Real estate market and property consultancy in hanoi, some strategic solutions for vietnamese property consultancy companies

vietnam national university, HANOIschool of business Nguyen Trung Dung REAL ESTATE MARKET AND PROPERTY CONSULTANCY IN HANOI, SOME STRATEGIC SOLUTIONS FOR VIETNAMESE PROPERTY CONSULTANCY

vietnam national university, HANOI

school of business

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, HANOI

school of business

Nguyen Trung Dung

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

PROPERTY CONSULTANCY COMPANIES

Major: Business Administration

Code: 60 34 05

Master of business administration thesis

Supervisor: dr TA NGOC CAU

Hanoi - 2007

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

ABSTRACT ii

TÓM TẮT iv

TABLE OF CONTENTS vi

LIST OF ABBREVIATIONS viii

LIST OF TABLES ix

LIST OF FIGURES x

APPENDIX xi

INTRODUCTION 1

1 BACKGROUND 1

2 OBJECTIVES OF THE STUDY 2

3 SIGNIFICANCE OF THE STUDY 3

4 SCOPE AND LIMITATIONS OF THE STUDY 4

5 METHODOLOGY 4

5.1 Research Method 4

5.2 Data Collection and Analysis Method 5

6 THESIS’S LIMITATION 6

7 OUTLINE 6

CHAPTER 1: LITERATURE REVIEW 8

1.1 REAL ESTATE MARKET 8

1.1.1 The Definition for Real Estate & Real Estate Market 8

1.1.2 The Main Participants in Real Estate Market 8

1.1.3 Demand 9

1.1.4 Supply 9

1.1.5 The Adjustment Mechanism 10

1.1.6 Line of Real Estate Related Business 11

1.2 THE PROPERTY CONSULTANCY 12

1.2.1 Why Property Consultancy? 12

1.2.2 Traditional and Modern View 13

1.2.3 Market Maturity 13

1.2.4 Services Offered 14

1.3 ENVIRONMENTAL ANALYSIS 14

1.3.1 Societal (Macro-environment) Analysis 15

1.3.2 Industry Analysis 15

1.3.3 Internal Analysis 16

1.3.4 SWOT 17

CHAPTER 2: HANOI REAL ESTATE MARKET 18

2.1 MACRO-ENVIRONMENTAL FACTORS 18

2.1.1 Introduction 18

2.1.2 Political Factor: 18

2.1.3 Population and Life Style 18

2.1.4 GDP 20

2.1.5 Foreign Investment 20

2.1.6 Legal and Policy 22

2.1.7 Financial Market 25

2.1.8 Master Urbanization Plan 26

2.2 HANOI REAL ESTATE MARKET 28

2.2.1 Residential Market 28

2.2.2 Serviced Apartment Market 33

2.2.3 Office Market 38

2.2.4 Retail Market 42

2.2.5 Hotel&Tourism Market 47

2.2.6 Industrial Market 50

CHAPTER 3: PROPERTY CONSULTANCY IN HANOI 53

3.1 HISTORY 53

3.2 KEY SERVICES OFFERED IN HANOI 54

3.2.1 Exclusive Agency, Exclusive Right to Sell or Lease 54

3.2.2 Open Brokerage/Agency 55

3.2.3 Tenant Representation 56

3.2.4 Property Management 57

3.2.5 Research 59

3.2.6 Valuation 60

3.2.7 Investment Sales & Acquisition 61

3.2.8 Project Development 61

3.2.9 Legal Services 62

3.2.10 Financial Services 63

3.2.11 Real Estate Investment 64

3.3 DEMAND AND KEY CONSIDERATIONS IN SELECTING CONSULTANT 65

3.3.1 Demand and Key Clients 65

3.3.2 Key Factors In Determining Choice of Consultant 67

3.4 CONSULTING COMPANY 73

3.4.1 Market Share & Supplying Competence 73

3.4.2 Company Models 74

3.4.3 SWOT for Vietnamese Companies 78

CONCLUSIONS AND RECOMMENDATIONS 79

REFERENCES 87

APPENDIX A 88

APPENDIX B 93

LIST OF ABBREVIATIONS

GDP: Gross Domestic Product

FDI: Foreign Direct Investment

WTO: World Trade Organization

Colliers: Colliers International

Savills: Savills Vietnam Ltd

CBRE: CB Richard Ellis

LIST OF TABLES

Table 2.1: Hanoi’s population from 2003-2006………

Table 2.2: Hanoi’s GDP from 2003-2006………

Table 2.3: Transaction Rate by Kind of Property……… 29

Table 2.4: Price of Sales by Grade………

Table 2.5: Rental of Apartments Including Tax (Not serviced apartments)………

Table 2.6: Supply of Hanoi Serviced Apartment Market……… 36

Table 2.7: Classifying Office Buildings……… 38

Table 2.8: Standard Area & Average Rental Rate for Retail Models In Hanoi… 44

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

Table 2.10: List of Markets Will Be Converted Into Shopping Centers………

Table 2.11: Hotels in Hanoi 2006……… 48

Table 2.12: Average Rental of Industrial Zones………. 51

Table 3.1: Reasons for Using a Consultant……… 65

Table 3.2: The Type of Clients That the Consultants Deal With the Most……… 66

Table 3.3: The Way Clients Got Real Estate Consultant……… 67

Table 3.4: Evaluate the Performance of Current Consultant……… 68

LIST OF FIGURES

Figure 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 Model

Figure 1.4: Another Model of Industry Analysis

Figure 1.5: SWOT Analysis

Figure 2.1: Housing Supply Vs Actual Demand in Hanoi

Figure 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

Figure 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&B Office

Figure 2.8: Hanoi’s New Supply of Grade A&B 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)

Figure 2.11: INCOME GROWTH (PER CAPITA PER MONTH)

Figure 2.12: RETAIL SALES & YEAR ON YEAR GROWTH RATE DURING 1996-2007 Figure 2.13: Hanoi’s GDP per capita & Population

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

Figure 2.15: Significant Future Shopping Center in Hanoi

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

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

Figure 3.1: The Consultant with Best Reputation for Exclusive Agency

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

Figure 3.3: The Consultant with Best Reputation for Tenant Representation

Figure 3.4: The Consultant with Best Reputation for Property Management

Figure 3.5: The Consultant with Best Reputation for Research

Figure 3.6: The Consultant with Best Reputation for Valuation

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

Figure 3.8: The Consultant with Best Reputation for Project Development

Figure 3.9: The 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 Choice of Consultant Figure 3.14: How Well Consultants Understand Their Clients

Figure 3.15: Fee Structure Preferred by Clients

Figure 3.16: Market Share by Turnover

Figure 3.17: Recognition of the Consulting Companies

APPENDIX

APPENDIX B: Questions for Clients

APPENDIX B: Questions for Consultants

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 destinationfor domestic and foreign investment During the end of the year 2007, real estatemarket 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 Inorder to explain the situation and give out the forecast for the upcoming years, it isnecessary to analyze the market deeply and carefully based on mix-factors.Although, it has fluctuated strongly in the pass, Hanoi real estate market is still beenseen as a primary market “Boom” demand and positive policies that make Hanoireal estate market more attractive for investment, especially foreign investment.Hanoi real estate market will continue to boom in many years upcoming that bringsgreat opportunities and threats Hanoi real estate market is always a center publicdiscussion especially for problems such as: Shortage of supply, escalation of price,speculation, unclearness of market, and effects of new policies…However, practicaland theoretical researches on Hanoi real estate market are few, immaterial andunsystematic

The property consultant is an important factor of real estate market that leads orplays 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 demandfor property consultancy in Hanoi is diversified and increasing very fast that put astrong pressure on consultants Key clients those who are users of real estate relatedconsultant services including property developers, property companies, domesticinstitutional investors, international investors and larger domestic corporations Theforeign consultancy firms with their good reputation and brand, high

professionalism that become market leaders Foreign consultants can provider adiversified list of services or highly specific services Vietnamese consultancycompanies are also improving their competence to hold the market share However,Vietnamese consultancy companies still haven’t clear strategies that help them towin in an environment of full opportunities and challenges So far there aren’t stillany professional researches on the subject of property consultancy in Vietnam orHanoi.

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 market at this present time and make some forecast about thetrend of market in the near future In order to get the general objective, the thesisfocuses on the following specific objectives:

 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 whichaffect demand, supply and price of Hanoi real estate market at this presenttime The analyses also provide some forecast for some upcoming years,especially for the period of 2007-2012

For property consultancy in Hanoi, the general objective of the thesis is to present

and analyse key issues of property consultancy market and the comparison betweenforeign and Vietnamese consultancy companies In order to get the generalobjective, 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.

 Analyze 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 that can apply forVietnamese 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 thispresent time and outlook for some upcoming years in this thesis will has thefollowing significances:

 Lay the foundation for researches on Hanoi real estate market in amethodical, comprehensive and systematic view This thesis will be a goodbasis for further researches

 Systematize separate researches on Hanoi 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 economicgrowth, financial market, foreign investment and new policies

 Help to provide useful and selective information for making decisions related

to the real estate business and investment as well as new policies

The presentation and analysis for key issues of property consultancy in Hanoi at thispresent time in this thesis will has the following significances:

 Lay the first foundation for research on this subject

 Help to understand the role of consultant in real estate market

 Bring deep knowledge on property consultancy in Hanoi

 Provide useful and selective information for clients, investors and property consultants

 Help to make some strategic solutions for property consultancy companies,especially Vietnamese companies, which are playing in a big game full ofopportunities but also full of challenges

This study is focused on the presentation and analysis for key and basic issues ofHanoi real estate market and property consultancy in Hanoi and making somestrategic solutions for Vietnamese consultancy companies to improve their business

in a market of full opportunities and challenges The research is focused on key andbasic issues; it doesn’t enter the specific branches of real estate market and propertyconsultancy The recommendations on strategic solutions also stand on the basis ofoverall view

5.1. Research Method

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

of the research consists of, amongst other data, observation of the real estate marketand consultants business and therefore a descriptive method was used In the otherparts of the research is of both a qualitative and quantitative nature Qualitative, as ittries to describe the real estate market and views of actors in real estate consultancyand clients with regard to future trends Quantitative as certain sections of thestatistical data, questionnaires were formulated in a way that they could be groupedand 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 thesubject, though this material was primarily limited to articles from the press and realestate-related industry magazines, paper Several masters thesis within similar fieldswere found and certain information contained within them was used and reliedupon 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 estatemarket, informal discussions with staff members at the chosen companies (primarydata) This was supplemented by using publicly available information (secondarydata) about the real estate market and property consultancy companies from sourcessuch as: Web sites, brochures and marketing information and market reports whenavailable In addition, some figures were obtained from Hanoi Statistics Departmentand other internal information The accuracy of the data received from theseadditional sources was, wherever possible, checked with the relevantperson/company/department before being relied upon

Although observation was used in the most parts of the study, the main focus wasplaced on the primary data received from the interviews / questionnaires In order toimprove response rate and increase the amount of data collected, the questionnaireswere not mailed In most cases the questionnaires and related discussions wereconducted face-to-face, though some of the questionnaires were conducted bytelephone, email Questionnaires and informal interviews were conducted with boththe consultants and the clients, one consultant considered as ten clients Thecompanies that were interviewed on the “consultant side” were placed into thecategories such as: Domestic and international property consultants, legal andaccountancy firms On the “client side”, those users of property related consultantservices that were interviewed were: Property companies, property developers,

domestic institutional investors, international investors and large domesticcorporations The data was collected using a structured survey with numberedquestions and for most answers there were multiple-choice responses Two separatequestionnaires were constructed, one for the property consultants and one for theclients.

in 5 past recent years

 The questionnaire is conducted with the purpose on interviewing key clients andconsultants and in some cases, some relevant interviewees can not attend theinterview thus collecting and analyzing information is not extremely exact

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

7 OUTLINE

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 Outline

& Recom mendat ions

7

CHAPTER 1: LITERATURE REVIEW1.1 REAL ESTATE MARKET

1.1.1 The Definition for Real Estate & Real Estate Market

Real estate is a legal term that encompasses land along with anything permanentlyaffixed to the land, such as buildings However, in some situations the term "realestate" refers to the land and fixtures together, as distinguished from "real property,"referring to ownership rights of the land itself

Real estate market is place where exchanges or transactions of real estate such asbuying, selling, leasing, investment… take place that define the price and volume ofreal estate exchanged The real estate market is broadly divided into threecategories, residential, commercial, and industrial by purpose of use Some mainfeatures of real estate market are: decentralization, imperfect market, supply limited,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 commercial property as an investment and also to live in or utilize

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 tosomeone else

 Renter - These people are pure consumers.

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

product for the market

 Facilitators - This includes banks, real estate brokers, lawyers, and others

that facilitate the purchase, sale and lease of real estate

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

control the policies related to real estate

The owner/user, owner, and renter comprise the demand side of the market, whilethe developers comprise the supply side Facilitators and government comprise theboth sides of the market

is supplied to the market is known as the supply relationship The maindeterminants of the supply for real estate are:

 Land resource

 Infrastructure

 Investment and financial market

 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 panelwhile 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 (Vo) 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 costsand 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 Business

Real estate consultancy/agency

 Market research

 Valuation/rating

 Lawyers, tax consultants, auditors

 Real estate agents/agency

Real estate development

 Developers

 Construction companies/ Contractors

Real estate financing

 Commercial banks

 Mortgage banks

 Leasing companies

 Other financial institutions

Corporate real-estate management and property operators

 Office real estate

 Retail real estate

 Recreational real estate

 Industrial real estate

 Hotels and restaurants

 Logistics real estate

 Infrastructure real estate

 Public sector

 Service real estate/Social real estate

 Residential real estate

Real estate investment

 Open-end real estate funds

 Closed-end real estate funds

 Share-based vehicles eg REITs

 Insurance companies

 Insurance companies/Pension funds

 Pension funds

11

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

 Insufficient manpower in-house

 Quick resolution of issue

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

1.2.2 Traditional and Modern View

Figure 1.2: Traditional and Modern View

of the Real Estate Market

The key differencebetween traditionalview and modern view

of the real estatemarket is the

in general and realestate market in

market, it also means the appearance ofinternational factors and professionalconsultants.

1.2.3 Market Maturity

Property markets may be analyzed with relation

to how “mature” they are Market maturitydefined as a function of the degree ofdiversification of user and investor opportunities,flexibility of adjustment of property interests,market openness, the existence of informationand research systems, professionalism andstandardization of property rights and marketpractices This evolution follows a roughlycommon direction, i.e towards the development

of market structures and practices more akin tothose prevailing in the fully mature propertymarkets of the world’s financial centers Whatcan be seen is that a “mature” market, in general,displays the following characteristics:

13

 A diversified rental sector.

 A complex property investment market

 Openness to non-local players

 More transparency in the functioning of the market

 A wide use of sophisticated valuation procedures

 Information gathering systems

Perhaps another aspect of market maturity is that other actors come onto the marketand offer services that were once the domain of real estate professionals/specialists.This can be seen in more recent times as many professionals that are educatedwithin other disciplines have moved into the market Lawyers, accountants andmanagement consultants are a few examples of these “other” professions The trend

is that more firms are moving into the market and offering services they didn’tbefore

1.2.4 Services Offered

The services offered by consultants can generally be placed into one of five mainbusiness areas: Valuation, investment, leasing, sales, management and corporateservices Some of these categories were expanded in order that the different sub-markets within the specific fields could be included, e.g Property managementwhich was divided into three sub-groups; residential, office and shopping centers

1.3 ENVIRONMENTAL ANALYSIS

Environmental scanning is a concept from business management by whichbusinesses gather information from the environment, to better achieve a sustainablecompetitive advantage To sustain competitive advantage the company must alsorespond to the information gathered from environmental scanning by altering itsstrategies and plans when the need arises Environmental scanning usually refers

just to the macroenvironment, but it can also include industry analysis and thecompany's internal environment.

1.3.1 Societal (Macro-environment) Analysis

It is a part of the external analysis when doing market research and gives a certainoverview of the different macro-environmental factors that the company has to takeinto consideration It is a useful strategic tool for understanding market growth ordecline, business position, potential and direction for operations Models that oftenused as PEST, STEP, STEEP, PESTEL, PESTLE, LEPEST, STEEPLE,STEEPLED Some key factors of Macro-environment are:

 Political factors include areas such as tax policy, employment laws,

environmental regulations, trade restrictions and tariffs and political stability

 Economic factors are economic growth, income, investment…

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

lifestyle, social issues, the habits of the consumer …

 Legal factors refers to government legislation that places constraints or

obligations upon a business; businesses must adapt to changes in the lawquickly in order to avoid prosecution

1.3.2 Industry Analysis

Industry analysis is the analysis made in a specific sector or industry Industryanalysis investigates the general fundamentals of the equities within the industry butmore importantly investigates the state of external factors and how they shouldaffect the particular industry or sub sector Industry analysis means defining theindustry; identifying the dominant economic characteristics, the forces of change atwork in the industry as well as the key survival factors and evaluating theattractiveness of the industry Porter's 5 forces analysis is a framework for industryanalysis and business strategy development

Figure 1.3: Porter’s Five Forces Model

Figure 1.4: Another Model of Industry Analysis 1.3.3 Internal Analysis

An internal environmental scan involves looking at the present capabilities of theorganization (infrastructure, hardware, personnel, abilities, structure, etc) and thatinformation can be compared to what the organization will need in the future toachieve its strategic goals Identify the company’s resources, capabilities, corecompetencies, 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 aretechnological & reputation or product name These resources represent inputs intoproduction of a good or service The firm’s ability to achieve a competitive

advantage is reflected in its knowledge base and the ability of its resources tosuccessfully exploit its capabilities Core competencies are resources andcapabilities that are a source of competitive advantage for the firm They should besomewhat unique to that organization These resources have strategic value whenthey contribute to the development of capabilities, core competencies, andultimately to a competitive advantage.

1.3.4 SWOT

Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis are a strategydevelopment tool that matches internal organizational strengths and weaknesseswith external opportunities and threats SWOT Analysis is the key component ofstrategic development It can prompt actions and responses Successful businessesbuild on their strengths, correct their weaknesses and protect against internalvulnerabilities and external threats They also keep an eye on their overall businessenvironment and spot and exploit new opportunities faster than competitors SWOTanalysis is a tool that helps many businesses in this process SWOT analysis isbased on the assumption that if managers can carefully review such strengths,weaknesses, opportunities, and threats, a useful strategy for ensuring organizationalsuccess 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 countryand the motive force in the socio-economic development and internationalintegration of Vietnam Recently Hanoi has made great advances in all the fieldsand 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 thebasis for for the socio-economic development of Vietnam

2.1.3 Population and Life Style

Table 2.1: Hanoi’s population from 2003-2006

(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, areas for retailand leisure…

Hanoi is also the concentration of thousands of International and Vietnamesepolitical, economic and social organizations and this number increasingcontinuously, which leads to increasing demand for offices, commercial andindustrial properties

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

Overpopulation leads to the overload of properties’ operation causing deteriorationand rapid depreciation Properties in Hanoi have short use time not only by overloadbut by quality of construction and the natural conditions Repair and maintenance isoften, reconstruction or rebuilding after 15 to 20 years

Hanoi is the capital, the cultural, political and economic center of the country.Hanoi has the highest Human Development Index among the cities in Vietnam.Thanks to its geography, history and culture, the Hanoians have a liberal andmodern lifestyle, promoting a "cultural lifestyle", have received support from localpeople and been maintained

Hanoians tend to spend more money for shopping, amusement activities andespecially accommodation Hanoians have the habit of investing in long lasting andstable properties like real estates This is a great advantage for the real estate market

in Hanoi

An increase of 12% in GDP per capita every year leads to a significant increase inresidential demand Recently, there have been some projects for accommodationoperating, 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 estateprojects are among most successful and biggest projects now in Hanoi such as:Ciputra International City, Pacific Place, Golden Westlake… and upcoming projectssuch as: Keangnam Landmark Tower, Hanoi Plaza Hotel, West West Lake Urban

Area, Yen 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, foreign investment in Hanoi goes up along with the increase inscale and number of businesses, especially foreign businesses, which leads tohigher demands for properties

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

 Along with the increase in foreign investment, there will be a rise in number

of foreigners visiting, working or living in Vietnam These foreigners areable to afford higher cost for accommodation, so demand for high classproperties increase

 Foreign investment in real estates helps solve the problem of capital shortagefor projects, which helps speed up the development of the projects Atpresent, it is common that the foreign investors cooperate with domestic realestate investors and developers in big projects The Vietnamese partners areknowledgeable about domestic market and have good relationships to get thecity’s big projects The foreign partners have financial potential, technologyand high ranking professional management In short, foreign investmenthelps increase real estate supplying competence of the economy

However, foreign investment also has side effects as follow:

 Foreign investment in real estate increase dependence of real estate market

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

 Foreign investment can cause price to increase, which makes it more difficultfor demand and supply to balance

 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 Landlaw has provisions on land transfer, land auction but it has been regulated only forprimary market (transaction between the government and organizations orindividuals), whereas there have been few concrete regulations for the real estatetransaction in the secondary market (transaction between individuals or individualsand organizations) In general, the two laws have not met the multiformrequirements for real estate business in the new period So a professional real estatelaw is necessary for the development of the real estate market in Vietnam

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

effect on January 1st, 2007.in order to rule and motivate the better development ofthe real estate market The law stipulates which are considered estate commodities,real estate trading activities and real estate business, rights and obligations oforganizations 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 cooperative societies with legal capital of VND 6 billion and businesslicenses approved by the law However, organizations and individuals having

been issued business licenses are permitted to continue businesses without registering for business again.

 Investment capital rate of Investors must be no less than 20% of the wholeapproved investment capital for projects of constructing new urban area andtechnical infrastructure of industrial zones For projects of constructingaccommodations, this rate is 15% if land use areas of less than 20 ha and noless than 20% if land use areas of 20 ha and larger

 Investors of projects of new urban areas, accommodations and technicalinfrastructure of industrial zones have rights to transfer projects throughcontracts and approval of authorities issuing investment permit The newinvestors must follow all the conditions in line with law on real estate tradingand commit in writing to conduct the projects at the approved rate ofprogress

 To increase supply for the market, avoiding holding back projects Thedecree regulates projects are withdrawn in case investors do not follow theprojects properly or do not carry out the projects after 12 months since beinghanded over the land or delay the projects for over 24 months according tothe rate of progress approved In addition, investors who have projectswithdrawn are not permitted to invest in new real estate projects for 2 yearsdating from the date of withdrawn projects The offices issuing investmentpermit for projects decide to withdraw and select new investors for theprojects

 The buying and selling of properties in form of prepayment in the futureshould be done by installments The first installment is paid when investorshave completed infrastructure construction For accommodations, the firstinstallment should be paid when the foundation of the buildings have beencompleted and the total money mobilized before handing over is no morethan 70% of the total sum expressed in the contract

 To clarify the market, real estate business law stipulates that organizationsand individuals doing real estate businesses must sell, lease houses andbuildings through real estate exchange floors.

 Brokerage and agency organizations must have at least one staff memberwith an approved certificate in the field Individual brokers are also required

to register in line with laws and must have brokerage certificates

Some limitations of the above mentioned laws:

 Foreign investors have been permitted in real estate investment and servicesrelating to real estates They are allowed to cooperate with domesticindividuals and organizations, foreign organizations and individuals andVietnamese people residing in foreign countries in real estate businesses.Foreign investors have not been permitted to: buy accommodations,buildings for sale, lease and purchasing lease, rent houses and buildings forlease; get transfer of land use rights, invest in infrastructure building fortransfer, lease; rent use rights of land with completed infrastructure for lease.However, according to the decrees and under law projects, a proportion offoreigners and Vietnamese people residing in foreign countries will bepermitted to buy accommodations in the near future

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

to be up and down because of high price “fever”

Local Policy: In the development orientation of the city, real estate development is

focused on and granted priority The city government has issued many policiesaiming at improving infrastructure to create good conditions for real estatebusinesses The policies aim at improving factors of real estate market, promotingreal estate projects, attract and create good conditions for foreign investment in realestates However the superfluous and bureaucratic administrative procedure andcorruption are great issues limiting the development of real estate business in Hanoi

2.1.7 Financial Market

Financial market plays an important role and has a close relationship with the realestate market In Hanoi, besides domestic banks and investors, there are some bigforeign banks and investment funds in operation These financial institutions supply

a remarkable amount of capital for real estate market by means of project loans orloans for buying house Recently, there has been a contrast in Hanoi’s real estatemarket: While banks tighten loans for real estate investment to check and assess thecredit so as to find a suitable solution to collect loans at the due date, but investmentfunds invest more capital into real estate market in Hanoi Banks offering big loansfor real estate investment are DHB, BIDV, MB Big real estate investments fundsare Vinaland, Indochina Land Holdings…

At present, in Hanoi, there are some financial companies participating in real estatemarket via investment in big real estate development companies such as PETROVIETNAM FINANCE (PVFC), PT FINANCE, EVN FINANCE…

Recently investors have realized the close relationship between stock market andreal estate market in many aspects Before the issue of Decree N0109/2007/NĐ-CP

on July 26, 2007 about transferring 100% state –owned companies into joint-stockcompanies, the value of land use right was not included in the company value,which leads to share prices of equitized companies to increase tens of timescompared with the starting price thanks to advantages of land Since the issue of thedecree, the value of land use right has been included in the whole value of thecompanies, therefore the in the future, it will be more difficult for new equitizedcompanies to issue the shares to the public because a “big hole” in the process ofvaluation has been filled up However, there is still a long gap between the valuatedprice 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 follow:

 The real estate market in Hanoi is highly stable Lately, the price ofregistered shares in the stock market increase sharply in a short period oftime, which helps a number of people become rich quickly These people willlook for a less risky investment channel, and so the investment in real estatemarket is a good choice because this market is also very dynamic At thistime, many small and individual investors drew money from stock market toinvest in a more traditional market, the real estate market.

 Investors in Hanoi are standing in front of two big opportunities ofinvestment: the stock and real estate market While the stock market hasshown signs of instability and unpredictability, the real estate market isbooming with rapidly and stably increasing price and high demand Aremarkable amount of capital is transferring from stock market to real estatemarket

 Thanks to the issue of real estate investment certificates, the investors invest

in the real estate market via stock market This investment current creates aremarkable source of capital for real estate projects in Hanoi The issue ofthese shares also shows the professionalism in the real estate economy

2.1.8 Master Urbanization Plan

Today, Hanoi is bigger with area of 920,97 km² including 9 inner districts: HoanKiem, Hai Ba Trung, Ba Dinh, Dong Da, Tay Ho, Cau Giay, Thanh Xuan, LongBien, Hoang Mai and 5 outer districts: Tu Liem, Gia Lam, Dong Anh, Thanh Tri,

Soc Son Hanoi’s master plan to 2020 is to extend both sides of the north and south

Red River Hanoi will extend and link with the Northern provinces

Development direction to the south of Red River including some wards of Tay Hodistrict, the area of southern Thang Long bridge linking with Hatay’s urbandevelopment projects, the south of Hoang Mai district

Development direction to the north of Red River is to become an integratedindustrial-commercial-service center linking with the northern key economic zonessuch as Bac Giang, Bac Ninh, Hung Yen, Hai Duong, Hai Phong and Quang Ninh.Northern Red River urban area project will be forwarded with vision to 2020 In thenorthern areas of Thang Long Bridge, by 2020, the area for urban construction isabout 3.850ha This is a new urban area with general functions: concentratedindustrial centre, amusement centre, green parks, sports centre, residential area andInternational Finance Centre.

Industrial parks are operated in two directions with the purpose of creatingcapability for economic development, combining with the neighboring areas,transforming the present industrial parks, rearranging industrial parks in accordancewith the municipal program., constructing some concentrated industrial parks such

as Sai Dong A and B industrial parks, North and South Thang Long, Dong Anh, SocSon industrial parks, transforming Duc Giang, cau Buou, Phap Van, Cau Dienindustrial parks The area of land proposed for industrial park construction isapproximately 3000 ha

Public center system includes present centers and centers which are going to beconstructed in the near future such as Tay Ho Commerce and Finance centre,Southwest Thang Long, Phuong Trach, Van Tri, Gia Lam, Southwest Co Loa andXuan Trach centers

According to the projects approved, Road traffic system will be widened as follow:Completing belt road Number 3, constructing Belt road Number 4 In additions,Axes of North Red river, Cau Chui – Dong Tru – Co Loa – North Thang long T-junction will be constructed Five new bridges including Thanh Tri, Vinh Tuy, NhatTan, Tu Lien, Thuong Cat will be built in Hanoi

2.2 HANOI REAL ESTATE MARKET

2.2.1 Residential Market

Hanoi’s population with over 3.3 million people (Average growth rate of 2.7% peryear) is one of the most densely populated cities and young population and with3,490 people / km2 living in poor conditions (75% of population living in innerdistricts) Urbanization rate is high (57.7% in 2000, 66% in 2005 & projected 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 number offoreigners living and working in Hanoi Foreigners have been permitted to renthouses or apartments and in the near future a proportion of foreigners will beallowed to buy houses or apartments in Hanoi In addition, more favorable policiesfor overseas Vietnamese have led to increasing number of overseas Vietnamesereturning to Vietnam to work and live At present, a proportion of overseasVietnamese have been permitted to buy houses but the actual number of buyers islow

There is a sharp increase in per capita and household income and in number of highincome individuals According to the traditional opinion, buying houses is one ofthe most important milestones in a person’s life, especially with married people.Hanoians 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 creditagencies have offered more opportunities for people to buy properties

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

Table 2.3: Transaction Rate by Kind of Property Property

*Land, houses, villas in the inner districts

*Old apartments

*Houses, villas, apartments in new urban

area

*New apartment building

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 forthis kind of property are high but supply is limited and will decrease in the futuredue to the trend of moving residents into new urban areas or new apartmentbuildings Land in the inner districts will be used for big real estate projects Due tothe 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 Thenumber 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 forold villas under good conditions to meet the demands of foreigners and overseasVietnamese

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

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

of the housing demand in Hanoi today People are increasingly attracted to theconcept of living in new urban areas which offers the full range of services andgood living environment New urban areas are the best solution not only for newaccommodations but also for resettlement (People their properties are confiscated

by city’s projects)

This property can be divided into high-class, medium-class, and apartments for lowincome people Most of the Vietnamese final users mainly buy or rent medium orlow-class apartments High-class apartments, houses and villas are bought by richVietnamese people and then they also can sell to others for good prices or leased toforeigners.

Currently, there are 131 residential projects, which are in various stages ofdevelopment for various budgets of buyers in Hanoi Most apartments were soldoff-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 thenre-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 OverseasVietnamese Village, West West Lake… The medium quality project such as MyDinh, Thang Long International Village, Van Quan, Linh Dam, Trung Yen, TrungHoa, Cau Giay, Viet Hung, Phap Van… Project for low income households such as:Nghia Dô-Dich Vong, Cau Dien, Xuan La, Xuan Dinh…

(Source: CB Richard Ellis)

Figure 2.1: Housing Supply Vs Actual Demand in Hanoi