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

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

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

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……… 18

Table 2.2: Hanoi’s GDP from 2003-2006……… 20

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

Table 2.4: Price of Sales by Grade……… 31

Table 2.5: Rental of Apartments Including Tax (Not serviced apartments)……… 31

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……… 46

Table 2.10: List of Markets Will Be Converted Into Shopping Centers……… 47

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 1.2: Traditional and Modern View of the Real Estate Market 13

Figure 2.4: Demand and Rentals of Hanoi Serviced Apartment Market 35

Figure 2.7: Monthly Take-up and Occupancy Rate of A&B Office 39

Figure 2.12: RETAIL SALES & YEAR ON YEAR GROWTH RATE DURING 1996-2007 43

Figure 2.14: Leaseable Area and Rental Rates of Shopping Centers in Hanoi 45

Figure 2.16: Comulative Stock and New Supply of 4, 5 Star Hotel Room 49

Figure 3.1: The Consultant with Best Reputation for Exclusive Agency 55 Figure 3.2: The Consultant with Best Reputation for Open Brokerage/Agency 56 Figure 3.3: The Consultant with Best Reputation for Tenant Representation 57 Figure 3.4: The Consultant with Best Reputation for Property Management 59

Figure 3.7 the Consultant with Best Reputation for Investment Sales&Acquisition 61 Figure 3.8: The Consultant with Best Reputation for Project Development 62 Figure 3.9: The Consultant with Best Reputation for Legal issues 63

Figure 3.10: The Consultant with Best Reputation for Financial Services 64 Figure 3.11: The Consultant with Best Reputation for Real Estate Investment 65

Figure 3.13: Importance of Factors Determining Choice of Consultant 70

APPENDIX

APPENDIX B: Questions for Clients

APPENDIX B: Questions for Consultants

INTRODUCTION

1 BACKGROUND

Hanoi is an important center of real estate industry in Vietnam and Asia as well Due to great potential, Hanoi real estate market is becoming a favoured destination for domestic and foreign investment During the end of the year 2007, real estate market in Hanoi has recovered from a long time of freezing and showed new fever

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

In order to explain the situation and give out the forecast for the upcoming years, it

is necessary 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 been seen as a primary market “Boom” demand and positive policies that make Hanoi real estate market more attractive for investment, especially foreign investment Hanoi real estate market will continue to boom in many years upcoming that brings great opportunities and threats Hanoi real estate market is always a center public discussion especially for problems such as: Shortage of supply, escalation of price, speculation, unclearness of market, and effects of new policies…However, practical and theoretical researches on Hanoi real estate market are few, immaterial and unsystematic

The property consultant is an important factor of real estate market that leads or plays the role of conductor in real estate market Thanks to the real estate market, property consultancy in Hanoi has become a profitable business Today, the demand for property consultancy in Hanoi is diversified and increasing very fast that put a strong pressure on consultants Key clients those who are users of real estate related consultant services including property developers, property companies, domestic institutional investors, international investors and larger domestic corporations The foreign consultancy firms with their good reputation and brand, high

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

2 OBJECTIVES OF THE STUDY

The objectives of this thesis focus on:

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

analyse key issues of market at this present time and make some forecast about the trend of market in the near future In order to get the general objective, the thesis focuses on the following specific objectives:

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

 Analyse the characteristics of demand and supply as well as factors which affect demand, supply and price of Hanoi real estate market at this present time 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 between foreign and Vietnamese consultancy companies In order to get the general objective, the thesis focuses on the following specific objectives:

 Analyze the development of property consultancy in Hanoi

 Present and analyze key services which are offered in Hanoi

 Analyze the demand, key clients and customer behaviour in determining choice of consultant

 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 for

Vietnamese property consultancy companies to improve their business

3 SIGNIFICANCE OF THE STUDY

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

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

 Systematize separate researches on 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 economic growth, 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 this present 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 of opportunities but also full of challenges

4 SCOPE AND LIMITATIONS OF THE STUDY

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

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

5 METHODOLOGY

5.1 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 market and consultants business and therefore a descriptive method was used In the other parts of the research is of both a qualitative and quantitative nature Qualitative, as it tries to describe the real estate market and views of actors in real estate consultancy and clients with regard to future trends Quantitative as certain sections of the statistical data, questionnaires were formulated in a way that they could be grouped and results were given a numerical value

5.2 Data Collection and Analysis Method

The research was conducted by reviewing available literature that was relative to the subject, though this material was primarily limited to articles from the press and

real estate-related industry magazines, paper Several masters thesis within similar

fields were found and certain information contained within them was used and relied upon The lack of research, published papers and data relating to the subject area, has meant that it was not possible to carry out an empirical study

The information used in the sections of this research was gathered from real estate market, informal discussions with staff members at the chosen companies (primary data) This was supplemented by using publicly available information (secondary data) about the real estate market and property consultancy companies from sources such as: Web sites, brochures and marketing information and market reports when available In addition, some figures were obtained from Hanoi Statistics Department and other internal information The accuracy of the data received from these additional sources was, wherever possible, checked with the relevant person/company/department before being relied upon

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

domestic institutional investors, international investors and large domestic corporations The data was collected using a structured survey with numbered questions and for most answers there were multiple-choice responses Two separate questionnaires were constructed, one for the property consultants and one for the clients

in 5 past recent years

 The questionnaire is conducted with the purpose on interviewing key clients and consultants and in some cases, some relevant interviewees can not attend the interview 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

CHAPTER 1: LITERATURE REVIEW 1.1 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 permanently affixed to the land, such as buildings However, in some situations the term "real estate" 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 as buying, selling, leasing, investment… take place that define the price and volume of real estate exchanged The real estate market is broadly divided into three categories, residential, commercial, and industrial by purpose of use Some main features 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 to someone 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, while the developers comprise the supply side Facilitators and government comprise the

both sides of the market

1.1.3 Demand

Demand of real estate refers to how much (quantity) of real estate is desired by buyers The quantity demanded is the amount of real estate people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the real estate demand relationship The main determinants of the demand for real estate are:

is supplied to the market is known as the supply relationship The main determinants 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 panel while the new flow is in the right panel There are four steps in the basic adjustment

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

of the supply of existing housing stock (SH) and the demand for housing (D) This rent is then translated into value (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 costs and the value of housing services determine the maximum level

of new housing starts (HSo) Finally the amount of housing starts in the current

period is added to the available stock of housing in the next period In the next

period, supply curve SH will shift to the right by amount HSo

Figure 1.1: The Adjustment Mechanism of Real Estate Market

1.1.6 Line of Real Estate Related 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

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 looking for something they have not the capacity to do or undertake in their own firm

1.2.2 Traditional and Modern View

Traditional View Modern View

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

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

1.2.3 Market Maturity

Property markets may be analyzed with relation to how “mature” they are Market maturity defined as a function of the degree of diversification of user and investor opportunities, flexibility of adjustment of property interests, market openness, the existence of information and research systems, professionalism and standardization

of property rights and market practices This evolution follows a roughly common direction, i.e towards the development of market structures and practices more akin

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

 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 market and 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 educated within other disciplines have moved into the market Lawyers, accountants and management 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’t

before

1.2.4 Services Offered

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

1.3 ENVIRONMENTAL ANALYSIS

Environmental scanning is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage To sustain competitive advantage the company must also respond to the information gathered from environmental scanning by altering its strategies and plans when the need arises Environmental scanning usually refers

just to the macroenvironment, but it can also include industry analysis and the company'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 certain overview of the different macro-environmental factors that the company has to take into consideration It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations Models that often used 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 law quickly in order to avoid prosecution

1.3.2 Industry Analysis

Industry analysis is the analysis made in a specific sector or industry Industry analysis investigates the general fundamentals of the equities within the industry but more importantly investigates the state of external factors and how they should affect the particular industry or sub sector Industry analysis means defining the industry; identifying the dominant economic characteristics, the forces of change at work in the industry as well as the key survival factors and evaluating the attractiveness of the industry Porter's 5 forces analysis is a framework for industry analysis 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 the organization (infrastructure, hardware, personnel, abilities, structure, etc) and that information can be compared to what the organization will need in the future to achieve its strategic goals Identify the company’s resources, capabilities, core competencies, and value chain activities Evaluate its financial results/condition Identify the company’s key result areas, current strategies and objectives

Firms have assets that are tangible and intangible Tangible are financial, physical, human and organizational (formal reporting structure and systems) Intangible are technological & reputation or product name These resources represent inputs into production of a good or service The firm’s ability to achieve a competitive

advantage is reflected in its knowledge base and the ability of its resources to successfully exploit its capabilities Core competencies are resources and capabilities that are a source of competitive advantage for the firm They should be somewhat unique to that organization These resources have strategic value when they contribute to the development of capabilities, core competencies, and ultimately to a competitive advantage

1.3.4 SWOT

Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis are a strategy development tool that matches internal organizational strengths and weaknesses with external opportunities and threats SWOT Analysis is the key component of strategic development It can prompt actions and responses Successful businesses build on their strengths, correct their weaknesses and protect against internal vulnerabilities and external threats They also keep an eye on their overall business environment and spot and exploit new opportunities faster than competitors SWOT analysis is a tool that helps many businesses in this process SWOT analysis is based on the assumption that if managers can carefully review such strengths, weaknesses, opportunities, and threats, a useful strategy for ensuring organizational success will become evident to them

Figure 1.5: SWOT Analysis

CHAPTER 2: HANOI REAL ESTATE MARKET

2.1 MACRO-ENVIRONMENTAL FACTORS

2.1.1 Introduction

Hanoi – located in the center of Red River Delta in the North, Hanoi is the political,

economic, and cultural capital of Vietnam It is the second largest city in the country and the motive force in the socio-economic development and international integration of Vietnam Recently Hanoi has made great advances in all the fields and especially this is a very potential city for economic development

2.1.2 Political Factor:

Hanoi is the political capital of Vietnam, a city of political stability and security Recently Vietnam has become membership of WTO and UN Security Council, which helps Vietnam to fully integrate with world life Those achievements are the basis for for the socio-economic development of Vietnam

2.1.3 Population and Life Style

Table 2.1: Hanoi’s population from 2003-2006

(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 retail and leisure…

Hanoi is also the concentration of thousands of International and Vietnamese political, economic and social organizations and this number increasing continuously, which leads to increasing demand for offices, commercial and industrial properties

A greater and increasing number of domestic and foreign visitors to Hanoi (5.9 million 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 deterioration and rapid depreciation Properties in Hanoi have short use time not only by overload but by quality of construction and the natural conditions Repair and maintenance is often, reconstruction or rebuilding after 15 to 20 years

Hanoi is the capital, the cultural, political and economic 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 and modern lifestyle, promoting a "cultural lifestyle", have received support from local people and been maintained

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

in Hanoi

2.1.4 GDP

Table 2.2: Hanoi’s GDP from 2003-2006

Unit: USD

2003 2004 2005 2006 GDP 4.12 bil 4.58 bil 5.09 bil 5.68 bil

Growth rate 11.1% 11.12% 11.16% 11.53%

GDP per capita 1350 1400 1554 1787 (11.50%)

(Source: Hanoi Statistics Department)

GDP increases about 11.5% annually, requiring more properties for commerce and industry An increase in GDP means an increase in scale of manufacturing and trading, increase in the number of economic organizations in Hanoi Now Hanoi is experiencing a serious shortage of offices, hotels, retail & showroom areas, factories, workshops and warehouses

An increase of 12% in GDP per capita every year leads to a significant increase in residential demand Recently, there have been some projects for accommodation operating, but they still have not met people’s diversified needs for housing

2.1.5 Foreign Investment

Hanoi is a center attracting foreign investment (15% of FDI growth rate every year) WTO access takes an unprecedented opportunity for foreign investment Real estate projects are among most successful and biggest projects now in Hanoi such as: Ciputra International City, Pacific Place, Golden Westlake… and upcoming projects such as: Keangnam Landmark Tower, Hanoi Plaza Hotel, West West Lake Urban

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 in scale and number of businesses, especially foreign businesses, which leads to higher 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 are able to afford higher cost for accommodation, so demand for high class properties increase

 Foreign investment in real estates helps solve the problem of capital shortage for projects, which helps speed up the development of the projects At present, it is common that the foreign investors cooperate with domestic real estate investors and developers in big projects The Vietnamese partners are knowledgeable about domestic market and have good relationships to get the city’s big projects The foreign partners have financial potential, technology and high ranking professional management In short, foreign investment helps 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 is withdrawn, the real estate market may deteriorate

 Foreign investment can cause price to increase, which makes it more difficult for 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 Land law has provisions on land transfer, land auction but it has been regulated only for primary market (transaction between the government and organizations or individuals), whereas there have been few concrete regulations for the real estate transaction in the secondary market (transaction between individuals or individuals and organizations) In general, the two laws have not met the multiform requirements for real estate business in the new period So a professional real estate

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

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

effect on January 1st, 2007.in order to rule and motivate the better development of the real estate market The law stipulates which are considered estate commodities, real estate trading activities and real estate business, rights and obligations of organizations and individuals doing real estate businesses, brokerage, consultancy,

and series of regulations on real estate services

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

 Organizations and individuals operating businesses have to set up companies

or cooperative societies with legal capital of VND 6 billion and business licenses 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 whole approved investment capital for projects of constructing new urban area and technical infrastructure of industrial zones For projects of constructing accommodations, this rate is 15% if land use areas of less than 20 ha and no less than 20% if land use areas of 20 ha and larger

 Investors of projects of new urban areas, accommodations and technical infrastructure of industrial zones have rights to transfer projects through contracts and approval of authorities issuing investment permit The new investors must follow all the conditions in line with law on real estate trading and commit in writing to conduct the projects at the approved rate of progress

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

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

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

 Brokerage and agency organizations must have at least one staff member with 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 services relating to real estates They are allowed to cooperate with domestic individuals and organizations, foreign organizations and individuals and Vietnamese 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 for lease; get transfer of land use rights, invest in infrastructure building for transfer, lease; rent use rights of land with completed infrastructure for lease However, according to the decrees and under law projects, a proportion of foreigners and Vietnamese people residing in foreign countries will be permitted to buy accommodations in the near 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 policies aiming at improving infrastructure to create good conditions for real estate businesses The policies aim at improving factors of real estate market, promoting real estate projects, attract and create good conditions for foreign investment in real estates However the superfluous and bureaucratic administrative procedure and

corruption 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 real estate market In Hanoi, besides domestic banks and investors, there are some big foreign banks and investment funds in operation These financial institutions supply

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

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

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

on July 26, 2007 about transferring 100% state –owned companies into joint-stock

companies, 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 times compared with the starting price thanks to advantages of land Since the issue of the decree, the value of land use right has been included in the whole value of the companies, therefore the in the future, it will be more difficult for new equitized companies to issue the shares to the public because a “big hole” in the process of valuation has been filled up However, there is still a long gap between the valuated price and the market price Normally, the market price is many times higher

The stock market and the real estate market are like communicating vessels In Hanoi, the relationship of these two markets can be seen as follow:

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

 Investors in Hanoi are standing in front of two big opportunities of investment: the stock and real estate market While the stock market has shown signs of instability and unpredictability, the real estate market is booming with rapidly and stably increasing price and high demand A remarkable amount of capital is transferring from stock market to real estate market

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

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

2.1.8 Master Urbanization Plan

Today, Hanoi is bigger with area of 920,97 km² including 9 inner districts: Hoan Kiem, Hai Ba Trung, Ba Dinh, Dong Da, Tay Ho, Cau Giay, Thanh Xuan, Long Bien, 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 Ho district, the area of southern Thang Long bridge linking with Hatay’s urban development projects, the south of Hoang Mai district

Development direction to the north of Red River is to become an integrated industrial-commercial-service center linking with the northern key economic zones such 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 the northern areas of Thang Long Bridge, by 2020, the area for urban construction

is about 3.850ha This is a new urban area with general functions: concentrated industrial centre, amusement centre, green parks, sports centre, residential area and International Finance Centre

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

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

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

According to the projects approved, Road traffic system will be widened as follow: Completing belt 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, Nhat Tan, 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% per year) is one of the most densely populated cities and young population and with 3,490 people / km2 living in poor conditions (75% of population living in inner districts) Urbanization rate is high (57.7% in 2000, 66% in 2005 & 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 of foreigners living and working in Hanoi Foreigners have been permitted to rent houses or apartments and in the near future a proportion of foreigners will be allowed to buy houses or apartments in Hanoi In addition, more favorable policies for overseas Vietnamese have led to increasing number of overseas Vietnamese returning to Vietnam to work and live At present, a proportion of overseas Vietnamese have been permitted to buy houses but the actual number of buyers is low

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

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

Table 2.3: Transaction Rate by Kind of Property

Property High Value Transaction Rate

(Rent and sales)

*Land, houses, villas in the inner districts

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

are still high demands for this kind of property, especially those in the inner city Most of this property have been used for a long time and can be used immediately There will be few and limited number of new property in the future Demands for this kind of property are high but supply is limited and will decrease in the future due to the trend of moving residents into new urban areas or new apartment buildings Land in the inner districts will be used for big real estate projects Due to the difference between demand and supply, the prices for this property are high and

in reality, there are few buying and selling transactions of this kind of property The number of renting and leasing transactions for this property is still very high, especially for those in the city center Recently there has been a trend of hunting for old villas under good conditions to meet the demands of foreigners and overseas

Vietnamese

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

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

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

by city’s projects)

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

Currently, there are 131 residential projects, which are in various stages of development for various budgets of buyers in Hanoi Most apartments were sold off-plan Some condominiums offer units as shells and some offer fitted units Majority of residential apartments constructed in Hanoi are of a medium class These apartments sold quickly to middle class families with the medium sale price Due to the supply shortage of residential apartment, units are sold off-plan and then re-sold, many times prior to completion

The high quality projects such as: Ciputra, Pacific Place, The Garden, Chelsea Park, The Manor, West Lake, Trung Hoa-Nhan Chinh, 93 Lo Duc, TSQ Overseas Vietnamese Village, West West Lake… The medium quality project such as My Dinh, Thang Long International Village, Van Quan, Linh Dam, Trung Yen, Trung Hoa, Cau Giay, Viet Hung, Phap Van… Project for low income households such as: Nghia Dô-Dich Vong, Cau Dien, Xuan La, Xuan Dinh…

(Source: CB Richard Ellis)

Figure 2.1: Housing Supply Vs Actual Demand in Hanoi

The market is existing two price level, the first is the origin price directly from investors and the second is price level at secondary market In 2007 the demand for all kinds of apartment’s increased especially high class apartments in the center and apartments are sold out faster than expectation The rental and sales price of houses and villas in new urban area are often higher apartment’s 1.5-2.5 times at the same

 Due to the sensitive relationship between real estate market and stock market, some investors have chosen to turn into investing in real estate market to preserve their capital

 Legal corridor for real estate market is becoming clearer and appropriate, making it more convenient for trading than before Real estate trading Law, real estate registration Law, Land use Tax Law, accommodation Law, policies for overseas Vietnamese to buy houses… have been improved and come into effect Price frame stipulated this year by the government is about

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

policies for accommodations such as loans for house purchase, house or apartment purchase by installments have helped increase demands with high payment capacity

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

 There are two levels of prices in the market, one is the price bought directly from the investors, and the other is the higher price through intermediary (in secondary market) Therefore real estate prices are being pushed higher than the actual value and out of most customers’ affordability With experience, relationship with investors and capital, speculators hold almost all new supplies in the market and control the prices

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

in the past years Supply of apartments for sale in Hanoi this year is considerably limited, and is not able to meet the increasing demand in the time to come Normally, a large scale project takes at least 3 years to come into full operation

(Source: CB Richard Ellis)

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

However, in 3 upcoming years (2010), there will be fierce competition in the residential market because it is the time when big projects will be completed and