance can be judged by many different aspects, resulting in many different interpretations of

“successful performance”, organizational performance should be examined from a single constituency perspective, that of the common stockholder in for-profit organizations (Carton and Hofer, 2004) From this perspective, successful organizational performance can be equated with successful value creation for stockholders, this perspective typically equates value creation with organizational financial performance; that’s mean the organizational financial performance

According to Carton and Hofer (2006) reviewed the empirical studies published, most of studies used performance as a dependent variable The authors identified 88 different measures to measure performance 46% of these 138 articles used only one measure to measure performance, 25% used two measures and the 29% remaining

ones more than two measures The profitability measures appeared in 70% of the articles Then came the growth measures and in third the market-based measures This review revealed that the performance concept has multiple dimensions Therefore performance has to be analyzed using a set of measures Venkatraman and Ramanujam (1987) showed that the performance concept has at least two different dimensions: growth and profitability Each of these dimensions may be described by one or more measures Profitability, for example, may be described by measures such as: return on equity, return on sales, return on assets, and sales growth, Elizabeth Krauter and Almir Ferreira de Sousa, 2009

Performance is measured in terms of financial and organizational perspective Financial performance as maximize profit, maximize return on assets, and maximize shareholder interests is the core issue of the effectiveness of the business For a broad definition of performance, organizational performance is measured by revenue growth and market share

There are different ways to measure firm performance and lead to different results of measurement The performance measured by ROA and ROE, return on investment ROI is often used The accounting performance measurement represents the financial ratios derived from the balance sheet and income statement has been used in many studies (Demsetz and Lehn, 1985; Gorton and Rosen, 1995) In addition, there are performance measurement is called measuring market performance

as the price per share over earnings per share and the index of Tobin's Q (Ross/Westerfield/Jordan, Fundamentals of Corporate Finance, 2010) The choice of how to measure the performance of the company may affect the measurement results:

if the stock market is not effective, measuring performance by market value will not

give good results According to Carton and Hofer, 2004, overall organizational performance has an unobservable second-order, hierarchical construct

Figure 2 1 Overall Organizational Performance as a Second-Order Construct

Figure 2 2 Structural Representation of the Financial Performance Construct

Justification for selections

Consideration of several critical control variables such as leverage, size, age of the firm on the firm performance

The effect of leverage on firm performance

Leverage refers to the use of outside resources (loans) instead of own equity Measuring leverage is a way to determine the probability of business insolvency Using debt replace for equity because interest rates pay for debt to be free tax, while dividends or other forms will be taxed In principle, if we use debt instead of equity would reduce the tax payable, increase the efficiency At the same time the cost of using debt is cheaper than equity, thereby increasing the debt will reduce the cost of capital and increase business efficiency However, this ratio can not rise up too high because the enterprise will fall into unhealthy financial situation, increase the risk of insolvency Research of Ratha (2003), Zeitun and Tian (2007) has pointed out leverage have negative impact on the efficiency of enterprises So I have put leverage

as a control variable that impact on firm performance

The effect of size on firm performance

The size of the enterprise can be measured by the logarithm of assets or revenues In this research I choose factor of revenues because variable of total assets was included in other variables as well as the revenue variable is suitable for measuring the size of the service sector Revenue have high value and very different due to each enterprise so to ensure achieve normal distribution of variable, variable will be converted to digital format to follow normal distribution that is taking the log

of revenue Because variable of total assets was included in other variables as well as the revenue variable is suitable for measuring the size of the service sector Revenue have high value and very different due to each enterprise so to ensure achieve normal distribution of variable, variable will be converted to digital format to follow normal distribution that is taking the log of revenue

Different size of enterprises leads to factors that affect it differently Large enterprises will have the advantage of size, research of Titman & Wessels (1988) found that large enterprises will easily penetrate the market and borrow at better conditions than small enterprises Short and Keasey (1999) suggests that large-size enterprises have greater financial capacity to generate internal funds than smaller enterprises, these enterprises can avoid the financial constraints and more funding for beneficial projects to increase the efficiency of business operations Research of Zeitun and Tian (2007) have shown that the firm size have the positive impact on firm performance Therefore, I have put the firm size as a control variable that impact on firm performance in this study

The effect of age on firm performance

The enterprise is also affected by age of firm Based on the business life cycle, the young firm has a large degree of uncertainty in the first years, whereas old firm has greater degree of stability, so the firm efficiency to be increased On the other hand, according to Ang et al (2000), the longtime firm will achieve greater efficiency

by reducing the cost compared to start-up enterprises Thus, the age of the enterprise impacts on firm performance So this research will take age of firm to do as control variables affect the firm performance

2.2 Overall background of Viet Nam real estate sector

At the beginning of 2011, Vietnam was ranked no 4 on the attractiveness of investment in the emerging real estate markets At first glance, this makes foreign investment inflows into the real estate market increase in the near-future However, there are potential risks on the business in Vietnam

The market is lack of information, capital, good land location, and inadequate legal framework Investor will have to solve many problems before construction is

complete This will cause investors to carefully consider before deciding to invest It can be said, Vietnam's ranking will help attract more attention from both international and local investors, but this will not necessarily impact directly and strongly to investment in real estate Vietnam's real future

In the two-year period 2006 - 2007, the real estate was considered an effective investment channel because there were a lot of fluctuations, increasing in price while loan interests were low There are a lot of investors and developers without careful consideration of the market demand causing a property bubble

From 2008 until now, due to financial crisis in 2008, the economy fell into unsustainable status, rising inflation, the government must intervene by limiting money supply, using tight monetary policy that make market falls in to difficult from

2009 Most of banks’ budget was reduced lead to negative effects to real estate market This was one of reasons why the real estate market was frozen Many economic experts have identified that the real estate industry may be difficult to grow

in the next few years because it must face with major problems like lack of capital, fluctuations in the market, human management along with weak macroeconomic, limitation in legal frame, large inventries of unsold properties, etc,

The serenity of the real estate market in 2013

Real estate market is fairly quiet after a time of slipping drastically The market

is witnessing a decline in many segments There were many factors affecting the market through illustrative development of market in recent time

The Government has issued Resolution limiting non-production line of credit of commercial banks at 22%/year (2011), and at 16%/year (from 2012 to now) Both banks and investors are facing many difficulties in capital mobilization and disbursement The credit tightening, and this add up to with the many disturbing

indicators of the economy has made the real estate market becomes scarce of capital, many real estate projects stalled or delayed, as one of many factors which made property prices drop explicitly in many areas and segments, while the average percentage of sales also decreased

Specifically, the high inflation rate, resulting in increased construction costs and reduce real income of the investor Otherwise, in Vietnam, most of transaction of house is done by gold Gold prices increase while restrictions of trading affect one of the main sources for buying and selling real estate The legal framework is still incomplete and more difficult to anticipate changes led to many businesses face greater risks during procees of execute project (projects suddenly becomes ineffective and unachievable)

Under the impetus of super profits in the first period of development and abundant capital from banks as well as FDI capital, the investments and project developers conducted massive investment in real estate projects While the financial resources of the majority of population are still weak, people who have the ability to buy a home are less so the resulting mismatch of supply and demand Now, the inventory of real estate market are very large (over 2 million billion VND), it is necessary to solve inventory to clearance bad debt for society Real estate market is in the quiet phase in several segments, including the trade center segment There are a lot of unsold apartment The high-end segment has a massive inventory while the new policies of government relate to affordable housing and it still in a difficult situation that need improve The government has measures aim to revive the real estate market but have not been able to help the market recover because market laws determine growth or decline and not the government’s desire The market slump but nobody can help investors Property project developers depend on funds obtained from buyers

About of supply issue, commodity structure of real estate market is still inadequate The markets is lacking of commodity in term of scale and price that match most people's needs - even though prices have fallen, many types of real estate

is not in reach for most buyers Many investors have commented that service prices are too high this lead to a conflict with home/land buyers

Apartment segment has the strongest decline, the apartment market facing saturation and oversupply in the near future From 2012 until the present (2013), the housing market have reduce, the rate decreased from 3-5 million VND/m2 in some areas compared to the beginning of 2013 Apartment market also has a similar of scenarios, price increases at the beginning of the year but then slowed down at the end

of 2012

Consecutively in 2011, 2012, 2013 tens of thousands of new apartments launched each year, continue to exert pressure on prices In terms of supply-demand relationship, the market remains flat, sometimes even the supply has not kept pace with population growth However, in reality, in terms of prices, the market is in surplus again because the price is too high compared to the solvency of the people A nice consequence that the market is going down to professionalize, and buyers have more choices Especially high-end housing segment is under the great pressure, to give up one's seat to housing segment of average and ordinary rates that potentially develop stronger, more suitable for the majority of people Now who have real demand is going to find an investor with actual reputable

The office segment continues bleak with changing in type of tenants, requiring the landlord must have the appropriate business strategy to find customers

Late 2011 and early 2012, for the first time, grade A office segment had more positive business results than grade B segment However, this degree of improvement

is not large enough to show a really flourishes industry The company needs small space tends to shift more of the premium segment to cheaper segment However, it appear a number of companies, especially large corporations have needs of hire huge area in the building grade A Currently most of the rents from the firms need smaller office area 250m2 However, some companies hire large area trying to take advantage

of reduced rents and tenants are emerging, especially from the banking, insurance or education The tenants and investors are actively looking for sites and therefore, the building owner will probably get more than the required of area over 500m2

Tenants have more choices and more bargaining rights, thus requiring the investor have to map out marketing strategies and selling wisely to strengthen competition The stimulus tactics such as building steps rent, free rent for the finish stage, financing costs of complete stage, discounts or free parking and/or the right to place signs panel, etc Especially for the new building, the investor can create competitive advantage by focusing on quality, creating attractive working environment in the office, such as equipment, designs, green space Also the trends of selling at costs are expected to continue in term of strategies of attract customers and reduce financial pressure on all investors from banks, particularly with the building with large floor

Features of the property market Vietnam

Compared with the developed countries and other countries in Southeast Asia, the real estate market in Vietnam still less developed Many investors lack of capital, experience, knowledge, competence, especially strategic vision and business strategy

In the context of the real estate market began to plunge from 2009 and have been in crisis up until the present time, the gaps of knowledge were gradually revealed The real estate businessman realized that to succeed they must have the knowledge and

expertise, not just street knowledge Knowledge is required for each person from the real estate brokers to manager in real estate majors

Although land dwindles, many houses of projects remained uninhabited for speculation

The legal framework is weak and incomplete, failing to protect the interests of buyers

Another problem is the lack of information on urban planning and project information This put people who have real needs in doubt and create opportunities for speculators

In Viet Nam, there exists the situation of bad debt, which is different with other countries The investors, the property project developers is funding by prepaid money obtained from buyers The frozen as well as the difficult of real estate market in recent years has shown that when the projects are unmarketable will make more impact on the society The buyers cannot get their houses when the market is frozen because of the developers don’t have the funds to complete their projects and they can’t get back their money either

Market prospects in the near future

In 2015 Vietnam will wholly joined the WTO, then will create an equal playground for many foreign investors in Vietnam, including companies, corporations, which are powerful and professional And we also expect that after this

"volatile period", Vietnam property market will be restored because it have the rules The demand for human resources, the population mechanics growth in the big cities, the demand for housing will grow continuously in the future

Overall, when the market capital flow is not circulating and the economy has not improved it is hard to be optimistic about the real estate market Market situation

can only be positive if the most positive change in policy contributed to the impetus for the market

The demand for housing remains high due to the urbanization process, so that the real estate market will continue to grow in the future, albeit at a moderate level Customers will become more knowledgeable and "wise" and the market will move to

a higher stage of development

The real estate business will vary depending on the segment and the product with affordable cost will be more successful On the other hand, customers will also enjoy the many promotional policies and better conditions of contract and the visionary developers will have more chance of success

In this current context, the Vietnam real estate market is heading for a new solution that can help market overcome difficult and develop again It’s a REIT which been assess to have significant effect to RE market Real Estate Investment Trust (REIT), it relates to a method of real estate investing for numerous people through the widespread distribution of certificates of real estate investment funds REIT appeared

in the early '60s in the United States of American, so far have had in over 20 countries

in the Americas, Europe, Asia has rules for its operation

In Vietnam, no REIT legislation yet but there are some legal form of it One of which is the CII, the Company of Invested Infrastructure which was established through the issuance of shares

After more than 40 years since its inception, REIT has shown that it is one of the driving forces of real estate development REIT offers countless opportunities for small investors, people involved in the real estate market, create long-term investment capital, create capital channels and maintain capital for projects to help banks, funds release capital for investment projects The market will have opportunities for funds

(REIT), involvement of Real Estate Investment Trusts will help to market more new funding channel The property investment funds can buy apartments as their prices reduce They buy apartments and rent them out In market situation is shortage of apartments for lease, and etc with more bad debts

From early 2013, the wave of companies, investment funds of Vietnam and foreigner to purchase a part or the whole of the real estate projects is growing strongly

Ministry of Finance has officially allows real estate investment trusts to be created and put into operation The Viet Nam real estate market in the coming period

is likely to witness boom investment from the real estate investment funds The certificate of real estate investment trusts will be the focus of attention for both individual investors and organizations participating real estate market that is expected

to grow again with the emergence of new modes of investment

According to Circular No 228 of the Ministry of Finance on the funding, establishment, management and monitoring of investment real estate investment funds, real estate investment fund be organized and operated as a public securities investment funds (real estate investment funds) or public securities investment company (called investment company of real estate securities) Investment property fund is offered for sale to the public fund certificates and fund issuance to raise capital Currently there exists many problems can cause difficult to fund activities such as regulation of the real estate condition that funds are allowed to invest in will make investments in real estate will be limited Or, as the case as the property is in process of construction, the Fund can only invest in when it have contract with potential customers, ensuring property that can be sold or can be used or for hired

immediately after completion This is very difficult, because cannot guarantee 100% that property can be sold or leased after the project is complete

2.3 Prior studies

Some studies have examined the performance of the real estate firms Authors have investigated a variety of real estate market, such as Swedish – empirical study (Klaus Hammes and Yinghong Chen, 2004), European countries – empirical comparison study (Klaus Hammes and Yinghong Chen, 2005), in the close topic have the study of Thi Kim Nguyen related to developed markets, emerging markets and lesser emerging markets ( Thi Kim Nguyen, University of Western Sydney, 2009)

Research of Klaus Hammes and Yinghong Chen, 2004

They conduct an empirical study “Performance of the Swedish Real Estate Sector 1998-2002” They found that “Firm performance can be explained by capital structure, size, age, tangibility and other factors.” “The results indicate that banks and financial institutions lend more to profitable firms and firms with more tangible assets than otherwise Tangible assets as ‘inventory’ contribute negatively to performance after taking into account the effect of capital structure on performance” It was also concluded that “tangible assets, essentially the property owned by a company, contribute to the profitability of a firm up to a point as collateral for bank loans Excessive tangible assets are negatively related to profitability, at least for the shorter term”

They run three different regressions for various measures of the return on assets

in all cases controlling for the impact of capital structure changes and thus the risk level of the company They use a random effects estimator for unbalanced panel as described in Baltagi and Chang (1994) and Baltagi (1995, pp 149) The estimator

allows them to include time- invariant dummy variables, sectorial and regional dummies They estimate the following model:

Profit=f(tangibility, debt ratio, size, age, industry, region)

Klaus Hammes and Yinghong Chen, 2004, also conduct study for European They examines “the performance of private property companies in 13 European countries: Austria, Belgium, Denmark, France, Finland, Germany, Greece, Netherlands, Norway, Portugal, Sweden, and the UK for the period of 1990 to 2003” They saw that there are “large differences between the countries with the most profitable companies found in the Netherlands, Spain, Denmark, and the UK” “Using

a simultaneous equation framework to model the real estate sector with Profitability and capital structure as endogenous variables” They find that “the elements that influence the profitability of the firm in one country are also largely relevant in the other countries but differ in the effect due to different economic conditions and business cycles in different countries” “The economic crisis in the early 1990s left a clear mark for the countries suggesting the crisis was pan European This indicates that business cycle is one important factor in the study of performance of the real estate sector In addition, there can be potential portfolio gains by spreading the investment over the studied countries” In conclusion, they find “a negative effect of borrowing on performance in most of the countries except Sweden, Greece (insignificant) Firm size firm has a weakly positive effect on performance in all countries except for Sweden where it is insignificant Except for Austria (negative significant), Greece, and Portugal (insignificant), tangibility is related significantly positive to borrowing, but not to profitability”

The technique which Klaus Hammes and Yinghong Chen used is panel data regression as also known as simultaneous equation framework Using “a panel of 781

firms to analyze the profitability of the Swedish real estate sector with regard to regional and sectorial aspects Panel data regressions using single equation regressions are used to identify the relevant factors However, a simultaneous equations framework is used to address the issue of the endogeneity and potential causality of the performance and capital structure determination”( Klaus Hammes and Yinghong Chen, 2004)

The first important work, which they resolved is to determine measure firm performance They think that “One possible measure to be used would be the return

on sales or simply the profit margin” but “this measure lacks a link with either agency

or governance influences, since this measure neglects the investment dimension presented in the agency literature” Meanwhile, the ROE ratio also has several disadvantages, sometimes it can be easily manipulated by delaying expenses or capitalizing losses Based on few previous studies, they have a basic for choosing ROA ratio as the appropriate measure

Thi Kim Nguyen (University of Western Sydney, 2009) also conducted study

on performance of RE market with title “The significance and performance of listed property companies in developed and emerging markets in Asia” She observed that Asia RE firms “reflecting a more significant potential role in investment activities” and “the sub-sector of the less emerging markets in Asia (e.g Vietnam) potentially providing enhanced property investment opportunities”

2.4 The research models and the hypotheses

Research models

The thesis studies the performance of listed real estate sector Based on theory and previous research, the following research model is proposed

H1: tangibility  H

For dependent variables EBITDA/ Total assets:

Hypothesis H1: There exists relationship impact of the density of fixed property/ total assets to the enterprise’s operating effectiveness (EBITDA/ Total assets)

Hypothesis H2: There exists relationship impact of the proportion of debt ratio on total property (capital structure) to the enterprise’s operating effectiveness (EBITDA/ Hypothesis H3: There exists relationship impact of enterprise scale to the enterprise’s operating effectiveness (EBITDA/ Total assets)

Hypothesis H4: There exists relationship impact of enterprise age to the enterprise’s operating effectiveness (EBITDA/ Total assets)

Hypothesis H5: There is not exist relationship impact of enterprise’s position, location

to the enterprise’s operating effectiveness (EBITDA/ Total assets)

For dependent variables Tobin’s Q:

Hypothesis H6: There exists relationship impact of the density of fixed assets / total assets to the enterprise’s market index TOBIN’S Q

Hypothesis H7: There exists relationship impact of the proportion of debt ratio on total property (capital structure) to the enterprise’s market index TOBIN’S Q