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The Slow Road Back

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CBRE's latest real estate and retail insights points out why Residential Real Estate again becomes more attractive to Vietnamese investors as other alternatives offer limited returns

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The Slow Road Back

  1. 1. THE SLOW ROAD BACK Presented by: Marc Townsend, Managing Director, CBRE Vietnam Park Hyatt Saigon, HCMC 10 July, 2013
  2. 2. 2 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK COULD THE LONG WAIT FOR SUCCESS BE OVER? Andy Murray ended Britain's 77 year wait for a men's Wimbledon champion British and Irish Lions ended barren 16 years with a crushing victory How much longer for the Vietnamese real estate market?
  3. 3. 3 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK RECOVERY IS JUST AROUND THE CORNER
  4. 4. THE ECONOMY MOVING IN THE RIGHT DIRECTION
  5. 5. 5 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK 1H 2013 ECONOMIC OVERVIEW Gold and Bank Deposits Become Less Attractive  Global gold price: decreases 24% YTD.  Local gold price: reached its bottom in June (down 22%) and currently down 19% YTD  Deposit rates: 800bps reduction over the last 18 months. -1 0 1 2 3 4 0 5 10 15 20 25 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 CPI(%m-o-m) CPI(%y-o-y)/Interestrates(%) CPI(y-o-y, Vietnam) RediscountingRate RefinancingRate CPI(m-o-m, Vietnam) Monetary contraction Inflation surged Monetary expansion Inflation controlled 1,000 1,200 1,400 1,600 1,800 2,000 30 34 38 42 46 50 09/2011 12/2011 03/2012 06/2012 09/2012 12/2012 03/2013 06/2013 Globalgoldprice(US$) Localgoldsellprice(VNDmillion) LOCALGOLD GLOBALGOLD Source: SJC Source: State Bank of Vietnam
  6. 6. 6 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK 1H 2013 ECONOMIC OVERVIEW Regional stock markets, y-o-y return as of July 9, 2013:  Thailand (SET) up 23.1%;  Singapore (SGX) up 19.9%;  Indonesia (JCI) up 12.8%;  Vietnam (VNINDEX) peaked at 528 points in June, up 26%, but dropped back to 24%. Stock Market Recovers, Real Estate to Come Back into Focus? REAL ESTATE INDEX 2Y 1Y 6M 3M 1M Current Real Estate Holding & Development Listed Companies (66) 55.5 44.8 39.5 41.9 42.2 45.4 Real Estate Services Listed Companies (2) 84.4 25 23.8 25.3 22.3 26.1 Source: Stockbiz Source: Bloomberg
  7. 7. 7 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK Support on the Way GOVERNMENT POLICIES Expansion Monetary Policies (as June 27)Fiscal Policies - Tax Cut (from July 2013)  Devaluation of the dong 1% versus the U Dollar (to VND21,036)  The interest-rate ceilings on short-term dong-denominated bank deposits: lowered to 7.0% from 7.5%  The ceiling on dollar deposits: • For institutional depositors: fall to 0.25% from 1.0% • For individual depositors: fall to 1.25% from 2.0%.  For social housing: • Corporate tax rate: 10%; • VAT: cut from 10% to 5%.  Personal income tax: • Level of deduction: increased to VND9 million/month from VND4 million/month. • Level of deduction for each dependent: increased to VND3.6/month from VND1.6 million/month for one dependent. • Boost domestic consumption and production • Improve trade balance • Reduce banks' funding costs => Lend at lower rates • Encourage people to transfer USD for VND • Bolster foreign-exchange reserves
  8. 8. 8 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK GOVERNMENT POLICIES VAMC – …come back next year…
  9. 9. 9 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK -0.6 -0.2 0.2 0.6 - 20,000 40,000 60,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2008 2009 2010 2011 2012 2012 No. of cars selling % change YoY Car Sales Volume Recovers SOME PEOPLE ARE STILL SPENDING Vietnam Car Sales Volume Source: VAMA Registration fee reduced from 10% - 20% to 10% - 15% in April. GM and Ford accounted 18% of total personal car sales in 5M/2013
  10. 10. 10 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK Steady Construction Progress at Some Major Development Sites SOME ARE STILL BUILDING … Liberty Central Riverside Vietcombank Tower MB Sunny Tower C.T Leman Plaza New Pearl Him Lam Riverside
  11. 11. 11 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK According to BCI Asia….. THOUGH LESS THAN AT THE END OF 2012 All Future Projects (2013-2022) HCMC Hanoi Da Nang Can Tho Khanh Hoa Ba Ria - Vung Tau Hai Phong Office 269 529 74 43 15 36 20 Retail 124 284 39 5 5 30 6 Hospitality &SA 45 68 38 9 47 22 11 Residential 383 556 191 18 26 49 19 Total 821 1437 342 75 93 137 56 % Change compared to end of 2012 -12% -6% 0% 0% -9% 3% 30% Projects Under Construction HCMC Hanoi Da Nang Can Tho Khanh Hoa Ba Ria - Vung Tau Hai Phong Office 131 153 16 16 6 11 9 Retail 52 64 3 3 1 7 4 Hospitality &SA 20 16 12 2 7 5 2 Residential 144 149 25 3 4 10 3 Total 347 382 56 24 18 33 18 % Change compared to end of 2012 -14% -13% -11% 71% -22% -11% 13% Source: www.bciasia.com; CBRE, 4 July 2013
  12. 12. 12 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK Metro Line 1, Metro Line 2, Saigon Bridge 2, Flyover HOWEVER, INFRASTRUCTURE MOVING AT PACE Metro Line No. 1 is making good progress
  13. 13. 13 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK METRO LINE NO. 1 IS TAKING SHAPE Infrastructure Development Will Increase Property Values Thao Dien Pearl The Vista Imperia An Phu The Estella Cantavil Premier Future projects Existing projects Metro line 1 Metro station Source: CBRE
  14. 14. RESIDENTIAL MARKET HEATING UP
  15. 15. 15 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK Prices in HCMC Rank Second after Bangkok REGIONAL LUXURY CONDOMINIUM * HCMC’s CBD Luxury projects: The Lancaster, Sailing Tower, Avalon, Saigon Luxury Apartment, Leman CT Plaza. (Except: Vincom Center B) ** Hanoi Luxury projects: Pacific Place, Vincom Park Place, Golden Westlake, Landmark 72 (Keangnam Landmark), Indochina Plaza Hanoi, Hoang Thanh Tower, D’ Palais de Louis Source: CBRE Research Bangkok,5,157 HoChi Minh,3,838 Hanoi,2,596 Phnom Penh, 1,470 Yangon,1,611 0 1,000 2,000 3,000 4,000 5,000 6,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q12013 US$/sm Bangkok HoChi Minh Hanoi Phnom Penh Yangon Condominium Selling Price (US$/sm)
  16. 16. 16 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK  30 trillion loan scheme for residential real estate: • Unit size: < 70 sm each • Price: < VND15 million psm  The interest rate will be capped at 6% per annum for 10 years. Resolution 02/NQ – A Push For Real Estate GOVERNMENT POLICIES Khang Gia Tan Huong (Tan Phu District) - 289 units - the first project in HCMC to benefit from the loan scheme • Address apparent demand issues by providing mortgages to buyers • Encourages developers to focus on the mass market
  17. 17. 17 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK HCMC RESIDENTIAL MARKET Unsold Stock Improved Source: CBRE 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Newlaunch Unsoldinventory Paused/On-hold/Distressed Q22012 Q12013 Q22013  by ~400 units by ~260 units due to some projects converted to social housings or changed to other components  by ~400 units thanks to flexible payment terms plus incentives New launches
  18. 18. 18 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK 03% 30% 26% 42% Luxury High-end Mid-end Affordable While “affordable” is now truly affordable “HIGH-END” HAS BECOME MIDDLE-CLASS HOUSING Units Sold by Quarter Units Sold by Segment, Q1/2013 Units Sold by Segment, Q2/2013 “ Affordable units continued to be the most-sought after.  More units sold in high- end segment y-o-y thanks to more attractive payment terms plus incentives. ”Source: CBRE 00% 40% 17% 43% Luxury High-end Mid-end Affordable $0 $500 $1,000 $1,500 $2,000 $2,500 0 1,000 2,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2011 2012 2013 AveragepPrice(US$/m2) SoldUnits
  19. 19. 19 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK HCMC RESIDENTIAL MARKET Prices Imperia An Phu – District 2 • 700 units • Current asking price: $1,500-$1,800/sm • Excellent payment terms: hand-over when 10%-30% paid, the rest payable with 0% interest rate • Free parking • Furniture package • Gym free for 1 year The Estella – District 2 • 719 units • Current asking price: $1,600-$1,800/sm • Good payment terms: hand-over when 50% paid, the rest payable with 0% interest rate in 2 years Him Lam Riverside – District 7 • 314 units • Current asking price: $1,357 - $1,457/sm • Good payment terms: 50% hand-over, the rest payable in 2 years with 0% Sunrise City (North – District 7) • 554 units • Current asking price: $1,119 - $1,428/sm •Smaller unit size, lower price than P1, •Good payment terms (54 months) – Central towers Tropic Garden– District 2 • 388 units • Current asking price: $1,100-$1,300/sm • Good payment terms: hand-over when 50% paid, the rest payable with 0% interest rate in 3 years Xi Riverview Palace – District 2 • 258 units • Current asking price: $2,200-$2,500/sm • High discount: 18% if 98% payable Happy Valley – District 7 • 541 units • Current asking price: $1,500 - $1,700 /sm • Longest payment schedule (30 months) in PMH NUA • Free parking “ Improved payment schedules for purchasers, with reduced interest rates on a temporary basis  increase d sales ” Source: CBRE
  20. 20. 20 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK More launches coupled with more advertising activities MORE DEVELOPER CONFIDENCE Residential Projects Advertised, HCMC, 2013 0 5 10 15 20 25 30 March April May June MTD July NoofProject Tracked on: Tuoi Tre; Mua & Ban; Tap chi Bat Dong San (Property Magazine); Thanh Nien; Nhip Cau Dau Tu; Doanh nhan Sai Gon; Saigon Times Daily; Vietnam Investment Review; Vietnam News. Units Launched by Year 0 5,000 10,000 15,000 20,000 2008 2009 2010 2011 2012 2013 NumberofUnit Annual launch Q2launch “New launches increased by 51.0% q-o-q and 234.5% y-o-y y. ”Source: CBRE “ Some delayed projects were resumed and introduced to the market: PetroVietnam Landmark (D2), New Pearl (D1), Central Plaza (Tan Binh). Others starting to prepare for construction or launch. ”
  21. 21. 21 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK New Launches – 1H/2013 HCMC RESIDENTIAL MARKET The Prince Residence Phu Nhuan District 277 units by Novaland @ $2,000-$2,600/sm Happy Valley (P1+P2) District 7, 429 units Phu My Hung Corp. @ $1,500/sm Metro Apartment (Screc II) District 2, 104 units by Saigon Corp. & Hung Thinh Land @ $811/sm Nhat Lan 3 Binh Tan District 240 units by BCCI @ $571 - $619/sm Sunrise City (North) District 7, 182 units (total 554) by Novaland @ $1,119 - $1,428/sm Dragon Hill Residence & Suite* Nha Be District, ~150 units by Phu Long RE Corp. @ $1,190 - $1,286/sm Homyland 2 District 2, 425 units by Bao Son Co., Ltd. @ $761 - $881/sm Ehome 3 P2 Binh Tan District 161 units by Nam Long @ $794/sm Dream Home* Go Vap District, 518 units by Dream Home Co., Ltd. @ $567/sm * Soft launch
  22. 22. THE REST OF THE MARKET STILL TURNING
  23. 23. 23 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK VIETNAM BECOMING REGIONALLY ATTRACTIVE Yangon is seriously overpriced Bangkok (Grade A), 27 Ho Chi Minh (Grade A), 31 Hanoi (Grade A), 33 Phnom Penh (Grade B and C), 21 Yangon (Grade B), 83 0 10 20 30 40 50 60 70 80 90 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013 USD/sm Bangkok (Grade A) Ho Chi Minh (Grade A) Hanoi (Grade A) Phnom Penh (Grade B and C) Yangon (Grade B) Source: CBRE Research Office Rent (US$/sm/month)
  24. 24. 24 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK Highlights HCMC OFFICE “85 office leases signed in 6 months by CBRE Vietnam, up 20% on 2012. Healthy absorption as market sentiment improves and Average Grade A office rents rise 0.5% q-o-q. Oversupply a misconception ! Major occupiers FLIGHT TO QUALITY in 1H 2013 and CONSOLIDATION taking advantage of available opportunities in new buildings. Local banking sector emerging as the largest occupiers of prime District 1 office buildings. New office buildings showing strong commitment, while major delayed projects have seen no movement. ”CBRE $15.00 $17.00 $19.00 $21.00 $23.00 $25.00 0 200,000 400,000 600,000 800,000 1,000,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2011 2012 2013 Leased Area Vacant Area Asking Rent 24% 16% 16% 13% 13% 10% 8% Finance Pharmaceutical Others Technology Manufacturing Retail Legal Tenant breakdown – 1H/2013 (based on CBRE deals) HCMC Office market performance – Grade A&B 10.5 % 89.5 % Local Foreign Source: CBRE
  25. 25. 25 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK HCMC OFFICE Oversupply is beginning to disappear “ Number of successful deals during the first half of 2013 done by CBRE Vietnam went up 20% on 2012. ”CBRE Office Vacancy Spaces – NLA (sm) Office net absorption (Grade A &B) – NLA (sm) 0% 10% 20% 30% 40% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2011 2012 2013 Grade A Grade B - 10,000 20,000 30,000 40,000 50,000 60,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2011 2012 2013 Grade B Grade A Source: CBRE
  26. 26. 26 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK President Place - LEED Office building achieved noticeable performance HCMC OFFICE Key facts  More than 75% of total space occupied after 3 months of official opening with the remaining 25% under offer  100% of Tenants are multinational organisations, with 66% of committed occupiers technology based clients  Key tenants: • Canon • Diageo Vietnam Limited • Microsoft Vietnam LLC • Schindler Vietnam “ A pioneering office development becoming Ho Chi Minh City's first LEED Gold accredited office building. Point of difference is key ” President Place Developer Sapphire Vietnam Address 93 Nguyen Du, D1 Total GFA 11,475 sm Note: Leadership in Energy and Environmental Design (LEED) consists of a suite of rating systems for the design, construction and operation of high performance green buildings, homes and neighborhoods.
  27. 27. 27 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK 0 500,000 1,000,000 1,500,000 2,000,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 Existing Space - GFA (sm) New Space Come Online Limited supply from prolonged planning/under construction projects HCMC OFFICE HCMC Office Supply Forecast (Grade A & B), GFA sm – 2013 to 2015 Completed - Q1/2013 Limited supply To be completed - Q3/2013  180,240sm 8 quarters Source: CBRE
  28. 28. 28 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK Regional Comparison RETAIL RENTS Source: CBRE Research Siam Paragon, Bangkok Vincom Center A (Eden A), HCMC Bangkok,117 Ho ChiMinh, 107 Hanoi,102 PhnomPenh,40 Yangon,21 0 20 40 60 80 100 120 140 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013 US$/sm Bangkok Ho ChiMinh Hanoi PhnomPenh Yangon Retail Rent (US$/sm/month)
  29. 29. 29 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK ASIAN RETAIL  Asia Pacific will continue to drive global retail growth in 2013.  Slower economic growth poses significant obstacles for retailers planning to expand. Retailer Expansion: Asia is Not Easy but Still THE Strategy Top Cities for New Retailer Entries, 2012 Source: CBRE Global Research & Consulting 2013 50th store opening
  30. 30. 30 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK Taxation and Infrastructure Create Cost Burdens Restricting Both Retailers & Consumers HCMC RETAIL Net absorption (NLA, sm) Source: CBRE -7% -1% 5% 11% 17% 23% -40,000 -20,000 0 20,000 40,000 60,000 2010 2011 2012 2013 Net Absorption (sm) Vacancy Rate (%)
  31. 31. 31 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK Busy High-street Leasing HCMC RETAIL Number of shop houses for lease 1H/2012 2H/2012 1H/2013 Hai Ba Trung 10 8 10 Mac Thi Buoi 4 1 2 Le Loi 3 4 4 Nguyen Trai 7 5 8 Cao Thang 3 2 2 Vo Van Tan 3 6 5 “The retail market is still driven by high-street leasing due to ready availability. Retail is constrained by infrastructure, mass public transport that generates foot traffic. ”CBRE
  32. 32. 32 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK CAPITAL MARKETS THAW Vietnam reappears on the radar “As forecast earlier in the year, Vietnam has seen transactional activity pick up. Deal velocity has increased in the first half, but with investment enquiries to CBRE up 20 – 30% in the first half, notable capital still remains unserviced on the side lines. ”CBRE
  33. 33. 33 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK CLUB DEALSFOREIGN INVESTOR REAL ESTATE FOREIGN INVESTORS REVIEW STRATEGY Greater Clarity Needed for Investors Sourcing Deals Capital Placement: Evolution 2005 - 2013 “With capital remaining on the sidelines, fundamental and basic changes are still necessary to further increase deal flow. Investors, across Asia, are favouring a more direct form of investment, where visibility of deals is key. ”CBRE FUND ENTITIESFOREIGN INVESTOR REAL ESTATE
  34. 34. 34 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK DOMESTIC PLAYERS NEED TO FORGET 2005 Quite simply - It is called Investment, not Charity  Foreign investors are not here to make you rich!  The big four questions still remain– without a realistic and honest approach to these, foreigners will look elsewhere. VALUATION TRANSPARENCY STRUCTURING TRACK RECORD
  35. 35. 35 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK  After several years of hurt, Vietnam shows opportunity and return….; • (Unfortunately, where ever there is a winner, there will always be a loser)  Residential Real Estate again becomes attractive to Vietnamese investors as other alternatives (gold, stock market, deposit accounts) offer limited returns; • By the 2014 Fearless Forecast – the residential market will have passed the bottom  As Andy Murray will testify, a win does not come easily; • Those already committed to Vietnam, still have many battles to survive; • Particularly for residential developers, flexibility will still be the key for success – buyers still need to be nurtured; From our Crystal Ball CBRE’S FORECASTS - 2H 2013
  36. 36. 36 CBRE BIG BREAKFAST 2013 | THE SLOW ROAD BACK  The next round of interest cuts proves to be one of the most decisive in improving residential purchaser sentiment;  “Middle-class” housing projects, such as those seen on the Hanoi Highway in District 2, will see over 50% of the lights switched on by year end;  Grade A office rents finish the year unchanged or slightly up as vacancy drops below 10% and new options on the horizon look slim;  High street corners to become further dominated by foreign brands looking to expand their foot print;  Investment deal flows continues to be at heightened levels as in the first half; • However, many foreign investors still fly out of Vietnam without their wallets having been opened; • Vietnam upgraded from completely toxic to just toxic! A Few More Thoughts…. CBRE’S FORECASTS – 2H 2013
  37. 37. For more information regarding this presentation please contact: MARC TOWNSEND Managing Director T +84 8 3824 6125 F +84 8 3823 8418 Email: marc.townsend@cbre.com CBRE QUARTERLY REPORT Available now with new pricing options, longer historical data and more in-depth analysis. quarterlyreports@cbrevietnam.com

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