CB RICHARD ELLIS VIETNAM HO www.cbrevietnam.com April 211 Economics Quick Stats Change from last VIETNAM Current Yr. Qtr. Real GDP Growth 5.4% FDI Exports Imports $2.37 bil $19.25 bil $22.27 bil CPI (average) 12.8% Tourism (arrivals) Base Rate 9% 1.51 mil Exchange Rate (e-o-p) 2,73 *The arrows are trend indicators over the specified time period and do not represent a positive or negative value. Hot Topics ECONOMY: The Government tightens monetary ypolicy in an effort to control rising inflation; VIETNAM Q1/211 saw the Vietnamese Government shift focus from a growth centred policy to an inflationary control policy. Inflation in Q1/211 stood at 12.8% y-o-y, or 2.2% m-o-m in March, reflecting the highest levels seen since Q1/29. The Government tightened monetary policy during the quar rter, with the State Bank raising both its discount and refinancing rate. The refinancing rate rose from 9.% to 11% in February and then to 12..% in March, making it increasing difficult for commercial banks to borrow from the Statet Bank and thus limiting lending into the economy. In a bid to improve the national trade deficit and counter a US Dollar shortage, the Vietnamese Dong was devalued for a fourth time since November 29. The Dong was devalued by 9.3% against the US Dollar and the daily trading band was decreased from +/-3% to +/-1%. OFFICE: Rental rates softened Despite exports increasing 2.7% y-oy, across all office sectors as the it was disappointing to note that supply of space outpaces demand; HCMC faced a trade deficit during Reflecting the tougher economic Q1/211. Though on a more positive RESIDENTIAL: Prices on the conditions that have been seen during note the city saw an increase in secondary market remained Q1/211, GDP growth slowed to relatively flat, reflecting buyers international ti tourist tarrivals of 6.% y- 5.4% y-o-y, in comparison with 5.8% demand for completed units for o-y and thus the city is already ahead in the same period last year. Despite their own occupation as opposed to of target for the year having received these negatives it must be noted that investment; 26.% of the annual target arrivals. industrial production continued to RETAIL: After strong demand from increase with Q1/211 seeing a Real GDP growth, Vietnam (%) Vietnamese retailers in 21, 14.1% y-o-y increase. GDP per capita, Vietnam (US$) Real GDP growth, HCMC (%) demand in Q1/211 reduced as Real GDP Growth Rate & GDP per Capita in Vietnam & HCMC GDP per capita, HCMC (US$) retailers took time to evaluate changing economic conditions; SERVICED APARTMENTS: Top-end operators in the CBD have seen projects achieve near 1% occupancy and thus rental prices have increased; 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 27 HO Despite the national economic worries, HCMC still witnessed double digit GDP y-o-y y growth in Q1/211, though the 1.3% growth seen was slightly below the 11.% seen in the same period of 21. It should be noted that state investment is decreasing owing to the monetary tightening. This will impact on the city s GDP growth, however, HCMC remains the key economic hub for Vietnam and the long-term potential of the city (and the country), given its favourable demographics, should ensure that international investment interest remains. Despite the rises in petroleum, electricity and foodstuffs, which undoubtedly affect many HCMC residents and business, CPI in the city during Q1/211, which stood at 9.8% y-o-y, was below that of the nationwide figure of 12.8% y-o-y. 28 29 21p 25. 2. 15. 1. 5.. 211, CB Richard Ellis, (Vietnam) Co., Ltd.
OFFICE MARKET GRADE A Number of buildings 9 GFA (sm) 34,38 Vacancy rate (%) 38.1% Q-o-q change (pts) -1. pts Y-o-y change (pts) 22.5 pts Average asking rent (US$ psm per month) $34.85 Q-o-q change (%) -.6% Y-o-y change (%) -12.1% GRADE B GRADE C TOTAL 41 216 266 68,971 738,987 1,724,338 15.1% 11.5% 17.6% 1.1 pts -.5 pts -.2 pts 3.7 pts -2.5 pts 4.4 pts $19.4 $15.87 $2.48-2.6% -2.3% -2.5% -1.6% -1.3% -5.4% 5% 4% 3% 2% 1% % 8 7 6 5 4 3 2 1 Vacancy (%) B 27 28 29 21 Q1/211 Asking Rents (US$ psm per month) B 27 28 29 21 Q1/211 Q1/211 witnessed new supply coming online in the B and office markets. Two new B buildings came online, 25bis Nguyen Thi Minh Khai, D.1 and The Flemington, D.11. These buildings brought a total GFA of just over 42, sm to the market. The market saw five new buildings come online with a total GFA of approximately 16, sm. Overall vacancy remained relatively stable in the quarter. vacancy reduced slightly, from 39.1% in Q4/21 to 38.1% at the end of Q1/211. It must noted that the seven established A buildings have a vacancy rate of only 3.5%, a decrease from 4.9% in Q4/21. The high overall vacancy rate is a reflection of the two new buildings that came online during 21 and reflects the difficulties these buildings faced in pre-leasing their space. B vacancy increased by 1.1 percentage points in the quarter. This is a reflection of the new space at The Flemington, which remained largely vacant, though it must be noted that the majority of 25bis Nguyen Thi Minh Khai has already been leased by HD Bank. Rents softened in all sectors during the quarter. The A market decreased the least as established buildings were able to hold their rents, owing to occupancy rates, whilst only the newer buildings were forced to compete for tenants. B and C rentals both decreased reflecting new supply in the market. Lastly, whilst it is reported that 1.4 million sm of space will come online before 215, at present only 43.7% of this space is actually being constructed. 211, CB Richard Ellis, (Vietnam) Co., Ltd. April 211
RESIDENTIAL FOR SALE MARKET LUXURY Total supply (units) 417 New completion (units) New launch (units) Primary market - Average asking price (US$ psm) - Q-o-q change (%).% Y-o-y change (%) - Secondary market - Average asking price (US$ psm) $4,368 Q-o-q change (%) -.7% Y-o-y change (%).% HIGH-END MID-END AFFORDABLE TOTAL 13,595 11,795 1,935 36,742 58 336 489 1,45 1,389 575 3,863 5,827 $1,46 $1,2 $674-23.2% 3.3% -3.7% -14.6% 26.3% 3.7% $1,851 $965 $727-1.8% -1.9%.% -1.4% -3.3% 1.% 3, 25, 2, 15, 1, 5, 5, 4, 3, 2, 1, Condominium Supply (units) Launched Completed 27 28 29 21 Q1/211 Asking Price (US$ psm) - Secondary Market Luxury High-end Mid-end Affordable 27 28 29 21 Q1/211 Q1/211 saw 5,827 new units launched on to the market. This was an 11.3% increase on Q4/21 and a 63.8% increase on the number of units launched in the same quarter last year. The new supply was concentrated in the affordable sector of the market, with the sector accounting for over 66.3% of the new units. These affordable projects are located in districts that are circa. 12 km from the CBD such as districts 8, 12, Binh Tan, Thu Duc and Nha Be. Primary market prices in the high-end sector dropped notably on both a q-o-q and y-o-y basis. This is areflectionofadrop in buyer confidence, increasing supply (and carryover) and the actual location of the specific projects launched. The affordable sector saw softening of prices, most likely areflection of the new supply. The mid-end sector saw notable price increases on a q-o-q basis as the product launched was felt to be stronger than in the previous quarter owing to the developer reputation. The secondary market saw slight price decreases acrosss the board, emphasising the current demand from end users, (as opposed to investors), who are looking to move into completed units. The Vietnamese market is still characterised in the major ity by cash purchases. Given the current inflationary issues, the high interest rates that make mortgages unattractive for end users and the alternative options for investors, it is unlikely that there will be a significant pick up in demand in the short-term. However, whilst it is anticipated that there is going to be notable supply - 69,156 units launched over the next 3 years - high interest rates and limitations on lending will likely stifle some of this supply. 211, CB Richard Ellis, (Vietnam) Co., Ltd. April 211
RETAIL MARKET DEPARTMENT STORES SHOPPING CENTRES TOTAL Total supply (GFA, sm) 113,,84 238,95 352,79 New supply (GFA, sm) 15, 15, Vacancy rate (%) 3.1% 8.4% CBD average asking rents (US$ psm per month) $13.6 $124.96 Q-o-q change (%).% -.3% Y-o-y change (%) -5.3% 27.4% Non-CBD average asking rents (US$ psm per month) $49.28 $35.4 Q-o-q change (%) -1. 9% -2.5% Y-o-y change (%) -11. 5% -16.2% 1% 8% 6% 4% Vacancy Rate (%) Department Store Shopping Centre Having witnessed considerable q-o-q increases during 21, Q1/211 saw average shopping centree rents in the CBD decrease by.3% q-o-q, reflecting smaller shopping centres decreasing rents in an effort to attract tenants. The y-o-y increase of 27.4% for CBD shopping centre space emphasises the demand that was seen for new retail units during 21 and the continued maturity evident within the HCMC market. 2% % 7 6 5 4 3 2 1 28 29 21 Q1/211 Non-CBD Asking Rents (US$ psm per month) Department Store Shopping Centre 27 28 29 21 Q1/211 The only new supply to come online during the quarter was the opening of the Parkson department store, in the former Paragon shopping centre. The opening of this centre has had an impact on both non-cbd department store and shopping centre rents, as it has added new supply in an area that is highly competitive, given the existing Thien Son Plaza, the numerous shop-houses and the forthcoming Crescent Mall. Q1/2 11 saw a softening in demand from Vietnamese retailers. This was a reflection of the tougher economic conditions that were being felt by their consumers, as the Dong was devalued again and inflation increased, along with the increasing interests rates from banks that limited financing for expansion purposes. CBRE sees continued interest from international retailers keen to profit from Vietnam s strong demographics these retailers are, however, concentrating their searches on prime CBD locations. Given the limited CBD retail space coming online in 211 it is possible that tenants may turn to shop-house locations in order to expand. 211, CB Richard Ellis, (Vietnam) Co., Ltd. April 211
SERVICED APARTMENT MARKET GRADE A Total supply (units) 979 New supply (units) Vacancy rate (%) 5.5% Q-o-q change (pts) -.2 pts Y-o-y change (pts) -15.5 pts Average asking rents (US$ psm per month) $33.43 Q-o-q change (%) 3.1% Y-o-y change (%) 14.9% GRADE B GRADE C TOTAL 1,621 881 3,481 71 54 125 17.5% 19.7% 14.7% -3.1 pts 2.1 pts -.8 pts -1.5 pts 6.7 pts -3.3 pts $26.79 $18.53 $26.51.6% -.1%.7% 5.%.1% 3.9% 8, 7, 6, 5 5, 4, 3, 2, 1, 4 35 3 25 2 15 1 5 Total Supply (sm) B 27 28 29 21 211f 212f 213f 214f Asking Rents (US$ psm per month) B 27 28 29 21 Q1/211 Q1/211 saw the supply of units increase by 3.7% in comparison with Q4/21, with 125 new units coming online. New supply included units at The Crescent, District 7, that are coming online on a floor by floor basis, and at several boutique projects located around the city. The largest supply of serviced apartments continues to be in District 1, where supply accounts for just under 5% of total units. It has, however, been noted that there is an increasing number of speculative developers providing boutique options in both the CBD and outlying districts. Demand for serviced units remained stable, as reflected by enquiries to the CBRE residential leasing team and the decrease in vacancies in the A and B sectors. The first quarter is typically characterised by the rotation of Japanese staff in time for the new fiscal year in April, though evidence of this has been less in 211, most likely a consequence of the recent earthquake and tsunami. However, as noted in Hong Kong, which has seen a surge in demand, as people relocate for the shortfrom Japan, there has been a small increase term in Japanese occupiers in some District 2 residences who are yet to specify exact occupation dates. The vacancy decrease in the and B markets, coupled with limited new supply has led to an increase in rental rates on both a q-o-q and y-o- Most notably, rents increased by ybasis. nearly 15% y-o-y and look set to increase further as the most high-profile developments are showing high occupancy. It is therefore feasible that rents at the top of the market may push back towards the peaks last seen in 28. The bottom of the market remained flat with units showing a.1% q-o-q decrease but a.1% y-o-y increase in rents. 211, CB Richard Ellis, (Vietnam) Co., Ltd. April 211
LEGAL UPDATES THIS SECTION IS CONTRIBUTED BY BAKER & McKENZIE (VIETNAM) LIMITED DISCLAIMER: This Legal Update is intended d to provide our readers with inform ation on recent legall developments and issues of significant ifi interest. t It should not be regarded as legal advice or the opinion of Baker & McKenzie (Vietnam) Limited and no decisions regarding the subject matters discussed should be taken without consulting qualified advisors. HO TO PILOT REITs Recently, several regulatory updates have indicated that legal framework for Real Estate Investment Trusts ( REITs ) in Vietnam is most likely to be implemented in the near future, and that Ho Chi Minh City has been chosen by the Government to implement a pilot program for building the REIT regulations. Notable legal amendments, and updated information, that has been recently circulated, with respect to REITs in Vietnam, is as follows: November 24, 21: amendment of, and supplementation to, a number of articles in the Securities Law ( Amended Securities Law ) (1), which will take effect as of July 1, 211, provide: A short definition of Real Estate Investment Fund, which means a securities investment fund which is substantially invested into real estate ; The limitation of 1% of total asset value being invested into real estate by a closed (public) fund will be withdraw wn with respect to real estate investment funds; January 211: the Ministry of Construction submitted an important proposal to the Government regarding Housing Development Strategies until 22, with a vision to 23: REITs should be one of the capital mobilising channels for the housing market in Vietnam; The legal framework construction to establish and operate REITs should be planned and completed soon; Implicated legal framework for REITs: 1% portfolio investment on real estate is allowed; Tax incentives; and Safeguards including specif ic criteria for human resources, capital requirements and prudent ratios, risk management and a reporting regime; March 1, 211: in a meeting with the Vietnam National Real Estate Association, Nguyen Tran Nam, Deputy Minister of the Ministry of Construction, said that Ho Chi Minh City is implementing a pilot program for building Real Estate Investment Funds; REIT legislation is common across Asia with Hong Kong, Japan, Malaysia, Singapore, South Korea, and Taiwan already having such schemes. (1) Law No.62/21/QH12 on revision and supplementation to some articles of Securities Law 26, adopted by the National Assembly of Vietnam on November 24, 21, and will take effect on July, 1 211 ( Amending Law for Securities Law ); Article 1 cla use 3. 211, CB Richard Ellis, (Vietnam) Co., Ltd. April 211
For more information regarding this MarketView or to find out more about any aspect of our services, please contact: CB Richard Ellis (Vietnam) Co., Ltd. RESEARCH & CONSULTING Marc Townsend, Managing Director m. 84 93 6 79 e. marc.townsend@cbre.com Adam Bury, Manager m. 84 93 28 713 e. adam.bury@cbre.com Central Ho Chi Minh City Rudolf Hev er, Associate Director m. 84 93 28 714 e. rudolf.hever@cbre.com Ngoc Le, Publications Manager m. 84 98 6666 35 e. ngoc.le@ @cbre.com 211 CB Richard Ellis (Vietnam) Co., Ltd. This report has been prepared in good faith and with due care by CB Richard Ellis (Vietnam) Co., Ltd. We obtained some of the information above from sources we believe to be reliable. However, we have not verified the accuracy of the information which we obtained from other sources and make no guarantee, warranty or representation about it. We include projections, opinions, assumptions or estimates which are made with careful consideration of factors known to us for example only, and they may not represent current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis. Central Business District (CBD) The Central Business District in HCMC is District 1, the commercial, administrative and tourism centre. The area bounded by Ton Duc Thang, Nguyen Thi Minh Khai, Nam Ky Khoi Nghia and Ham Nghi streets is considered the prime office location where all buildings and the majority of B buildings are located. Interest Rate The base rate set by the SBV is used as a reference by other banks and financial institutions. The discount rate is the interest rate that the SBV charges member banks for short-term term loans via discounting commercial paper or other debt instruments. The refinancing rate is the interest rate that the SBV charges on loans to member banks. Gross Floor Area (GFA) Gross Floor Area includes all areas contained within the external walls at each floor level and the whole thickness of the external walls. In general, mechanical and electrical services rooms, refuse chambers and rooms, water tanks, car parking floors and all lifts and staircases passing through these floors are excluded from the Gross Floor Area calculation. Net Absorption Net Absorption figures represent the net increase in occupied floor space in the period. The figures are arrived at using the following method: Net Absorption = new completions + vacancy figures at the beginning of period - demolition - vacancy figures at period-end Rent Rent is quoted as the average asking rent, without accounting for any incentives. Rents are stated in US$ per square metre (psm) as well as in those terms gross or net, inclusive (including management fees and/or property taxes) or exclusive (excluding management fees and property taxes) that are customarily employed in the respective sector. Rents are quoted on the following basis: Office: Asking rents, GFA, exclusive of VAT and service charges Retail: Asking rents, NLA, exclusive of VAT and service charges Serviced Apartments: Asking rents, NLA, inclusive of VAT and service charges Residential Supply Existing supply : is the total number of units that have been handed over for occupation. New completion : the total number of units that were handed over for occupation in the review quarter these are added to existing supply. New launch : the number of units that were released to the market by developers (official start of sales for a project) in the review quarter. All units in each development are included in the calculations, however, the developer may divide sales into numerous phases and thus not all units may come online at launch date.