VinaLand Limited. Update July 2015

Transcription

1 VinaLand Limited Update July

2 Disclaimer The information contained herein has been prepared by VinaCapital Investment Management Limited (the Company") and is subject to updating, completion, revision, further verification and amendment without notice. Some of the information contained in these slides has not yet been announced pursuant to the AIM Rules of the London Stock Exchange and as such constitutes relevant information for the purposes of s.118 of the UK Financial Services and Markets Act 2000 (as amended) ("FSMA") and non-public price sensitive information for the purposes of the UK Criminal Justice Act Recipients of these slides should not therefore deal in any way in ordinary shares in the capital of VinaLand Limited ( Ordinary Shares ) until the date of a formal announcement by VinaLand Limited in connection with the proposed restructuring described in these slides. Dealing in Ordinary Shares in advance of this date may result in civil and/or criminal liability. No undertaking, representation, warranty or other assurance, express or implied, is made or given by or on behalf of the Company or VinaLand Limited or any of its directors, officers, partners, employees, agents or advisers or any other person as to the accuracy or completeness of the information or opinions contained in these slides or the presentation and no responsibility or liability is accepted by any of them for any such information or opinions or for any errors, omissions, misstatements, negligence or otherwise for any other communication written or otherwise. In addition, in issuing these slides, the Company does not undertake any obligation to update or to correct any inaccuracies which may become apparent in these slides. Notwithstanding the aforesaid, nothing in this paragraph shall exclude liability for any undertaking, representation, warranty or other assurance made fraudulently. The information herein is confidential and is being supplied solely for your information and may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose. By accepting receipt of this document, you agree to be bound by the limitations and restrictions set out above. Neither these pages nor any copy of them may be taken or transmitted into or distributed in any jurisdiction where the distribution of such material would be prohibited under the jurisdiction s applicable securities laws. Any failure to comply with this restriction may constitute a violation of national securities laws. 2

3 Contents 1. Macroeconomic update 2. Vietnam property market 3. Overview of VinaLand Limited 4. Review of the last 30 months 5. Forecast to December Appendix a. CBRE Vietnam Real Estate Report 2 July 2015 Time to recalibrate b. Viet Capital Securities Excerpt from The stars have finally aligned 3

4 GDP growth on track - supported by manufacturing The PMI (HSBC) increased for the second consecutive month to 54.8 in May from 53.5 in April. This improvement in operating conditions was the strongest since the time series began in April The index moved up with rising client demand, leading to higher new orders and increased job creation. Looking at various sectors of the economy in May, we note the sluggish growth in agriculture (mostly due to weaker export demand) and services (because of negative growth in tourism). The exception was the industrial sector which recorded high growth as the Index of Industrial Production (IIP) which jumped 9.2% YOY during the Jan- May period, which was much higher than the 4.9% and 5.7% in 201 and 2014 respectively. Manufacturing spearheaded growth by contributing 76% to total industrial growth. New orders and new production were both rising, mainly driven by lower input costs for materials including oil, iron and steel. Operating conditions in manufacturing sector have also now strengthened in each of the past 20 months. On the domestic demand side, retail sales expanded 9.1% YOY during Jan May. A rough estimate for Q2-15 consumption would be around 6.4% and Q2 GDP growth would be around 6.3%. This conforms to our view that: in 2015, consumer spending will be an important driver of economic growth, in addition to manufacturing and exports. According to the ANZ, CCI (Consumer Confidence Index) remained unchanged from April to stand at in May, but still much higher than the long-term average of The Vietnamese economy has entered a growth phase. We project GDP growth rate of % YOY for EXPANDING CONTRACTING HSBC Purchasing Managers Index May 2015 (54.8) ANZ-Roy Morgan Vietnam Consumer Confidence Index Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Source:s HSBC, ANZ 4

5 Inflation remains moderate The CPI for May is as follows: o MOM 0.16% o YOY 0.95% o YTD 0.20% Vietnam s CPI edged up only 0.16% M/M: not much different from the last 2 month s level (about bps) and helped maintain Y/Y inflation at 0.95%. May CPI is driven mainly by increases in gasoline and electricity prices. o As expected, transportation costs rose 1.02% M/M because of higher fuel prices. o Housing and construction costs rose 1.27%, attributable to the electricity price hike. o Other CPI groups such as healthcare and pharmaceutical; household appliances, also rose at a faster pace than last month. The foods group (40% of CPI basket) declined 0.32% M/M as food supply remains ample. We think the current low inflation trend is unlikely to result in policy rate cuts as it would impact on the VND position which is under pressures at the moment. There has been speculation of a cut in the deposit cap (currently at 5.5%) but so far it has not been forthcoming. Such policy move may not be needed because the informal guidance provided by key interbank lenders like VCB and BIDV has proven effective so far. Looking forward to June the impact of further increases in administered-prices will keep driving inflation. However these price increases have been expected for some time, and for the benign overall environment the impact on CPI will be moderate. It does support our opinion that that the current modest uptrend in the CPI will accelerate a little over coming months. We project inflation rate of 3 3.5% YOY at 2015 year end Inflation, %M/M Jan-14 May-14 Sep-14 Jan-15 May-15 Inflation, %YTD % Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: GSO, SBV 5

6 After devaluation, some pressures continue on Vietnam Dong After the 1% depreciation on May 7, the FX market stabilized. However pressures on the VND have continued, with the USD trading close to the upper band of 21,890. See graph. These are some reasons explaining the VND s weakness: VND per USD VND'000 VND per USD The USD s continued rise on international markets. The US economic recovery remains on track in spite of occasional weak job reports. The US Fed stays with a target of Sep Dec for raising interest rates. Vietnam exports have been declining mainly due to an overvalued VND relative to other currencies in the region. It is presently tied to the USD in a crawling-peg arrangement. Vietnam currently has a $3.0bn trade deficit in 5M-15. however the majority of imports is for the purchase of capital equipment, intermediate inputs, raw materials destined for future production of exports. In a public declaration the SBV confirmed its promise not to depreciate the VND by more than 2% this year Official Rate VCB Sell Free market Sell 1% upper band 1% lower band A 1% depreciation cannot help export businesses much but can raise prices for others who import. Depreciation will add to the external and public debt burden. Depreciation will result in imported inflation. SBV will intervene in the open market to support the Dong by drawing on its FX reserves (estimated at $38bn) Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Source : Vietcombank, SBV, GSO Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 We project an exchange rate of 21,500-22,000 by 2015 year end 6

7 Liquidity supports the recovery of the property market Liquidity increasing and interest rates trending down The bank lending conditions continue to improve due to the downward trend in interest rates and the growth of liquidity. As a result of the improvement in liquidity, VNL has successfully refinanced existing project level bank debt with reduction in interest rates from a range of 9%-14% down to 9%-12.5%. Repayment terms have also improved. Local developers are now actively borrowing to commence new developments and launch sales programs. There is a lot of hype in the market now in specific sectors, in particular the condominium sector. Credit growth for YTD May has reached 4.3%, higher than bank deposit increase of 3.2%. Such credit growth is the highest rate for first 5 months over the last 3 years. New loans show signs of flowing in real estates and infrastructure. Banks have incentives to expand loan book in effort to bring the NPL ratio to below 3% by end In 2015, the SBV set a target credit growth of 13 15%. The Ocean Apartment Block A Source: VCG Research 7

8 Vietnam macroeconomic update - Tran-Pacific Partnership (TPP) Trans-Pacific Partnership (TPP) Free Trade Agreement The Trans-Pacific Partnership (TPP) is a proposed regional regulatory and investment treaty. TPP will open vibrant new markets by cutting tariffs in countries that are not already free-trade partners. As of Q1/2015, twelve (12) countries throughout the Asia-Pacific region have participated in negotiations on the TPP: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, The United States and Vietnam. The proposed agreement began in 2005 and 19 formal rounds of TPP negotiations have been held. Implementation of the TPP will be expected by Impacts of TPP on Property Market TPP will make positive impacts on export industries, especially textile industry. It is too early to determine how the TPP will impact the property market. However, the property market has witnessed more US and Japanese investors (members of TPP) seeking investment opportunities in Vietnam and acquiring Vietnam s realty projects. Vietnam will have to undertake some difficult domestic reforms to meet the TPP s intellectual property rules and labor and environmental standards. However, the moves by foreign and domestic companies to invest in or expand operations in Vietnam will give the government an early indication of the benefits that could be derived from painful domestic reforms as the ambitious trade agreement is being finalized. 8

9 Selected macroeconomic indicators from 2010 to 2015F Major Indicators 2010A 2011A 2012A 2013A 2014A 2015F 1 GDP growth (%) % 6.5% CPI (%) % 3.5% Trade Deficit /Surplus (USD Bn) Exports (USD Bn) Imports (USD Bn) FDI Commitments (USD Bn) FDI Disbursement (USD Bn) Credit Growth (%) FX Reserves (USD Bn) SBV Refinancing Rate Deposit Rate (%) % 6.5% Lending Rate (%) % 12.5% USD/VND (free-market rate) 21,030 21,200 20,880 21,190 21,580 21,500 22,000 Source : GSO, MPI, SBV 1. Consensus forecast from ADB, WB, EIU, HSC, HSBC, JP Morgan, Citi, Govt 9

10 Contents 1. Macroeconomic update 2. Vietnam property market 3. Overview of VinaLand Limited 4. Review of the last 30 months 5. Forecast to December Appendix a. CBRE Vietnam Real Estate Report 2 July 2015 Time to recalibrate b. Viet Capital Securities Excerpt from The stars have finally aligned 10

11 Key factors of The amended Housing Law, effectively 1 July 2015 For Housing From 1 July 2015 For Commercial Properties From 1 July 2015 Foreign Individual Buyers Foreign Organization Segments Volume Purpose Tenure For ALL foreigners who are granted a visa to the country. For ALL foreign investment funds, banks, Vietnamese branches and representative offices of overseas companies. Apartment + Villas and Townhouse. Total number of dwelling units owned by foreigners must not exceed 30% of the total units in one condominium complex or 250 villas/townhouses in one particular administrative area. The properties owned by foreigners can be sub-leased, traded, inherited and collateralized. 50 years leasehold. According to the draft decree issued in May/2015 from the Ministry of Construction to the government, foreigners can apply to extend their house ownership by another 50 years, after the first 50-year period. Foreign individual married to Vietnamese citizens are entitled to freehold tenure. Foreign invested firms can sub-lease properties that they are renting. Foreign invested firms can acquire and own a completed building for own use. The amendment helps the Vietnamese property market become more competitive within the region. The recent amendment follows the relaxation of property rights for Overseas Vietnamese (Viet Kieu) who now have access to full and unfettered ownership. As the result, this will increase overseas remittances for Vietnam. The impact of the foreign purchasers is insufficient to influence pricing, however can assist with absorption and liquidity thereby contributing to a healthier residential market. In line with economic recovery and the new housing laws, approximately 10,030 apartment units came onto the market (Hanoi and Ho Chi Minh City) during the first quarter of 2015 and a new wave of office supply will be coming in the next few quarters. 11

12 Landed property sector Hanoi, Ho Chi Minh, Danang and Nha Trang. The landed property market continued to be active with new project launches, helped by changes in sales strategies from existing developers and increased interests from buyers. Cluster of new launches: districts in the East and the South in Ho Chi Minh City and districts in the West and East in Hanoi. Selling price in Q2 2015: developers are continuing to price their projects more realistically than in the past and are meeting buyers expectations. The asking price is less than the previous quarters to encourage more sales (approx. 3%). Flexible payment terms and incentives will continue to be used to attract buyers. Potential buyers continue to be mostly interested in the locations with improving infrastructure systems, in near completed projects or projects developed by high profile developers. There is a significant number of condominium projects that continues to launch in Q both in Ho Chi Minh City and Hanoi. Although there will have more competitions for landed property segment, landed property still is a traditionally favorite by the Vietnamese as both a home and for investment. So far the 2015 real estate market is demonstrating slow and gradual improvement as buyers return to real estate. Danang and Nha Trang are showing slight recovery signs in H1 2015: Projects in Danang and Nha Trang have experienced improved sale volume over first 6 months of 2015 and this trend is expected to continue. For second home villas, those priced between US$300,000 US$350,000 per unit recorded better sales than higher end projects with prices above US$500,000. Limited new supply due to no or slow activity at some construction sites partially due to clearance and resettlement delays. This is a positive for VNL projects which are completed or under construction. 12

13 Condominiums for sale sector New launches in Q New launches: 19 projects with 8,528 units in Ho Chi Minh City and 19 projects with 5,137 units in Hanoi. The number of new condominiums launched in Ho Chi Minh City and Hanoi rose 165% and 105% quarter-on-quarter, respectively. H Sale abortions (both new and previous launches): Hanoi (45%) and Ho Chi Minh City (73%). Sale momentum: high-end and affordable in Ho Chi Minh City while mid-end segment in Hanoi. Cluster of new launches: districts in the East and the South in Ho Chi Minh City and districts in the West, East and South East in Hanoi. Developers are now pricing their projects more realistically than the past and are getting closer to buyer s expectations. The average selling prices of high-end and mid-end segment both in Ho Chi Minh City and Hanoi increased slightly by 1%-3% quarter-on-quarter. Residential prices have been much more affordable with smaller-sized units triggering demand from both owner-occupiers and investors. Incentives and flexible payment terms to achieve better sales performance. Interest rate declined so greater availability of mortgages. Buyers previously paid predominantly with cash. Primary Asking Price in Hanoi and Ho Chi Minh City (US$/sqm) in Q Sources: CBRE Q

14 Retail Sector New Supply and Asking Rent New supply in Q2 2015: 2 projects with 76,000sqm in Ho Chi Minh City and 2 projects with 23,800sqm in Hanoi. Average monthly rents: it remained stable in Ho Chi Minh City while it decreased approx. 6% in Hanoi as the reduction of rents in non-cbd area. Slightly changes in vacancy rate (1%-2%): increased in Ho Chi Minh City and decreased in Hanoi. The average occupancy rate has achieved at 80% - 90%. Outlook H Hanoi is experiencing an over supply, Ho Chi Minh City has less supply however new retail centers are proposed to open in H which will apply downward pressure on net effective rentals. Due to the limited availability of land in the CBD, both existing and future large retail centres will decentralize to non-cbd location. Retail asking rents (US$/sqm/month) Hanoi Retail asking rents (US$/sqm/month) Ho Chi Minh City US$40 US$45 US$90 US$100 US$80 US$85 US$35 US$40 Sources: CBRE Q Note: The rents exclude VAT 14

15 Office Sector Asking rent (Q2 2015) Average monthly rents: it remained stable in Ho Chi Minh City while it decreased slightly (3%) in Hanoi. Vacancy rate: remained stable in Ho Chi Minh City while it decreased slightly (1% - 3%) in Hanoi. Small to medium office sizes (less than 1,000sqm) were most attractive in Q Most active industries in Q1 2015: technical services, IT/software, tourism, outsourcing and energy. More enquiries received from local firms is expected to increase. Outlook in H In H2 2015, a new supply will arrive hence the landlords may soften their rents slightly in an effort to fill up buildings. Therefore, office market will be more competitive. According to revised housing laws, foreign invested firms can sub-lease commercial properties that they are renting. Thus, the landlords have become more open to long terms leases with sub-leasing rights guarantee under the terms of the revised laws, effective in July Relocation and expansion from small and medium size (less than 1,000sqm) are anticipated to drive office market in Limited new supply will come from large scale, mixed use projects and from those projects developed partly for owner-occupation. Office asking rents (US$/sqm/month) Hanoi Office asking rents (US$/sqm/month) Ho Chi Minh City US$17 US$20 US$30 US$35 US$30 US$35 US$18 US$20 Sources: CBRE Q Note: The rents exclude VAT 15

16 Contents 1. Macroeconomic update 2. Vietnam property market 3. Overview of VinaLand Limited 4. Review of the last 30 months 5. Forecast to December Appendix a. CBRE Vietnam Real Estate Report 2 July 2015 Time to recalibrate b. Viet Capital Securities Excerpt from The stars have finally aligned 16

17 VinaLand Limited (VNL) Fund summary Portfolio summary NAV: US$383.5m (31 March 2015) Current assets: 25 Divestments: 21 full and residential unit sales NAV per share: US$0.89 (31 March 2015) Share price: US$0.516 (7 July 2015) Debt: Fund Cash balance: Fund level (ZDPs) : 7.4% NAV Project level (Bank) : 19.8% NAV USD12.8m (incl. ZDP) Discount: -41.9% (7 July 2015) Market cap: US$222m (7 July 2015) Total shares outstanding: 430,132,220 (7 July 2015) Completed villas at VNL and VOF s Dai Phuoc Lotus island project 17

18 Portfolio breakdown 7.9% Hanoi region Hanoi Portfolio breakdown Sector NAV% Hospitality 2.4% Township 21.7% Mixed use 31.1% Residential 44.8% 29.2% Central region 62.9% HCMC region Danang Ho Chi Minh Nha Trang Development status Land banking 7.4% Planning stage 61.8% Development stage 29.3% Operating assets 1.4% Valuation Assets not yet revalued 6.7% Assets revalued 93.3% Note: NAV as at 31 March

19 Top Ten Investments TOP TEN INVESTMENTS Investment Location Sector VNL % Site area NAV NAV % VNL's Bank debt Status 1 Century 21 (Phase A + C) South Residential 75.0% % 27.4 Planning 2 Danang Beach Resort 220ha Central Residential 75.0% % 11.5 Development 3 Dai Phuoc Lotus South Township 54.0% % 0.3 Development 4 VinaSquare South Mixed Use 46.5% % - Planning 5 Pavilion Square South Mixed Use 90.0% % 27.1 Planning 6 Times Square Hanoi North Mixed Use 65.0% % - Planning 7 Aqua City South Township 40.0% % - Planning 8 Trinity Park HUD South Residential 75.0% % - Planning 9 Green Park Estate South Mixed Use 62.9% % - Planning 10 Capital Square (P1+P2+P3) Central Mixed Use 60.0% % 2.3 Development Total of Top 10 Investments (USD million) % 68.6 Remaining Investments (USD million) % 7.4 Total Portfolio (USD million) % 76.0 Note: NAV as at 31 March

20 VNL Share Price & NAV Performance Share Price & NAV (31 Mar 15) (7 July 15) Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Share Buy Back Since the EGM in November 2012: VNL has spent USD29.1m to buy back 53.3m shares, bringing the total number of shares outstanding to 430,132,220 (as at 7 July 2015). Since inception, VNL has spent USD37.9m repurchasing 69.8m shares (13.97% of shares issued) which have been cancelled. NAV per share Share Price Index points VNL vs VN Index VN Index VNL Price VNL share price USD Source: Google Financ e & HOSE 20

21 Contents 1. Macroeconomic update 2. Vietnam property market 3. Overview of VinaLand Limited 4. Review of the last 30 months 5. Forecast to December Appendix a. CBRE Vietnam Real Estate Report 2 July 2015 Time to recalibrate b. Viet Capital Securities Excerpt from The stars have finally aligned 21

22 VNL Performance since EGM November 2012 Per share data Trading volumes 1.20 USD1.11 since EGM Nov ,000, USD 0.89 (as at 31 Mar 2015) 1,800,000 1,600, Trading discount as at 30 Nov 2012: 63.3% Trading discount as at 7 July 2015: 41.9% 1,400,000 1,200, ,000, , , , , Average trading volume NAV per share Share Price VNL s share price increased 26% to USD0.516 as at 7 July 2015, from a closing price of USD0.41 as at EGM November The Company s share price to NAV discount is currently 41.9% compared to 63.3% in EGM November

23 Performance over the past 30 months Performance over past 30 months The achievements to date are well behind the targets set at the EGM in The primary reason was a much slower than expected recovery of the Vietnam economy and more importantly the Vietnam real estate market. During , a combination of factors including high cost of borrowing, low liquidity due to NPL s, delays to completion of project licensing coupled with a broad reaching lack of confidence in the property sector significantly reduced VNL s ability to dispose of projects, in particular the larger projects. Notwithstanding that 10 full project disposals were completed at a 8.5% premium to the aggregated NAV, most of these were small to medium size by value with no large value projects being sold. VNL avoiding fire-sale of projects and focused only on transactions that were able to achieve NAV or close to NAV. During there were no buyers of individual high value projects, due to liquidity issues. 23

24 VNL s divestment achievements since EGM November 2012 Project: Nguyen Du Project: Sheraton Project: Signature 1 Project: Hao Khang Loca ti on: Hanoi Type: Operating office building Net proceeds: $3.2m Net proceeds/nav at exit: +7.9% Net proceeds/nav at EGM: -6.1% Location: Nha Trang Type: Operating hotel Net proceeds: $3.1m Net proceeds/nav at exit: +15.1% Net proceeds/nav at EGM: +15.1% Location: HCMC Type: Resi development s ite Net proceeds: $2.7m Net proceeds/nav at exit: -3.4% Net proceeds/nav at EGM: -3.4% Location: HCMC Type: Resi development site Net proceeds: $4.6m Net proceeds/nav at exit: +2.8% Net proceeds/nav at EGM: -7.8% Project: Prodigy Project: Vina Properties Project: Hospitality Holdings Project: Marie Curie Location: Ha Noi Type: Operating hotel Net proceeds: $1.7m Net proceeds/nav at exit: -5.5% Net proceeds/nav at EGM: -31.7% Location: HCMC Type: Operating hotel Net proceeds: $16.1m Net proceeds/nav at exit: +19.2% Net proceeds/nav at EGM: +8.2% Location: various Type: Operating hotels Net proceeds: $19.9m Net proceeds/nav at exit: +4.5% Net proceeds/nav at EGM: % Location: HCMC Type: Office/Resi development site Net proceeds: $10.9m Net proceeds/nav at exit: +14.3% Net proceeds/nav at EGM: +24.6% Project: Saigon Quy Nhon Location: Quy Nhon Type: Operating hotel Net proceeds: $0.6m Net proceeds/nav at exit: +27.3% Net proceeds/nav at EGM: +24.5% Capital Square phase 1 partial divestment Location: Danang Type: Commercial development site Net proceeds: $3.2m Net proceeds/nav at exit: -3.5% Project: Vung Bau Phu Quoc Location: Phu Quoc Type: Hospitality Development Site Net proceeds: $4.7m Net proceeds/nav at exit: +2.9% Net proceeds/nav at EGM: +1.6%* *Net proceeds adjusted, minus additional costs incurred since EGM exits. Future pipeline divestments Location: All regions. Several exits under negotiation and initial stages of documentation Clos ure target : until May 2016 Completed 10 full and 1 partial divestment since the EGM 2012 with a gross sale value of almost USD110m Net proceeds of USD70.8m which is 8.5% above NAV at exit VNL continues to pursue a number of disposals and is working with both foreign and local investor 24

25 EGM 2012 targets and performance to date EGM held in November 2012 In November 2012, shareholders supported a recommendation from the Board for a new 3 year term to target the realization of approximately USD250mil from disposals and make distributions to shareholders of approximately USD142m during the period November 2012 to November Performance over past 30 months As at 30 June 2015, 10 disposals and 1 partial exit completed resulting in net proceeds of USD70.8m however in conjunction with dividends and receivables the total net proceeds are USD74m while USD29m has been distributed to shareholders via the share buy back program. Delay in divesting projects resulted in a higher proportion of net proceeds collected being diverted to make payments for capital commitments and operating expenses. Shortfall as at 30 June 2015 (compared with 22 November 2015 target) Realization shortfall of USD176m, and distribution to shareholders shortfall of USD113m. 25

26 Development re-activation of projects and re-launching The Ocean Apartments Ocean Apartments completed Block A July 2015 Block A: 46 units of Block A re-launched in April Development rebranded with revised design. Completion in June 2015 and handovers to buyers are scheduled to commence in July Average selling price : US$1,400/sqm. 39 sale contracts signed as at July Gross realization value of approximately USD6m. Block B 96 units for the second tower. Proposed sales launch in H Perspective of the Ocean Apartment Block B 26

27 Development re-activation of projects and re-launching The Point 40 three bedroom pool villas fronting the Dunes Golf Course; Phase 1 (20 villas) re-launched in October 2014 and 100% sold out as at July 2015; Phase 2 (20 villas) launched in April 2015 and 12 reservations secured to date. Gross realization value of approximately USD 10.8m; General Arrangement of The Point Perspective of The Point Perspective of The Point Current construction progress of The Point as at July 15 27

28 VinaLand achievements Sales villas sold villas sold villas sold (YTD) sales recorded sales recorded sales recorded (YTD) apartments sold apartments sold apartment sold (YTD) villas sold villas sold (YTD). Remaining 4 unsold beachfront villas only Sold units each year Year 2013 Year 2014 Year 2015 (YTD) Year 2013 Year 2014 Year 2015 (YTD) Year 2013 Year 2014 Year 2015 (YTD) Year 2013 Year 2014 Year 2015 (YTD) International Recognition Development & Marketing Awards in 2015 In May 2015, VNL projects won three awards at the 2015/16 International Property Awards (Asia Pacific Region), which are among the region s most prestigious real estate industry accolades. VNL projects were recognised across the three categories: 1. Best Golf Development in Vietnam for Danang Golf. 2. Best Residential Development in Vietnam for Dai Phuoc Lotus. 3. Best Development Marketing in Vietnam for VinaLiving. These awards will assist marketing programs for VNL s real estate portfolio. 28

29 Contents 1. Macroeconomic update 2. Vietnam property market 3. Overview of VinaLand Limited 4. Review of the last 30 months 5. Forecast to December Appendix a. CBRE Vietnam Real Estate Report 2 July 2015 Time to recalibrate b. Viet Capital Securities Excerpt from The stars have finally aligned 29

30 Forecast H positive platform The market did not recover in 2013 and 2014 as anticipated, however since 2015 ongoing stability with the macroeconomics coupled with a significant improvement in liquidity and growing confidence in the property sector has enabled the Vietnam real estate market to commence a meaningful recovery. It is expected that the remainder of 2015 will continue to be positive and this will maintain a platform for VNL to dispose of several larger projects and also achieve growth in values. Forecast to November 2015 and then May 2016 Taking into account various criteria including forecast market conditions and pipeline divestments in 2015, it is estimated that: - By November 2015, in total (since November 2012) approximately USD110m will be received from disposals while approximately USD45m will be available for distribution. - By May 2016, a total of approximately USD275m will be received from disposals and approximately USD115m will be available for distribution. Figures shown are illustrative estimates only. Due to various risks and uncertainties, actual events or results or the actual performance of the Fund or any investment discussed in this presentation may differ materially from those reflected or contemplated in such illustrative estimates. Any projections, market outlooks or illustrative estimates are forward-looking statements and are based upon certain assumptions. 30

31 Contents 1. Macroeconomic update 2. Vietnam property market 3. Overview of VinaLand Limited 4. Review of the last 30 months 5. Forecast to December Appendix a. CBRE Vietnam Real Estate Report 2 July 2015 Time to recalibrate b. Viet Capital Securities Excerpt from The stars have finally aligned 31

32 VIETNAM REAL ESTATE - TIME TO RECALIBRATE Presented by: Marc Townsend Managing Director, CBRE Vietnam 2 nd July, CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 *All the above articles were retrieved in June

33 10 May 2015 Ironman 70.3 Vietnam in Da Nang 13 May 2015 Son Doong Cave was broadcast in Good Morning America 3 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 *All the above articles were retrieved in June Economic Outlook

34 VIETNAM S GDP GROWTH TO QUICKEN, INFLATION EASE Gross Domestic Product, Vietnam 25% 20% 15% 10% 5% 8.4% 8.2% 8.5% 6.3% 5.3% 6.8% 5.9% 5.0% 5.4% 6.0% 6.3% Highest GDP in five years 0% M 2015 Real GDP growth rate Annual average inflation Inflation eased to a ten-year low Source: Vietnamese General Statistical Office, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 FTAs BOOST GDP GROWTH Estimated boost to GDP from TPP (as a % of baseline GDP) Source: Peter A. Petri, Michael G. Plummer and Fan Zhai, "The Trans Pacific Partnership and Asia-Pacific integration: A quantitative Assessment" 6 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

35 STRONGER CURRENCY Forecasted Change in APAC currencies against the US Dollar Source: CBRE Research, Marcobond, Oxford Economics, May USD/VND Interbank Exchange Rate 22,000 20,803 20,668 21,000 20,000 19,000 18,932 18,000 21,036 21,24621,458 21,673 17,000 Dec-10 7 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 RETAIL SALES SHOW MODEST GROWTH Vietnam Retail Sales No. of cars 160, ,000 80,000 40,000 - Vietnam Car Sold Car importers will have to pay for emission test No. of cars sold % change YoY % 120% 70% 20% -30% Growth rate Turnover (Trillion dong) 3,500 3,000 2,500 2,000 1,500 1, % 36% 30% 24% 18% 12% 6% 0% Growth Rate (%) 1: 1 Registration fee reduced from 10% - 20% to 10% - 15% in April. 2: 2 Import duty on cars from ASEAN countries will decrease from 50% to 0% by M 2015 Retail and Services Turnover Retail and Services Turnover Growth Source: Vietnam Automobile Manufacturer s Association, June 2015; Vietnamese General Statistical Office, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

36 FURTHER CUTS IN BANK INTEREST RATES Vietnam Interest Rates Interest rate (%) Mortgage rate for the first 12 months: Jan. 15 June 15 Techcombank 9.49% 7.99% Vietcombank 7.99% 7.3% ACB 8.90% 8.0% Base rate Rediscounting rate Refinancing rate Lending rate Deposit rate Lending rate: Average lending rate for enterprises. Source: Vietnamese General Statistical Office, State Bank of Vietnam. 9 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 STEADILY RISING STOCK MARKET Vietnam Stock Market, VNIndex 2015 VIETNAM TOP 50 LISTED BEST PERFORMERS *out of 700 companies in HNX and HOSE 4 Vingroup (VIC) HCMC Infrastructure Investment JSC. (CII) Dat Xanh Real Estate Service (DXG) FLC Group (FLC) Source: Cafef.vn 50 Ha Do JSC (HDG) INDEX OF REAL ESTATE SECTOR IN 1 YEAR 10 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 Source: Stockbiz

37 NOT ALL WINE AND ROSES Foreign Direct Investment 10,000 8,000 6,000 4,000 2,000 0 Q Q Q Q Q Q Q Q Q Q Q Q Q Q FDI (US$ millions) International arrivals Million arivals FDI (Registered) Q Q Q Q Q Q Q Q Q Q Q Q Q Q International arrivals FDI (Implemented) Growth rate Source: Tourism Working Group, Vietnamese General Statistical Office, Q % 40% 25% 10% -5% -20% Growth rate Int l arrivals and growth rate, countries in the region Countries 2014 Int l arrivals change Malaysia 27,437, % Thailand 24,779, % Singapore 15,086, % Indonesia 9,300, % Vietnam 7,874, % Philippines 4,833, % 11 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 FUTURE GROWTH POTENTIAL Vietnam to become a mid-manufacturing country? ASEAN s three sub-regions /LVMC Vietnam Trade Balance US$ billion Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Export Imports Vietnam Export Structure, 6M 2015 vs. 3.22% in 2010 Mobile phones and appliances 19% Garments & textiles Source: ASEAN s rise in the global economy, ANZ Research. 39% 13% Shoes Electronics, computers and parts Crude oil 8% Seafood 5% 4%3% 9% Machinery and parts Others Source: Vietnamese General Statistical Office, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

38 BCI NUMBERS Projects under construction, y-o-y change All future projects ( ), y-o-y change Percentage change 400% 300% 200% 100% 0% -100% 2015 YTD vs vs 2013 HCMC Hanoi Da NangCan Tho Khanh Hoa Vung Tau Hai Phong Percentage change 300% 200% 100% 0% -100% 2015 YTD vs vs 2013 HCMC Hanoi Da Nang Can Tho Khanh Hoa Vung Tau Hai Phong Projects Under Construction HCMC Hanoi Da Nang Can Tho Nha Trang Vung Tau Hai Phong All Future Projects ( ) HCMC Hanoi Da Nang Can Tho Nha Trang Vung Tau Hai Phong Office Retail Office Retail Hospitality and SA Hospitality and SA Residential Total Source: CBRE Vietnam, June 2015 Residential Total Source: CBRE Vietnam, June CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY Infrastructure Investment

39 METRO LINE FAST PROGRESS IN HCMC HCMC Hanoi Ben Thanh Suoi Tien Station no. 14 Suoi Tien bus Km Station no. 13 Suoi Tien Km Station no. 12 Hi-Tech industrial park Km Hanoi to buy 13 China-manufactured trains for urban railway station Station no. 11 Thu Duc Km Station no. 10 Binh Thai Km Station no. 9 Phuoc Long Km Station no. 8 Rach Chiec Km Station no. 7 An Phu Km Station no. 6 Thao Dien Km Station no. 5 Tan Cang Km Station no. 4 Van Thanh Park Km Girders Installed On Metro Line 1 Cat Linh Depot under construction Station no. 3 Ba Son Km Station no. 2 Opera House Km Station no. 1 Ben Thanh Km Pictures taken on 25-Jun Hanoi s Wavy Metro Tracks Raise Eyebrows 15 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 AIRPORTS AND PORTS Long Thanh Airport gets green light from Party leaders Phu Quoc International Passenger Port Construction starts 29 April 2015 Construction period Capacity Cruise liners carrying 5,000-6,000 visitors or 20,000- tonne cargo ships Investment capital VND1.64 trillion (US$76.4 million) 16 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

40 HIGHWAYS AND ROADS 17 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY Regulation Changes

41 EFFECTIVE FROM 1 ST JULY, 2015 Residential Properties - Opens Door for Foreign Buyers Marc, FAQs I am an individual investor from Hong Kong. I will visit HCMC next week and would like to know the following: 1) Background: Legal basis for foreign ownership of residential units (and whether this varies as value and or number of units increases) Typical legal and agent fees upon purchase/ sale Likely taxes/stamp duty etc. including capital gains tax, tax on rental income. Typical insurance costs 2) Deal: Available properties and typical asking prices A view on best locations for our purpose Likely realisable rents and demand for properties Property management fees 3) Deal exit: Buying a condo Tax rules upon sale (as individual entity) in Vietnam Restrictions on sale e.g. property holding A guide period for Restrictions on repatriating capital or foreigners profits out of Vietnam Regards, All you need to know LAW ACCOUNTS TRANFERRING FUNDS DOCUMENTS REQUIRED KEY TIPS 19 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 VINHOMES LAUNCHING EVENT 20 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

42 EFFECTIVE FROM 1 ST JULY, 2015 Commercial Properties - Bigger battlefield with more players Lease properties for sub-lease Existing law From July 2015 Foreign invested firms not allowed to sub-lease rented properties Foreign invested firms can sub-lease properties that they are renting Acquire completed buildings for own use Existing law From July 2015 Foreign invested firms can only own a building if they are the developer Foreign invested firms can acquire and own a completed building for own use 21 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 EFFECTIVE FROM 1 ST SEPTEMBER, % Foreign Ownership Limit for Listed Companies On 25-June 2015, the Prime Minister of Vietnam gave the final seal of approval to changes in the Law on Securities to allow for a significant relaxation of foreign ownership limits ("FOL") for Vietnam listedequities. FOL for public and listed companies (as well as for securities companies and investment funds) will be increased from 49% to 100% except banks, which will continue to be limited to 30% until further notice from the PM, and except for sensitive sectors or where the state retains a controlling stake. Among 73 listed companies in real estate sector 42 companies have foreign shares 9 companies have foreign shares greater than 20% 19% 12% Foreign ownership greater than 20% Foreign ownership less than 20% 68% 100% local Source: CBRE Vietnam, June CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

43 4 Condominium Market CONDOMINIUM FOR SALE Optimism ahead of regulation changes Developers and buyers remain bullish 15,715 units launched in 1H % y-o-y 10,187 units launched in 1H % y-o-y Absorption Rate Source: CBRE Vietnam, Q ,494 units (of new launches) sold in 1H % HCMC 5,130 units (of new launches) sold in 1H % HANOI 24 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

44 CONDOMINIUM FOR SALE Continued strong interest in new launches 21 June 2015 Landmark 4 launching event in HCMC 10 June 2015 Gateway Thao Dien launching event in HCMC 10 May The most attractive Investment opportunity 2015 event in Hanoi, Vinpearl Premium Villas 19 May Estella Heights launching event in HCMC 9 May 2015 Masteri Thao Dien, Block T3 launching event in HCMC 25 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 CONDOMINIUM FOR SALE Busy Launches in Q2 2015: 19 projects 8,528 units launched ~57% sold Highest number of launches ever for a single quarter Continued to move to the East! 19% q-o-q 126% y-o-y 1H 2015: 15,715 units Whole year 2010: ~20,000 units Whole year 2007: ~10,300 units HCMC Project(s) Units Source: CBRE Vietnam, Q , , Implication for districts only, not exact project location 26 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

45 CONDOMINIUM FOR SALE Busy launches HANOI More projects in the West but bigger developments in the East! Q2/2015: 19 new launches 5,137 units launched (*) Q1/2015: 18 new launches 5,050 units Ba Dinh 2 projects 160 units 4 projects 819 units 2 projects 130 units 2 projects 320 units 3 projects 470 units 1 project 129 units 4 projects 1,911 units 1 project 1,198 units Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 CONDOMINIUM FOR SALE Optimism ahead of anticipation on regulation changes Sold Units, HCMC 20,000 15,000 10,000 5,000 Sold Units, Hanoi 20,000 15,000 10,000 5, H H 2015 Highest take-up for a single quarter Q2 2015: ~10,000 units (both new and previous launches) Highest take-up for a single quarter Q2 2015: ~4,500 units (both new and previous launches) Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

46 CONDOMINIUM FOR SALE Solid Recovery Take-up per period, HCMC Take-up per period, HANOI 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% H 2015 High-end Mid-end Affordable 0% H 2015 High-end Mid-end Affordable Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 CONDOMINIUM FOR SALE District 4 An Emerging Cluster The Tresor Novaland 459 units US$2,550-$3,050 psm Icon 56 Novaland 312 units US$2,617-$3,105 psm Galaxy 9 Novaland ~500 units US$1,500-$1,696 psm RiverGate Novaland 319 căn hộ US$2,039-$2,512 psm The Gold View TNR Holdings 1,760 units US$1,529-$1,609 psm 56 units per floor District 4 District 1 *Asking prices are quoted exclusive of VAT and maintenance fee 30 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

47 CONDOMINIUM FOR SALE New vs. Old Products HCMC Primary vs. Secondary Price of Typical Condominiums in HCMC $2,200 Selling Price (US$ psm) $2,000 $1,800 $1,600 $1,400 Q Q Q Primary Asking Price Secondary Asking Price The Manor-Phase 1 Saigon Pearl - Sapphire The Vista An Phu Thao Dien Pearl Cantavil Premier Masteri Thao Dien Estella Heights Vinhomes Central Park Gateway Thao Dien HCMC 1H 2015 Source: CBRE Vietnam, Q Launched 15,715 units Sold 10,494 units (for only new launches in the review period) Absorption Rate 67% 31 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 CONDOMINIUM FOR SALE Primary Prices Increase while Secondary Prices Stay Flat Primary vs. Secondary Price of Typical Condominiums in Hanoi Selling Price (US$ psm) $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 Primary Asking Price Secondary Asking Price Royal City Times City Golden Land Building Discovery Complex Park Hill Hoa Binh Green City $1,200 Q Q Q Imperia Garden Watermark Tower Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

48 CONDOMINIUM FOR SALE Vietnam s Price Competitiveness Primary Asking Price (US$ psm) $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Hanoi HCMC Phnom Penh Manila Jakarta Bangkok Luxury High-end Mid-end Affordable Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY Commercial Properties

49 OFFICE HCMC - Steady Supply Across All Grades Q Grade A Grade C Grade B VIETCOMBANK TOWER GFA: 55,000 sm ROBOT TOWER GFA: 3,200 sm Source: CBRE Vietnam, Q LIM TOWER 2 GFA: 20,467 sm 35 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 OFFICE The Rise of Strata Title Broadening Long-term Leases In Occurrence of long term lease/ selling office space 2015 onwards.more office space for sale SAIGON AIRPORT PLAZA SUNRISE CITY CENTRAL TOWER GALAXY 9 PETROLAND TOWER HEI TOWER PRINCE RESIDENCE RIVERGATE TOWER LUCKY PALACE PEARL PLAZA DIAMOND FLOWER TOWER Source: CBRE Vietnam, Q PVI TOWER TNR TOWER HUD TOWER DISCOVERY COMPLEX 36 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

50 STRATA TITLED OFFICES Office Yields SAIGON AIRPORT PLAZA Rent: US$15/month Long term rent: 1,750 US$/sm/term Term: 2059 PRINCE RESIDENCE Asking price: VND850 million per lot Sub-lease rent: VND10mil per month Term: 2064 PEARL PLAZA Rent: US$15/month Long term rent: 1,500 US$/sm/term Term: 2058 Office yields 10% - 14% VS. Vietnamese government 10-year bond yield 6.8% (*) (*) as of end of June 2015 Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 OFFICE HCMC - CBRE LEAD AGENCIES Grade B Grade C Grade B Grade A ROBOT TOWER GFA: 3,200 sm PEARL PLAZA GFA: 37,434 sm LIM TOWER 1 GFA: 20,467 sm LIM TOWER 2 GFA: 20,467 sm Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

51 OFFICE Big office space HCMC vs. Hanoi Available space per building (grade A/B) HCMC Number of buildings Hanoi > 3,000 sm ,000-3,000 sm 2 7 1,000-2,000 sm ,000 sm 7 12 Tenant preferred size (base on CBRE s enquiry) HANOI HCMC 15% 20% 1H % 26% 16% 4% 1H % 46% Currently, lack of big office space in Grade A and B office buildings in HCMC Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 OFFICE Rental Stabilization but for how long? HCMC Grade A Hanoi US$/sm/month US$/sm/month 2008 period US$/sm/month Narrower rental Gap btw HCMC & HN for now, but not for long! US$/sm/month 2012 & & 2017 Source: CBRE Vietnam, Q Upward pressure 0 90 Limited quality supply in HCMC while multiple good quality, fringe CBD mixed use developments in Hanoi Downward Pressure CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

52 OFFICE The flight to quality Green is a given, Wellness, a must. Green one UN house (Hanoi) FPT office building (Da Nang) President Place (HCMC) Deutsches Haus (HCMC) The First Lead Platinum building mixed use, in Vietnam 41 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 OFFICE Upcoming Supply in 2H 2015 HA NOI Grade A TNR TOWER Dong Da Dist. GFA: 56,000 sqm Grade B DIAMOND FLOWER Cau Giay Dist. GFA: 20,000 sqm Grade B HUD TOWER Cau Giay Dist. GFA: 56,000 sqm Grade B HANDICO TOWER South Tu Liem Dist. GFA: 29,040 sqm Grade B Grade C Grade C HCMC PEARL PLAZA GFA: 37,434 sm Source: CBRE Vietnam, Q HAI NAM OFFICE BUILDING GFA: ~8,000 sm PT BUILDING GFA: 1,000 sm 42 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

53 OFFICE Grade A buildings are expected to Open in HCMC in next 3 years Grade A Grade A THE ONE GFA: 15,000 sm Open: 2018 DEUTSCHES HAUS GFA: 40,000 sm Open: 2017 Grade A Source: CBRE Vietnam, Q SAIGON CENTRE (PHASE 2) GFA: 40,000 sm Open: CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 RETAIL HCMC Newly opened/closed in Q2/2015 HANOI Newly opened in Q SC VivoCity Nguyen Van Linh Street, District 7 GFA: 72,000 sm Opened: May 2015 Times Square 36 Nguyen Hue, District 1 GFA: 4,000 sm GFA: 23,800 sqm Location: Ho Guom Plaza, Ha Dong Occupancy: 84% The 5 th hypermarket in Hanoi The 31 st in Vietnam Opened: June 2015 Saigon Centre Le Loi, District 1 GFA: 6,250 sm Closed for renovation: June 2015 (for 1 year) Saigon Square 2 To Duc Thang, District 1 GFA: 7,750 sm Closed for renovation: April 2015 Union Square Dong Khoi Nguyen Hue, District 1 GFA: 39,454 sm Closed to re-merchandise and relayout: October 2015 (for 1 year) 44 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

54 RETAIL 1 store expected to open in Can Tho, July 74 stores within a year VinDS 300 stores within 3 years NEW ENTRY IN HCMC IN CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 RETAIL A Breakthrough Retail Format in HCMC 46 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

55 RETAIL Upcoming supply in HCMC in 2H2015 Retail Supply by year, HCMC Existing Future 800, , , , , , , , Retail Supply by year, Regional Vincom Quang Trung Quang Trung Str. 27,000 sm GFA Vincom Megamall Hanoi Highway 120,000 sm GFA 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 Pearl Plaza Dien Bien Phu Str. 20,579 sm GFA 1,000,000 - Bangkok Singapore Source: CBRE Vietnam, Q Jakarta Hanoi HCMC Thasa Plaza Nguyen Hue Str. ~6,000 sm 47 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 RETAIL Upcoming supply in Hanoi in 2H2015 Retail Supply by year (sqm) 900,000 Existing Future 800, ,000 Vincom Nguyen Chi Thanh Location: Dong Da Dist. 44,500 sqm GFA 600, , , , , ,000 Vincom Exchange City Location: Tu Liem Dist. 23,140 sqm GFA AEON MALL Location: Long Bien Dist. 108,000 sqm GFA Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

56 CONSUMER SURVEY PART 2 Consumers shop online to avoid going to a shop Vietnam: 73% consumers shop online to avoid going to a shop Vietnam: average online monthly spending USD26-50 /person Source: CBRE Asia Pacific Consumer Survey, June CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 HOSPITALITY Ascott to expand more aggressively in the coming years 2017/2018 Somerset TD Hai Phong 132 units Somerset West Central 2015 Somerset Da Nang Bay 121 units 2016 Ascott Waterfront Saigon 222 units Citadines Regency Saigon 200 units 2016 NEW BRAND! 2018 NEW BRAND! Source: CBRE Vietnam & The Ascott Ltd., Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

57 HOSPITALITY Vietnam will set up a US$100 million fund to promote tourism 1H2015 Int l arrivals growth y-o-y 8.8% 3% HANOI HCMC Malaysia Thailand Singapore Indonesia Vietnam Philippines Cambodia Lao PDR Myanmar Brunei Int l Arrivals (2014) Millions Visa exempt/free * Source: Tourism Working Group. *Most current data including five European countries. 51 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 HOSPITALITY Coastal Cities The second tower of The Grand under construction at Ho Tram Q Q China China Da Nang Da Nang 40%-50% 65%-70% Of total international flights per week Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

58 HOSPITALITY New hotel brands to Da Nang Hosting APEC 2017 is good news for Da Nang City as this is a chance to promote the city's image to the world, promising greater number of visitors from various countries and positive impacts on the city's hospitality market. Hilton and JW Mariott to push up project construction to meet the APEC Market is expected to have totally 13,404 keys till Future supply is dominated by beach-front developments. 53 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY Investment - In Search of Right Partner

59 INVESTMENT TRANSACTIONS *All the above articles were retrieved in June CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 MARKET CONSOLIDATION 56 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

60 VIETNAM INVESTMENT MARKET Significant projects opene Sailing Tower Market Peak Saigon Luxury Apartment 20 golden sites introduced Kumho Asiana Centec Tower Vincom Dong Khoi Development sites (Land cost) Ready-built project (Land cost + construction cost) Bitexco Financial Tower Union Square Times Square Le Meridien Vietcombank Tower YTD Significant transactions of development sites in District ,010 2,203 13,000-58,000 10,000-22,000 4,500 Historical transactions Value (US$ million) CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 No. of transactions Source: Real Capital Analytics, retrieved in June LAND VALUES HANOI HCMC 40,000 Hoan Kiem Ba Dinh Cau Giay 40,000 District 1 D3 D4 35,000 35,000 Price psm of land area 30,000 25,000 20,000 15,000 10,000 5, Price psm of land area 30,000 25,000 20,000 15,000 10,000 5,000 0 Plot ratio: Price quoted is current asking price. Source: CBRE Vietnam, Q Usage Mixed-use Commercial Residential Land area >5,000 sm 1,000-5,000 sm <1,000 sm 58 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

61 2015 OUTLOOK SECTOR OFFICE RETAIL CONDOMINIUM SEGMENT New buildings Mature buildings CBD Non-CBD High-end Mid-end Affordable HCMC HANOI RENT/PRICE ABSORPTION RENT/PRICE ABSORPTION HOTEL Inner-city hotels Beach hotels/resorts SERVICED APT. Grade A INDUSTRIAL Land Factory/ warehouse Source: CBRE Vietnam, Q CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY OUTLOOK SECTOR OUTLOOK CONDOMINIUM OFFICE RETAIL HOSPITALITY Sales continue to be strong. High-end and luxury projects continue to grab the headlines Should we be worried about an over-hyped market? Rent remains stable thanks to limited supply. Grade B+ office buildings are getting more competitive to Grade A thanks to their more favourable rental rates. Take-up rates of these buildings are also expected to expand much bigger than these of Grade A. Tenants no longer switch offices just because of cheaper rent, which has been the main trend in the years from They will only move office when they need a larger space or looking for places with higher utilities. The market will welcome many new customers as investors when the revised Law on Real Estate Business takes effect from July 1. Increasing supplies in the next two quarter, especially from non-cbd locations. Rental rate is expected to further improve thanks to good performance of new supplies. Securing anchor tenant is key of differentiation. The market continues to be dominated by mid-scale segment. Second home market is expected to revive not only in established areas like Da Nang, Nha Trang but also in emerging destinations like Phu Quoc and Ha Long. Second home market in the North starts to emerge and develop but it might take some time for the market to be as active as in Da Nang or Nha Trang. 60 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015

62 AT CBRE, WE LIVE AND BREATHE THE BUSINESS OF REAL ESTATE Every quarter QUARTERLY REPORT Ad-hoc VIEWPOINT & SPECIAL REPORT Every week NEWS UPDATE Every month DASHBOARD Every quarter MARKETVIEW 61 CBRE VIETNAM REAL ESTATE TIME TO RECALIBRATE JULY 2015 For more information regarding this presentation please contact: CBRE Vietnam Co., Ltd. Research & Consulting T F research.vietnam@cbre.com All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only, exclusively for CBRE clients and professionals, and is not to be used or considered as an offer or the solicitation of an offer to sell or buy or subscribe for securities or other financial instruments. All rights to the material are reserved and none of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without prior express written permission of CBRE. Any unauthorised publication or redistribution of CBRE research reports is prohibited. CBRE will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication.

63 Real Estate Sector Anirban Senior Manager ext. 130 Duc Tran Analyst ext. 116 Hai Nguyen Analyst ext. 149 Tuan Hoang Senior Analyst ext March 2011 The stars have finally aligned Vietnam s real estate is now firmly in recovery mode after languishing in the doldrums for over 4 years. The recovery is broad-based with a steady and brisk fall in total unsold inventory levels, a surge in transaction volumes and a secular recovery in prices across the high-end, mid-range and low-end segments of the residential market. This recovery is based on firm foundations... Both GDP and credit growth have recovered and banks are in better shape than they were just a couple of years ago. Vietnam has become a favoured regional manufacturing hub and this is going to drive sustained real income growth which will support real estate demand for years to come. Policy initiatives like the relaxing of the foreign ownership regulations and subsidized credit for the real estate sector are also helping to expand the real estate demand pool. Developers that have survived the downturn have emerged stronger and more innovative, having reconfigured their strategy and product offerings to harness real latent demand, thereby further stimulating demand. Overall affordability of products across all segments has improved through unit size reductions and entirely new product niches have emerged (e.g. affordable townhouses)....and the recovery still has plenty of steam left with average unit prices for apartments still only around 10-15% up from the bottom of the cycle and still only at 67% of the 2008 peak level. We believe this current up-cycle is still 3-4 years away from peaking. Despite the severity of this last downturn, the market trough was still above the bottom hit in previous cycles; this lead us to believe that, despite the hubris of 2008, the next peak could top 2008 levels, even if just marginally. This implies that average prices still could continue to rise over 60% on current levels before peaking. The high-end segment might see some price correction in 2-3 years.. based on the coming supply onslaught within the condominium segment; demand has been robust so far but this could cool as the dust from the speculator and investor gold-rush settles. We see no cause for alarm, though, and talk of another building bubble is rather premature in our view....while real demand in the affordable segment should hold up for years to come based on the growing supply-demand mismatch in this segment. We estimate that even the lowest-priced residential units today are affordable for only the top 15-20% of the population, based on the distribution of household income. We also estimate the total cumulative demand for housing over the next decade at around USD 210b, with the lion s share of this coming from low-to-middle income households. Those developers who can focus on improving the affordability of their offerings and stay the course could be in for a bonanza over the next 5-10 years. We see two distinct groups of investment themes emerging, based on holding horizon with short-term stock-picks being predicated on the ability to ride the cyclical recovery, exposure to near-term urban infrastructure development catalysts and individual corporate turnaround stories driven by a combination of strategic revamps and financial restructuring. Over the long-run (>3 years), the winners will be those See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 1

64 companies whose current land-bank will benefit most from the urban development master-plan and those that can capitalize best on the huge long-term opportunity in HOLD affordable housing. We think that KDH, VIC, HDG and DXG are the best picks best bets over the short-to-medium term. We like KDH because of its strategically located land bank in D9, the new boom-town of HCMC; its pioneering position in the high-in-demand affordable townhouse niche and its meaty pipeline of upcoming sales launches makeup for the small size of its unbooked pre-sales. HDG is not the best beneficiary of near term infrastructure developments nor is it best positioned to ride the cycle; but the market is still sceptical of its huge Z756 project and we think that this scepticism is unwarranted in light of recent developments and expect the ground-breaking of Z756 to be a major price catalyst. DXG makes a good near-term bet because its dominant market share in the brokerage business allows it to ride the overall market recovery better than most and it looks quite undervalued based on its solid low-risk revenue pipeline (unbooked pre-sales). VIC, although trading at a premium to peers, is well positioned to ride the party in the high-end segment for another couple of years; and what a party it is. PDR looks like an interesting turnaround story but we need to do more homework on them. Over the long-term, we think that NLG, BCI and DXG could emerge real winners. NLG and BCI have large land banks that should benefit strongly from longer-term urban development patterns and they seem committed to tapping the huge opportunity in the affordable segment. DXG, although treading on thin ice in terms of its land bank, could emerge a winner through an aggressive project acquisition strategy made possible by a solid balance sheet and market intelligence gathered through its expansive brokerage network. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 2

65 Contents HOLD Introduction: A strong recovery is underway in Vietnam s Real Estate sector... 5 What is really driving the Real Estate recovery?... 6 Improving macro-economy... 6 Sharp price corrections have led to some attractive bargains... 7 Enhanced access to credit... 9 Product re-engineering Urban infrastructure development Surge in Foreign Direct Investment Housing Law on Foreign property ownership As an investor, how would you play the Vietnam Real Estate opportunity? Short-to-medium term (< 3 years) Ride the cycle Chase near-term infrastructure catalysts Ride a turn-around story Long term ( > 3 years) Capitalize on long-term urban development: In the long-run, it s all about the land bank Bet on the leaders in affordable housing development Company Profiles Table of Figures Figure 1: Absorption rate of apartment sales... 6 Figure 2: Quarterly apartment sales in HN and HCMC... 6 Figure 3: Quarterly unsold inventory value (VNDb)... 6 Figure 4: Vietnam interest rates and inflation Figure 5: Vietnam GDP Growth F... 7 Figure 6: Average apartment price (USD/sqm) - HCMC... 8 Figure 7: HCMC average apartment price (USD/sqm)... 8 Figure 8: VND30t package's cumulative disbursement (VNDb)... 9 Figure 9: Average luxury & high-end apartment size (sqm) Figure 10: Average mid-end & affordable apartment size (sqm) Figure 11: HCMC's proposed Metro Master Plan Figure 12: HCMC's Ring Road and Expressway Master Plan Figure 13: Hanoi's Ring Road and Expressway Master Plan Figure 14: FDI Disbursed (USDm) Figure 15: Summary of changes to Housing Law Figure 16: HCMC's average apartment prices (USD/sqm) Figure 17: Primary market apartment price per sqm growth - HCMC Figure 18: Secondary market apartment price per sqm growth - HCMC Figure 19: High-end Condominium Project Pipeline in HCMC just along Metro Line Figure 20: Summary of infrastructure projects as near-term catalysts Figure 21: HCMC near-term infrastructure catalysts versus developer land bank Figure 22: Summary of infrastructure projects as near-term catalysts Figure 23: Hanoi near-term infrastructure catalysts versus developer land bank Figure 24: Scoring of major developers based on fit with short-term investment themes Figure 25: Valuation comparison across VCSC coverage universe Figure 26: Average P/E History for RE Heavyweights* Figure 27: Historical forward P/E of selected companies Figure 28: Composition of VCSC s revenue* forecasts across coverage universe (USDm) Figure 29: HCMC long-term urban development prospects and beneficiary developers See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 3

66 HOLD Figure 30: HCMC long-term urban development plan versus developer land bank Figure 31: Hanoi long-term urban development prospects and beneficiary developers Figure 32: Hanoi long-term urban development plan versus developer land bank Figure 33: "Threshold" Household Income Level to afford housing in urban Vietnam Figure 34: Average monthly income distribution of urban households Figure 35: Comparison of housing affordability among regional countries Figure 36: Household size in Vietnam and China Figure 37: Estimated cumulative demand for housing in urban areas over the next 10 years Figure 38: Cost break-down for a typical affordable/mid-end housing project Figure 39: Scoring of major developers based on fit with long-term investment themes Figure 40: Estimated total fair asset value of covered companies (VNDb) Figure 41: Developer s land bank comparison See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 4

67 Introduction: A strong recovery is underway in Vietnam s Real Estate sector HOLD The real estate sector was both a cause and victim of the prolonged economic downturn in Vietnam which started in 2010 and lasted until last year. Starting around mid-2014, however, accelerating GDP growth, subdued inflation and consequently lower interest rates, a stable currency and improving consumer sentiment have all helped lift the real estate sector out of the doldrums. This has coincided with favorable policy initiatives such as the VND 30t loan package created by the government to fund affordable housing purchases as well as the new foreign ownership law which allows individual foreigners as well as foreign companies operating in Vietnam to purchase houses and apartments; a new VND 20t loan package with a broader focus on all segments of residential as well as commercial properties has already been tabled and total outstanding credit to the sector grew robustly to reach VND 334t in Q1, 10% higher than last year s ending year balance. While the hangover from the real estate crisis is expected to last for some time, it is indisputable that the cycle has finally turned. Residential real estate prices have been steadily rising across the board (affordable, mid-range and high-end) and total nationwide real estate inventories have steadily fallen to reach VND 67t (~USD 3.1b) as of the end of May 2015, down 47% from peak levels reached in Q Total Q1 apartment sale volume in HCMC and Hanoi hit 9,500 units, up 125% from the same period last year. The huge demand for affordable housing is real and continues to grow with a steady flow of migrants to the cities each year. The frenzied recent pace of urban infrastructure development in HCMC and Hanoi is also a real catalyst, helping to spread out the city area and creating new suburbs and satellite towns. Finally, the recent surge in manufacturing-led FDI into Vietnam is, in the short-term, boosting demand for industrial real-estate and, over the medium-term, will have a multiplier effect on income levels, thereby further boosting demand for affordable and mid-range housing. The renewed interest in Vietnam from foreign companies is also bringing in fresh waves of corporate expatriates, which is boosting demand for high-end residential rentals, resulting in attractive rental yields of 6-8% p.a. With recovering confidence in the economy and increasingly juicy yields, wealthy Vietnamese are once again loosening their purse strings and jumping on the high-end residential bandwagon thereby facilitating a strong recovery in this segment. A total of 5,150 units were launched for sale in HCMC and Hanoi in the first quarter of this year, alone, up 300% from the same period last year; most of these launches were within the high-end segment. The stars seem to have finally aligned for the Vietnamese real estate sector, thereby facilitating a broad-based recovery that we believe to be sustainable. However, capitalizing on this will require a disciplined strategy based on your investment horizon and risk appetite and a careful selection of the right vehicles (stocks) on which to ride the boom. We elaborate further in the rest of our report. While the commercial and retail segments also hold promise, the focus of this report is on the residential property segment which comprises the lion s share of the Vietnamese real estate sector in both volume and value terms while also having the broadest representation on the local equity capital markets through the stocks of listed developers. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 5

68 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Figure 1: Absorption rate of apartment sales 50% 40% 30% HCMC HN Figure 2: Quarterly apartment sales in HN and HCMC 12,000 Affordable Mid-end High-end & Luxury 8,000 HOLD 20% 4,000 10% 0% 0 Source: Savills Source: CBRE Figure 3: Quarterly unsold inventory value (VNDb) 160, ,000 80,000 40, Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Source: Ministry of Construction What is really driving the Real Estate recovery? Improving macro-economy With inflation down to only around 1% and lending rates down to around 8% from double-digit levels reached in , Vietnam is on a much stronger macro-economic footing starting this year. The low interest rates have managed to ease a severe liquidity crunch and improved access to credit for individuals and businesses, alike. The strengthening of bank s balance sheets through the VAMC asset purchase and reconstruction fund has also helped banks resume lending activity and housing mortgage lending rates are now much more affordable at 10% (based on current deposit rates of around 5.5%), compared to 18% at the peak in See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 6

69 Figure 4: Vietnam interest rates and inflation % Lending rate CPI (% YoY) HOLD 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Source: GSO, State Bank of Vietnam Furthermore, a recovery in GDP growth to 6.0% from only 5.2% at the bottom of the economic downturn is helping boost real demand, income growth and general consumer confidence all of which is helping support both real demand for as well as speculative interest in real estate. Figure 5: Vietnam GDP Growth F 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014A 1Q15A 2015F Source: GSO, VCSC Sharp price corrections have led to some attractive bargains The prolonged real estate downturn led to a significant correction in residential property prices. Average apartment prices in HCMC bottomed-out in 2012 at around USD 1,000/sqm, versus nearly USD 1,700/sqm reached in Although prices across the board have started to bounce back from bottom, by the end of 2014 the average price had only climbed around 10% from the bottom of the cycle and was still around 33% below the peak levels seen in See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 7

70 Figure 6: Average apartment price (USD/sqm) - HCMC 2,000 HOLD 1,600 1, Source: Adapted from Savills, Vietnam Property Market A Twenty Year Reflection, 2015 Although we do not have reliable segment-wise price data going back before 2011, a more granular analysis of price trends since that year reveals that the mid and high-end segments have seen a far more pronounced recovery with prices in Q up 25-35% respectively on the 2012 trough levels versus only around 17% for the affordable segment. The affordable segment has not seen such a strong recovery largely because this sector was less affected by the market downturn in the first place; demand in this segment is almost entirely driven by end-user demand as opposed to the mid-end and, particularly, high-end segments which see the quick exit and entry of speculators and investors in downturn and market recovery periods, thereby exaggerating price movements in both directions. However, these two segments are also likely to have seen far higher peak prices in 2008 than the affordable segment and, hence, are still offering good value propositions to buyers today despite the strong price rebound since 2012 (please refer to our discussion on the real estate cycle later on in this report). Figure 7: HCMC average apartment price (USD/sqm) 2,000 1,600 1, Q15 High-end Mid-end Affordable Source: CBRE See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 8

71 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 Enhanced access to credit HOLD The sharp fall in interest rates has made it much easier to afford housing loans or mortgages. Borrowing rates have fallen from peak levels of nearly 20% in 2011 to just 10% currently. The government has also launched a housing stimulus loan package worth VND 30t (~USD 1.4b) to make it easier for both low-income home buyers as well as developers of affordable housing to access credit. The loan terms were recently relaxed: the interest rate was reduced from 6% to 5%, the loan period extended from 10 years to 15 years and the eligibility criteria made more flexible; previously the house being purchased had to be under 70 sqm at a maximum selling price of VND15m/sqm whereas now, the new rules stipulate that the total unit price has to be less than or equal to VND 1.05b. This new rule has theoretically broadened the application of the loan package from just the affordable housing segment to the mid-segment since you can now borrow to purchase a mid-range apartment if it is small enough in size. While there has been a steady disbursement of loans since July 2013, only around VND 7.2t has been disbursed so far, amounting to just ~24% of the total amount earmarked. One of the possible bottlenecks is that you still need a monthly income level of less than VND 9m to qualify for the loan, a criterion that essentially eliminates mid-income buyers. At the low-end of the spectrum demand remains strong but there is a huge dearth of supply most developers are not attracted to the affordable segment due to low margins and have instead chosen to tap-into the recovery in the high-end segment which is far more profitable. Thus, even the cheapest units are selling at prices that are not really affordable for households with two people earning a combined income below VND 13m per month (please refer to our discussion on affordable housing later on in this report). Banks are also reluctant to lend to these low-income buyers owing to the risk of default and the lack of a broader collateral base among such buyers. Figure 8: VND30t package's cumulative disbursement (VNDb) 8,000 7,000 6,000 5,000 Recent changes: Interest rate down 6% to 5% Loan period increased 10 to 15 years Eligible list expanded More banks to participate Changed the limit to VND1.05b/unit 4,000 3,000 2,000 1,000 - Source: Ministry of Construction The government has recently speculated a new loan package an additional VND20t with no caps on buyer income or total purchase value. We interpret this as an attempt to make up for the low effectiveness of the previous package, even after relaxation of loan terms. This new package, if implemented, will also be much broader in its application and should benefit the residential real estate market as a whole, as well as buoying the commercial segment. Furthermore, we expect See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 9

72 that by virtue of its flexibility and broader application, this package should see a faster disbursement rate than the existing package. HOLD Product re-engineering In response to the market downturn, developers have started reducing their unit sizes to enhance affordability and, consequently, demand without having to compromise margins significantly. On average, unit sizes for 1 to 4+ bedroom apartments have fallen by 15-20% in the high segment and by nearly 40% in the mid-range and affordable segments since This has reduced the total purchase price across all segments thereby boosting transaction volumes. Some developers have also pioneered entirely new concepts, such as affordable townhouses, which have proved to be in high demand. Vietnamese culturally prefer landed properties to highrise apartments and yet, most cannot afford to buy houses in urban areas. The affordable townhouse concept caters to this preference for landed properties while meeting the budget of mid-income buyers. Demand for compounded affordable housing is believed to currently outweigh supply seven-fold. Figure 9: Average luxury & high-end apartment size (sqm) 300 Figure 10: Average mid-end & affordable apartment size (sqm) BR 2 BR 3 BR 4 BR+ 0 1 BR 2 BR 3 BR 4 BR+ Before 2012 After 2012 Before 2012 After 2012 Source: CBRE Urban infrastructure development Poor infrastructure and lack of an efficient public transport system have traditionally placed a severe constraint on the growth of both HCMC and Hanoi. The central zone (D1, D3) of HCMC is congested with limited potential for expansion of road surface area and, yet, the lack of good transport infrastructure has so far prevented the city from expanding outwards. Recognizing this, the government has kick-started some major urban infrastructure projects lately including the construction of metro rail as well as a system of ring roads and expressways. Metro Rail: The metro master plan has identified a total of 6 Metro Rail Transit (MRT) lines with a combined length of 109km as well as 2 monorail tracks and a tramway. Metro lines 1-4 are considered priority lines implying that they have to be implemented and commissioned by Lines 5 and 6 and the monorail system have been slated for completion by Construction on the first metro line in HCMC Metro Line No. 1 was kicked-off in 2012 and is scheduled for completion in 2019 with commissioning expected in the following year. This line will be 19.7km long running from Ben Than District to Suoi Tien with a total of 14 stations and will help closely See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 10

73 integrate Districts 2, 9 and Thu Duc in the east of the city with the central business district (CBD), reducing commuting time between these eastern areas and the CBD by at least 50%. Metro Line 2 HOLD broke ground in January 2015 and is expected to be operational by This line will run from An Suong to Thu Thiem (19 km in length) connecting the western districts of Tan Binh and Tan Phu with the CBD as well as with District 2 in the East. Both of these lines should have a profound impact on connectivity within HCMC and, consequently, on the development of the city area in the coming years. According to a recent study by CBRE, empirical studies from other countries show that residential properties located near a public mass transit system command a premium to properties that are further away and this premium varies widely all the way from 3% up to 45%. The wide range of this connectivity premium could be attributed to a whole host of mediating factors impacting the premium including housing tenure and type, the quality, coverage and reliability of the public transport system both near the property in question as well as in general, the strength of the housing market and the nature of surrounding developments, etc. In other words, in metro areas with strong local housing markets, the connectivity premium for residential properties located close to a reliable public transport system that connects residents with their workplaces and other valued amenities could be at the higher end of the empirically observed range. Properties in Districts 2, 9 and Thu Duc that are within a ten-minute walking distance from planned stations on the upcoming Metro Line 1 are already witnessing a small-to-modest connectivity premium of 2-5% over comparable properties that are located further away. CBRE predicts that this premium could rise to 10-20% once the metro line comes into operation. In recognition of this opportunity, there has been a frenzy of project development activity along this line with a 36% CAGR in condominium unit supply over the last 3 years in District 2 compared with 24% in District 4 and just 10% in District 7, neither of which is benefitting from the construction of Metro Line 1. Condominium transaction volumes in District 2 have surged more than 10 times from 2012 levels to reach 3,710 units last year, showing that demand is also following suit (Source: CBRE, Metro Line, Changing the face of the property market, 2015). Figure 11: HCMC's proposed Metro Master Plan 1 1 MTR under construction Planned MTR 4 1 Areas benefitting from on-going MRT development 3 5km Source: VCSC Analysis, CBRE See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 11

74 Suffice to say that properties close to the stations along the upcoming metro lines both planned and under construction will witness markedly higher liquidity and price increases over the coming HOLD years. This will not just revitalize the residential property market but should also stimulate the commercial real estate market with an expansion in the retail catchment area and an opportunity for companies to move offices out of the CBD area in response to better connectivity. With 186,000 riders per day expected on just Metro Line 1, it is easy to see the potential for development of retail properties along these metro lines. While there is no definitive ticket price yet, indications are that to encourage high ridership, base fares on the Ho Chi Minh City Metro network will be set low, at rates comparable to prevailing bus fares. Given this, we expect the majority of metro riders to be from a middle-income demographic and, hence, most of the commercial properties that we see develop along the metro lines will fall within the mid-segment. Roads and others: Both HCMC and Hanoi are seeing the development of a network of ring roads and expressways leading out of / into the city centre. The resulting improvement in connectivity will help stimulate the property market in existing districts that are further away from the CBD as well as lead to the creation of entire new suburban areas. In addition to residential projects, we envision ribbon-developments of commercial and retail projects also panning out along the ring roads and highways. HCMC is expected to add a total of 4 ring roads and 6 expressways by 2025, amounting to a total road length of 677 km. Hanoi is expected to add a total of 5 ring roads and 6 expressways by 2030, amounting to a total road length of 1,030 km. HCMC Figure 12: HCMC's Ring Road and Expressway Master Plan 1 Ring Road Expressway HCMC Moc Bai EXPY HCMC Chon Thanh EXPY 5km 3 2 Bien Hoa Vung Tau EXPY 1 4 CBD HCMC Long Thanh EXPY HCMC Trung Luong EXPY Ben Luc Long Thanh EXPY Source: VCSC Analysis, HCMC Master plan Following are the key road projects in and around HCMC and Hanoi and the areas likely to benefit most from each: See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 12

75 Ring road 2: construction is speeding-up with completion expected in Once complete, it will be a major boost to the real estate market in eastern HCMC including Districts and 2, 9 and Thu HOLD Duc by reducing travel time to the airport. Ben Luc Long Thanh Expressway: this expressway is part of Ring Road 3 that connects Long An province to the future Long Thanh airport, bypassing HCMC. Construction started in 2014 with completion expected in This road will greatly increase connectivity between the Mekong Delta and the industrial hubs of Dong Nai and Vung Tau provinces. Accordingly, real estate in Nha Be, Can Gio, and Binh Chanh Dist will receive a boost. Long Thanh airport: with capacity of 100m passengers and total estimated investment of USD 15.8b, Long Thanh airport is a mega project expected to boost the economy and property value of HCMC and surrounding areas. Phase 1 of construction will commence in The airport can then start operations in 2025 with a capacity of 25m passengers. Hanoi Figure 13: Hanoi's Ring Road and Expressway Master Plan 1 Ring Road Expressway 5km Hanoi Lao Cai EXPY Hanoi Thai Nguyen EXPY Noi Bai Lang Son EXPY CBD Noi Bai Ha Long EXPY Thang Long EXPY Hanoi Hai Phong EXPY Source: VCSC Analysis, Hanoi Master plan Hanoi Hai Phong Expressway: the government expects to complete this expressway by the end of This road will cut travel time, connecting the capital with the largest northern port city. Property prices in the area adjacent to the road in Long Bien Dist are expected to rise. Ring Road 3: with a length of 65km, RR3 upon completion (expected in 2016) will connect Noi Bai airport to suburban areas of Ha Noi, cutting down travel time to the airport from fast-growing southwestern Districts such as Bac Tu Liem, Nam Tu Liem, Ha Dong and Hoai Duc. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 13

76 Surge in Foreign Direct Investment HOLD Since last year, FDI flows into Vietnam have surged particularly within the manufacturing sector as an increasing number of companies look to make their production based less-china centric in response to rising labour costs in China as well as simmering territorial disputes. Standard Chartered Bank estimates that a Chinese manufacturing worker in the Pearl River Delta region (the manufacturing hub of China) earns around USD 750 per month, versus only USD 250 for a similar worker in Vietnam. This combined with Vietnam s geographical proximity to China makes it a natural destination for those seeking to relocate production out of China as the transition can be made without disrupting existing supply chains. After stagnating in 2011 and declining in 2012, total disbursed FDI into Vietnam grew by over 9% CAGR since then to reach USD12b in 2014, with around 70% of this coming into the manufacturing sector. The momentum has been sustained into this year with YTD disbursed FDI up 8% y-o-y. The South Koreans and Japanese have been the most aggressive investors in Vietnam, collectively pumping in over USD 7b in 2014 (The Japanese invested USD 295m into Vietnam in 1Q15 alone, accounting for 16% of the total FDI that quarter). Figure 14: FDI Disbursed (USDm) 14,000 12,000 10,000 8,000 6,000 4,000 2, YTD 5m 2015 Source: Foreign Investment Agency, Vietnam All this investment is stimulating the real estate market in two ways: a) Direct boost to industrial real-estate demand: FDI inflows are dominated by the manufacturing sector which is land-intensive in nature. Factories require substantial tracts of land and this is boosting demand for industrial properties, especially within industrial parks located around HCMC and Hanoi. b) Indirect boost to residential and commercial real-estate demand: The increase in FDI flows is having a profound impact on the labour market by increasing the number of employed workers (through absorption of farm and informal labour) as well as boosting average wage levels. As many workers come into the formal labour market from informal services and farming, social security coverage is also rising thereby boosting propensity to spend. With an increase in both capacity and propensity to spend within the low-income segment of the population, demand for affordable (and ultimately for mid-range) housing is expected to surge in the coming years. In addition, residential and commercial clusters will develop around landmark industrial projects and large parks over time, which should help further stimulate the real estate market. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 14

77 Housing Law on Foreign property ownership HOLD The new foreign ownership law is due to be enforced starting in July of this year. This law significantly relaxes the restrictions applying to both individuals as well as corporate entities that want to purchase properties in Vietnam. Under the new law, any foreigners and overseas Vietnamese individuals can buy residential property, irrespective of whether they are working in the country or are married to locals. Foreign invested companies and representative offices of foreign companies will also be allowed to purchase residential property. Furthermore, the 50-year lease can now be extended, unlike before. While we are still awaiting the fine print of the law from the government next month, this could be a catalyst to the high-end segment of the real estate residential market. We believe that Vietnam has a chance here to replicate Malaysia s success in attracting foreign investors in property through its Malaysia My Second Home program. Holiday destinations such as Da Nang and Nha Trang in Vietnam could potentially attract foreign second home-buyers in much the same way that Penang did in the early 2000s. Figure 15: Summary of changes to Housing Law Previous law New law (effective from 1 July 2015) Eligibility Eligible foreigners: Making direct investment, managerial positions, special skills, or married with Vietnamese citizen. Must reside in Vietnam for at least 12 months. Any foreigners and Overseas Vietnamese allowing entering into Vietnam. Foreign invested entities, representative offices, funds and bank operating in Vietnam are allowed to acquire properties. Overseas Vietnamese: No limitation Number of property units Limited to 1 condo/person Foreigners: Limited up to 30% total units of each high-rise project, and up to 250 low-rise units (houses/villas/apartments, etc) in one particular administrative ward. Purpose For residential purpose only, and cannot be used as mortgage, capital contribution or lease out. Property owned by Foreign individuals and Overseas Vietnamese can be used for commercial (lease out, but not resale), residential, collateral, gifts, capital contribution purposes (foreign companies that are not developers are still restricted to buying for residential purposes only) Type of property Condos only Condos and low-rise units that are appropriately zoned. Only allowed to purchase in commercial projects. Land use right 50 years without extension. 50 years and extendable. Source: Housing Law of 2015 See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 15

78 As an investor, how would you play the Vietnam Real Estate opportunity? HOLD We are currently at a very opportune moment in the history of the real estate sector in Vietnam wherein a cyclical recovery is coinciding with the recent introduction of a whole host of structural catalysts that will support the market over the medium-to-long term such as mobilization of large urban infrastructure projects, a surge in manufacturing-led FDI and a change in the foreign ownership laws pertaining to real estate. However, given the inherent cyclicality in the real estate market in general, investors should approach this sector with a clear investment hypothesis and this has to begin with a definitive understanding of one s investment horizon. Following are the major investment themes we see based on the investment horizon it should be noted that these are not mutually exclusive but, on the contrary, are inter-related and even mutually reinforcing in some cases: Short-to-medium term (< 3 years) Following are the key investment strategies we see over the short-to-medium term. Ride the cycle For an investment horizon under 3 years, we believe that a clear understanding of the real estate cycle is of paramount importance. This is because, any long term structural supports or catalysts notwithstanding, price movements of real estate (and consequently share prices of real estate developers) over the short term will be dominated by the cycle. According to our estimates and based on the data for HCMC, the real estate cycle in Vietnam is around 6 years; the previous peaks were reached in 2002 and 1996, respectively. However, the last peak in 2008 was unprecedented in terms of the price levels reached and the subsequent down cycle was quite longlasting (~4 years) owing to a host of larger macroeconomic problems in Vietnam and the severe impact that the bursting of the real estate bubble had on the banking system. This was followed by 2 years of market recovery; judging by previous cycles it would appear then that this up-cycle is complete. However, this cycle is atypical in that the banking system has not fully recovered from the market downturn and this has placed a continued drag on the recovery, going forward thereby making this up-cycle more gradual than previous ones. If we assume that the % total run-up in prices in this up-cycle is only half as much as that observed in the last up-cycle (a fair assumption since the last peak was clearly a bubble), then the market should peak at slightly above the price levels realized in the last peak (note that the last trough was significantly higher than the previous one in 2003, so there is a rising price trend across successive cycles). Average prices of residential real estate are currently at around 67% of the previous peak level, up from around 61% at the bottom of the cycle and the recovery has been in effect for around 2 years now; if we extrapolate this rate of price recovery (5% CAGR) and, based on our assumptions of the next peak level the market still has nearly a decade to peak. However, if history serves as a guide, the pace of price growth should significantly accelerate. However, even if we assume a 3x acceleration in the trailing 2 year price growth rate to 15% hereon and based on where we see prices peaking in this cycle the market as a whole will not peak for at least another 3-4 years. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 16

79 Figure 16: HCMC's average apartment prices (USD/sqm) 2,400 C1 6 yrs C2 6 yrs C3 10 yrs HOLD 2,000 1, % CAGR 1.4% CAGR 1, % CAGR Peak-to-peak price growth in this cycle to be subdued as previous peak was a bubble; long-lasting impact of the bursting of the bubble will make this up-cycle more gradual Avg. Price* (USD/sqm) except where stated Year otherwise Last peak Last-to-last trough % rise in last up-cycle 154% Last trough Assumed % rise in this up-cycle 77% Estimated price level at next peak 1769 Latest price level % of next peak 62% Price CAGR realized in this up-cycle so far ('12-'14) 5% Assumed avg. price CAGR through the rest of the up-cycle 15% Years left to reach next peak at assumed price growth rate 3.5 * Average price of apartments in HCMC Source: Savills, VCSC Analysis While there is an overall market cycle in play, it is worth noting that not all segments of the residential real estate market will move in lockstep. Although prices in the affordable segment were affected somewhat by the recent downturn, the cyclicality in this segment is not significant because supply falls chronically short of demand by a substantial margin (refer to our discussion on affordable housing later on in this report). On the other hand, the high-end and luxury segments see much more pronounced cycles due a) to the participation of investors and speculators, b) the relatively discretionary nature of purchases (many luxury and high-end offerings are second or third homes for wealthy end-users) and c) the tendency of developers to follow the gold-rush into this segment, driven by attractive margins thereby making it more prone to oversupply a couple of years into an up-cycle. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 17

80 Figure 17: Primary market apartment price per sqm growth - HCMC 18% Figure 18: Secondary market apartment price per sqm growth - HCMC 18% HOLD 12% 12% 6% 6% 0% % % -6% -12% -12% High-end Mid-end Affordable High-end Mid-end Affordable Source: Adapted from CBRE Although all segments are still witnessing price increases, price growth within the high-end segment has already decelerated quite sharply, at least in the primary market. This is probably a result of a strong supply-side response to the market recovery. As investors and speculators returned to the market, developers started a slew of new high-end projects and resumed work on projects that were mothballed during the market crisis. As the result, a large number of condominium units are expected to come on to the market within the next 2-3 years, particularly in HCMC. According to CBRE, there are already a total of over 17 condominium projects (total of more than 20,000 units) under construction just along the planned Metro Line 1 in HCMC with another 5 currently in the planning stage. Most of these new units will hit the market around the same time in Moreover, since we believe that recent demand in this segment has been buoyed by the re-entry of investors and speculators into the market, rather than just end-users, demand should cool around the same time as all the new supply hits the market. While there are no signs yet of a bubble building in this segment, we do see the high-end segment peaking before the overall real estate market does. The new foreign ownership law could, however, could have some mitigating impact by attracting more demand into the high-end segment. Figure 19: High-end Condominium Project Pipeline in HCMC just along Metro Line 1 Project Location Developer No. of unit Expected completion date The One District 1 Bitexco N.A 2018 Saigonland Binh Thanh Saigonland Pearl Plaza Binh Thanh SSG Wilton Tower Binh Thanh Novaland Vinhome Central Park Binh Thanh Vingroup 11, Tropic Garden District 2 Novaland 1, The Ascent District 2 Tien Phat Masteri Thao Dien District 2 Thao Dien Investment 3, Gateway Thao Dien District 2 Son Kim Land Estella Heights District 2 Keppel Land Lexington Residence District 2 Novaland 1, See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 18

81 Green Building District 9 CIC Phuoc Long Springtown District 9 TDH 200 HOLD 2016 TDH Tocontap District 9 TDH TDH Phuoc Long District 9 TDH Emerald Apartment District 9 Phuc Loc Tho Green City District 9 DXG 1, Source: VCSC compilation Total 20,581 Recommendation: Focus on getting exposure to developers that are launching sales of mid-to-high end properties within the next 12 months as prices are expected to continued to increase and liquidity should hold-up well over this period; look to exit by end-2016 when some pricing pressure just starts to kick-in in the high-end segment. In our view VIC (Vinhomes Central Park), PDR (EverRich 3 and EverRich Infinity) and KDH (Mega series) are a strong fit with this strategy. We would also like to add DXG to the list but for different reasons its brokerage business gives it broad exposure to the overall market, making it a beneficiary of the up-cycle. Chase near-term infrastructure catalysts As pointed out earlier in this report, urban infrastructure development is expected to have a profound impact on the residential as well as commercial real estate markets in HCMC and Hanoi. While infrastructure development is generally a long-term theme, we believe there is an opportunity to capitalize on this over the short-to-medium term as well by getting exposure to properties that are located nearby infrastructure projects that have recently been completed, are under development and about to be commissioned in the near term or projects that are about to break-ground within the next few years. As observed earlier, property prices typically appreciate throughout the infrastructure project construction lifecycle and after. Following are the locations we have identified within HCMC and Hanoi that are most likely to benefit from recently completed, ongoing or upcoming infrastructure projects within the next 3-4 years. HCMC Figure 20: Summary of infrastructure projects as near-term catalysts Area / Location Infrastructure Catalyst Completion by Beneficiaries New Port Thu Thiem Saigon Port, part of Binh Thanh Dist, Dist 2 and Dist 4 Metro Line 1, Thu Thiem tunnel, development of Thu Thiem area, construction of Thu Thiem bridge 2 End of 2018 VIC Phu My Bridge Cat Lai Port, part of Dist 7 and Dist 9 Joining of Ring Road 2 End of 2015 NLG, PDR Intersection of HCMC Long Thanh EXPY and Ring Road 2, part of Dist 9 Joining of Ring Road 2, completion of HCMC Long Thanh EXPY, End of 2015 NLG, KDH An Phu Ward, part of Dist 2 Metro Line 1, completion of HCMC Long Thanh EXPY End of 2018 Novaland Along Metro Line 2, part of Dist 3, Dist 10 and Tan Binh Dist Metro Line 2 End of 2018 HDG Source: VCSC analysis See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 19

82 Figure 21: HCMC near-term infrastructure catalysts versus developer land bank HOLD 1 Complete RR Section 1 Complete EXPY Section MTR line under construction 1 1 Potential areas in the next 1-3 yrs 5km Dist Dist 2 3 Dist 7 HCMC Trung Luong EXPY Source: VCSC analysis, HCMC Master Plan Hanoi Figure 22: Summary of infrastructure projects as near-term catalysts Area / Location Infrastructure Catalyst Completion by Beneficiaries Thang Long EXPY Quang Trung Road, part of Hoai Duc Dist, Nam Tu Liem Dist and Ha Dong Dist. Completion of Thang Long EXPY, Metro Line 2 Cat Linh Ha Dong End of 2015 SJS Areas around My Dinh Joint National Sport Center, part of Nam Tu Liem Dist Completion of Thang Long EXPY, Metro Line 3 Nhon Ha Noi Station End of 2018 VIC, SJS Source: VCSC analysis See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 20