MAR K E T OV E R V IE W | AU G U S T | 2008

Ho Chi Minh City Property Market - First-Half 2008

EXECUTIVE SUMMARY
Economic Indicators: Signs of
rebounding, yet cautious growth
for the 2nd half of 2008
Vietnam recorded a GDP growth rate
of 6.5% in the first six months; a sign
that the economy remains resilient de-
spite rising inflation and record trade
deficit. The government maintains
that Vietnam’s GDP can still achieve a
growth rate of 7 percent by the end of
the year, as we are seeing positive trends,
including a downturn of the increase in
the Consumer Price Index (CPI) and a
record high Foreign Direct Investment
(FDI) of 31.6 billion USD in the first-half.
According to an economic update
report released by the Socialist Re-
public of Vietnam, annual infla-
tion has skyrocketed to 26.8 percent
in June; a 2.1 percent increase from
May. However, JPMorgan forecasts
that month-on-month (MoM) infla-
tion will be more subdued in the near
future “paving the way for stabilization
and then modest reduction in over-year-
ago inflation later this year.” HSBC
also indicates that there are “clear
signs of a slowdown in headline infla-
tion,” while the government optimisti-
cally states that we should expect “the
inflation [to] decline to below 10 per-
cent by 2010,” Prime Minister Nguyen
Tan Dung said in a June statement.
The value of the Vietnam Dong re-
mains extremely volatile, as the currency
reached a benchmark high of 15,820
against the US Dollar in March with
some analysts predicting continued ap-
preciation. At the same time, we’ve
seen a multi-year low of 16,843 against
the dollar by the end of second quarter
just three months later. The weakening
of the dong in Q2/2008 has been the
State Bank of Vietnam’s answer to ad-
dress currency speculation, while con-
tinually increasing the interest rate this
quarter in an effort to stagnate inflation.
Office: Vacancy remains low due
to price, quality, and lack of avail-
able space
Net rental prices for premium Grade
A office space will reach at least $85
per sqm/mth in 2008, as confirmed by
Colliers International Vietnam. The
demand for prime Grade A office re-
mains stable and vacancy will continue
to remain at low levels, while the take-
up of Grade B will be less transparent
due to new oncoming supply. Thus, sec-
ond-tier offices will face more stringent
competition in securing ideal tenants,
especially in areas outside of the CBD.

E conomic Indicators The commercial office market has re-

K ey indic ators 2006 2007 2008F 2009F 2010F 2011F mained firm as occupancy and pre-leas-
R eal G DP growth (% ) 8.17 8.5 7.0 7.5 8.1 8.8
ing for Grade A office in HCMC has con-
tinued at above norm levels, meanwhile
C ons umer pric e inflation (av; % ) 6.6 8.6 25 16 13 10
(06/08) Grade B has sustained high levels of oc-
C ommerc ial banks ’ prime rate (av; % ) 13.2 13.5 15.0 12.0 11.0 11.0 cupancy with an average vacancy rate of
E xc hange rate D: US $ (av) 16,024 16,153 16,614 17,000 16,850 16,650
above 95%. Prior leases for office space
(06/08) that have expired and are too expensive
E xc hange rate D: ¥100 (av) 13,547 14,374 16,021 16,540 16,970 17,120 for firms to renew have forced tenants to
F oreign Direc t Inves tment (F DI-billions ) 12.0 20.3 31.6 non-CBD areas or have led to rental
(06/08)

Overs ea V ietnames e R emittanc es (billions ) 6.0 7.0 8.5 10.2 12.3 14.8
T he K nowledge R eport I Augus t I 2008 I V ietnam
rate hikes amongst large and international companies that
can afford to occupy top quality space.
Residential: Speculators on hold; Occupancy and
demand for serviced apartments still substantial
Since March, the list prices of residential condominium and
land plots have seen reductions of up to 25%; a dramatic shift
from the doubling of prices in certain areas that we have seen
in the last 2 years. High lending rates upwards of 20%+ and the
government’s initiative to reduce the real estate loan books of
banks as much as 30% has put property sellers and buyers on
hold, and this is evident by the very few residential transactions
actually occurring in Q2/2008. Colliers predicts that the soft-
ening in residential market transactions will remain short-term
with sales activity gradually increasing in the next 12-18 months.
The tightening of real estate bank loans and market con-
ditions have put many speculators on hold and we expect
to see more genuine buyers in the market than in previ-
ous years. Rising construction costs, the status quo credit
crunch, and other factors have made Vietnamese developers
more reasonable in their earning expectations. Although
sales prices for residential are moving gradually towards sta-
bilization, we expect the residential market to be in a more
favorable position in the intermediate term once lending
becomes a feasible option and the inflation rate stagnates.
Despite a wary residential for sale market, there is still an
ever increasing need for more urban housing for rent in
HCMC Supply is set to remain low with vacancy rates
for serviced apartments hovering around 5 per-
cent for quality units, while rental rates in HCMC
will command up to 10% more by the end of 2008.
Retail: Most attractive emerging retail market;
limited availability leads high demand
In June, Vietnam was named as the most attractive emerg-
ing market destination for retail investment by the manage-
ment consulting firm A.T. Kearney. In an annual study of
retail investment amongst 30 emerging markets, Vietnam
topped the list for the first time ending India’s three con-
secutive years at top of the list. A.T. Kearney’s report cites
continual GDP growth, policy changes favoring foreign in-
vestors, and demand for modern retail concepts as reasons
why Vietnam is the most attractive emerging retail market.
Prime retail space in the best shopping areas have already hit
$200 per sqm for tenants, and often stores fronting key streets
in HCMC can demand as high as $150 or more per sqm. Re-
tailers will have to be accustomed to higher lease rates, until
oncoming projects cause a surplus in space available for lease.
As only a limited supply is expected to come on line for
2008, there continues to be minimal relief to ease the de-
mand for retailers needing the best locations. Although,
several major mixed-use and retail projects such as Kumho
Asiana Plaza and Royal Centre do have potential completion
dates of 2009 or later, which will bring a significant supply
in the HCMC high-end retail sector within several years.
T he K nowledge R eport I Augus t I 2008 I V ietnam

ECONOMY administrative procedures for construction projects. This

Vietnam’s economic growth has shown signs of endur-
ance in the first half of the year with a GDP increase of
6.5 percent, an indication that the economy remains fairly
adverse to woes of inflation, expansion of the trade deficit,
and decline of the stock market in the first-half of the year.
Delayed response in fiscal policy at the beginning of
the year has been blamed for the latest turbulence of
Vietnam’s domestic economy. Although, the govern-
ment recently has taken preemptive measures by rais-
ing the base interest rate to over 20% in Q2/2008.
Additional depreciation of the VND up to 5% could be
likely, while recent reports of the VND decreasing 25%+
over the next year are highly improbable. All economic
indicators suggest that both inflation and the trade defi-
cit will make major improvements by end of 2008 de-
spite global trends of rising energy and commodity costs.
The Vietnam government has lowered their initial GDP
growth aim from 9 percent at the start of 2008 to 7 per-
cent for the remainder of the year. However in June, Mor-
gan Stanley predicts the full-year GDP growth to remain at
6.5 percent slightly below the government’s revised targets.
POLICY
The Vietnam government recently passed a resolution in
May allowing foreigners meeting certain criteria to buy
apartments. Effective January 1, 2009, foreigners will be
permitted to own apartments up to 50 years exclusively for
personal use. This recently enacted policy is expected to
open the doors to some 21,000 foreigners eligible to own
property under this new law, which differs from current
legislation allowing 50 year leasehold tenure by granting
ownership and added protection over a leasehold interest.
is good news for investors and developers, as the issuance
of a new standard form will reduce the amount of time
from 3 years to just 1 year for project authorization. Con-
sequently, this would open doors for real estate projects
due to a less stringent approval process and assist in in-
creasing the transparency of overall real estate policy.
OFFICE SECTOR
Supply
Currently, the Ho Chi Minh City office market is still un-
dersupplied for quality Grade A office, which won’t come
until 2009. Present office stock in HCMC is an estimated
658,255 sqms and an additional new supply of 173,886 sqms
across all grades coming to the market by the end of 2008.
Grade B will account for only 25% of new 2008 supply with
48,200 sqms expected to be completed by the end of the year.
With scarce supply of top grade office space in HCMC
prevalent in Q2/2008, tenants unable to find an ad-
equate amount of space to suit their needs are forced
to move to decentralized business areas, such as Phu
My Hung in District 7 or Etown in Tan Binh District.
We forecast that HCMC supply pressures will be alleviated
with an additional 1.5 million square meters of office supply, as
a result it could take up to 5-7 more years to reach these levels.

As a result, this new resolution will further enhance de-

mand in the near future with some predicting that it could
significantly impact sales prices upwards of 20 to 30 per-
cent as empirically shown when similar laws have been
passed in countries, such as China, Thailand, and Malaysia.

Whilst, the Ministry of Construction has pro-

claimed that in the near future it will issue new stan-
dards reducing the amount of real estate investment
T he K nowledge R eport I Augus t I 2008 I V ietnam

HCMC OFFICE SUPPLY, TAKE-UP, & VACANCY Rents

A result of tight supply and a queue in companies trying to
occupy space has allowed HCMC rents to double over the
past year in some locations, although we are beginning to
see signs of cooling in Grade B office. District 1 net rents
reached the $70 per sqm plateau in early 2008; a substan-
tial increase from just over $50 per sqm average in Q4, 2007.

Premier Grade A office buildings will command over

$85 per sqm net in 2008. There is still demand at
these prices; as a result rental rates could reach $100
net per sqm or more for Grade A space by 2010.

Quality Grade B office also comes at a premium as

Source: Colliers International Vietnam lease prices expected to command up to $60-70 in a cou-
ple of years. The current lease rates of Grade B ranges
Demand
from $45-60 in the CBD, indicating a very volatile rent-
In Q2/2008, demand in the commercial office leasing contin-
al market and a spurring of rental rates to come ahead.
ues to be strong with vacancy rates at near zero for Grade A and
5% for Grade B office space. It is our indication that the mar-
RESIDENTIAL SECTOR
ket demand has yet to peak, as more companies enter the mar-
ket due to record FDI and quality supply remains in dire need.
Special Report: What happened to our real estate
values in 2008?
Ho Chi Minh City’s office market take-up remains at
maximum levels for mid-2008, as almost all available
Peter Dinning, MRICS
Grade A space has been diminished, while Grade B in
General Director - Colliers Vietnam
the CBD has been practically non-exisitent as well.
Recently over the last few months there has been much
The incoming office supply in 2008 is also expected to
speculation on how the recent changes by the Government
be mostly absorbed by early, 2009, and we expect these
to reduce inflation particularly in respect of controlling the
low vacancy levels to remain over the next several years.
availability of borrowings for real estate developers and buyers
are affecting the real estate sector. Many publications are pre-
senting comments that prices have fallen in some cases up to
HCMC AVG. GRADE A OFFICE RENTAL VALUES 30 or 40 %. However these statements are based entirely upon
opinion and not supported by true transactional evidence.

The fact that so few transactions are taking place is evidence to

suggest that few retail buyers are utilizing bank borrowings to
support their land or property purchases and owners of proper-
ty are simply waiting for the market to rebound before entering
the market again to sell. If there was a significant number of buy-
ers using bank financing to purchase property then we would
undoubtedly see more distressed sales taking place in an envi-
ronment of fast reducing sales prices. But this is not the case.

However the Government have made it clear that borrow-

Source: Colliers International Vietnam ings in the real estate sector account for over 50 % of total
T he K nowledge R eport I Augus t I 2008 I V ietnam

HCMC RETAIL SUPPLY, TAKE-UP, & VACANCY

bank borrowings in Vietnam and banks have been forced
to increased short term lending rates to as high as 20 % per
year to reduce their loan book for real estate to 30 %. While
these rates effect the lower end retail buyer of property who
can no longer afford to borrow at these rates, the real effect
is taking place on small and medium sized Vietnamese Real
Estate Developers who have traditionally relied upon pre-
sales of property and bank borrowings to support their de-
velopment activities. With the lack of retail buyers willing to
enter the market at this time as the overall sentiment is low
and with expectations that prices will drop coupled together
with a lack of bank financing these developers are now look-
ing to attract foreign investors and developers to assist them.
Source: Colliers International Vietnam
As a result Vietnamese Developers are now beginning to be
more reasonable in their expectations on land values which RETAIL SECTOR
have now stabilized, showing a willingness to allow foreign
partners to take a majority stake and lead the development Supply
process and seek assistance in terms of design development,
value engineering and project and construction management. As retail sales have been on the upswing, the supply of
prime retail space certainly hasn’t matched the volume
We see this period of instability for Vietnamese Develop- of sales. Only one shopping center is set to open in Dis-
ers as an excellent opportunity for foreign investors and de- trict 1 this year, Royal Centre, slated to open in Q3/2008.
velopers with sufficient capital to enter the market on bet- Royal Centre will provide almost 12,000 GFA of retail
ter terms that would have been offered at the end of 2007. space to tenants providing luxury goods and services.

While GDP growth is now estimated to be 7 % rather than
8 % it is certainly no indication that the country is moving
towards a recession. FDI commitments continue to beat all
previous years records, exports continue to rise although the
trade deficit is growing as the economy imports many essential
materials for these Foreign Direct Investments, Overseas Viet-
namese Remittances into the country continue to rise and are
estimated to be USD 8 billion this year and demand from the
young population for particularly residential property remains
strong.
Present shopping center supply measures only 140,000 sqms
of net leasable area in three major shopping centers. It is con-
cluded that the shopping centers already introduced and un-
der construction could add an additional 151,000 sqms NLA
by 2010, alleviating some pressures in the limitation of retail
supply.

We feel that the current stagnation in the real estate market

is limited to the residential sector which will not last long
as underlying demand remains strong. With continuing
Government intervention to control inflation and stabilize
the Vietnamese economy and currency we expect that this
opportunity to agree significantly better terms than previ-
ously offered will be limited to the next 12 – 18 months.
T he K nowledge R eport I Augus t I 2008 I V ietnam

Demand more projects, including Kumho Asiana Plaza are completed.

With more foreign retailers entering the market, it will be almost
a necessity for developers in Vietnam to provide only the best
retail space inside quality shopping malls or on prime streets in
HCMC. Additionally, traditional retail outlets are altering as
mindsets gravitate more toward modern, urban supermarkets
and shopping centers, rather than family owned storefronts.
However, this is not presently the case as occupancy rates aver-
age well over 92% throughout HCMC’s CBD. We predict that
demand will continue to climb over the next several years until
Rents
Current retail rates for department stores in HCMC
have surpassed the $200 per sqm level due to the lack of
adequate space for extravagant storefronts. Other Dis-
trict 1 rents have achieved prices of $150 or higher on key
street frontages, such as Dong Khoi Street. It is our indica-
tion that these levels have not climaxed and could plateau
in 2-3 years as more supply comes into the retail arena.

Hanoi Property Market - First-Half 2008

OFFICE SECTOR
Supply
Despite the onset of new commercial office supply in
Q1/2008, there is still demand for prime office space in the na-
tion’s capital. Two Grade B buildings, the Military Bank Build-
ing and King Building opened their doors in the first quarter
adding a volume of approximately 12,000 sqms to a total Ha-
noi Grade A & B office stock of approximately 250,000 sqms.
Rents
Average rental rates for Hanoi’s Grade A & B office have
risen steadily. It is our indication that rents for Grade
A & B office could average $50 and $35 respectively in
2008. Prime office space has the potential to increase 15-
20% this year until adequate office supply comes to Hanoi.

Demand
As vacancy will remain low, occupancy rates have remained
steady at 97% for Grade A & B office over the last several
years. We forecast the high demand to remain at least until
2010 when almost 400,000 sqms of Grade A office will be
added to Hanoi’s office market. In the short-term, 2008 will
see an additional supply of an estimated 82,000 sqms across
all grades, not enough to meet present demand requirements.

RESIDENTIAL SECTOR

Supply
The ever growing number of expatriates entering Ha-
noi will bring a need for the creation of new supply for
serviced apartments sector in particular. It is estimat-
ed that 2008 will bring 386 additional serviced apart-
ment units with the completion of Golden Westlake.
T he K nowledge R eport I Augus t I 2008 I V ietnam

Demand dant supply will come in 2010, but presently there is a

Hanoi’s occupancy rates have remained substantially high
at 95% or above for serviced apartments in the most favor-
able locations. Depsite recent supply of serveral new serviced
apartments, we expect vacancy rates for serviced apartments
to remain firm until 2010. Projects such as the Crown Plaza
and The Landmark, and the Keangnam Hanoi Landmark
Tower will bring an additional 1,029 units that should suffice
the future demands of the Hanoi serviced apartment market.
Rents
Due to the lack of supply and increasing demand, we ex-
pect the owners of serviced apartments in Hanoi to raise their
prices even higher in 2008. Prices have already fluctuated
with prices averaging from $21-45 sqm/mth, and will begin to
gradually stabilize due to the entrance of substantial supply.
RETAIL SECTOR
Supply
More international retailers are entering Hanoi and abun-
dire need for quality shopping center space. Q1/2008
introducted Viet Tower and Thai Thinh Plaza adding ap-
proximately 19,000sqm of luxury retail space, not nearly
sufficient enough to meet the needs of potential tenants.
Demand
As predicted, Hanoi will have abundant demand over the
next several years that will keep occupancy rates high above
the norm. In 2011, the Ciputra Mall project will help stabilize
the high-end retail market in the Hanoi City area by adding
an additional supply of 130,000 sqms and bring the largest
international standard shopping mall to Vietnam. In addi-
tion, Bixteco Land’s The Garden project will bring 19,000
sqms of leasable area to the My Dinh township in Hanoi.
Rents
Asking rents have topped $150sqm surrounding prime streets
around the Opera House in Hanoi. We calculate that rents
for shopping centers have the potential to average between
$50-100sqm in 2008, depending on quality and location.

P R O J E CT IN FO C US
Project Na me Mas ter Building

Des cription Office building cons is ting of 6,586 s qms

NLA and 12 floors with 2 s ub floors .
Parking facilities w ill include
accommodation for 25 car s paces and
350 motorbikes .
Developer Uphace & Kim Long

Location 41-43 Tran Cao V an, Dis trict 3, Ho Chi

Minh City

Gross Floor Area Total of approximately 12,043 s qms

Es timated Expected December, 2008

Completion
Date
T he K nowledge R eport I Augus t I 2008 I V ietnam

Notes:
293 OFFICES IN 61 COUNTRIES ON 6
CONTINENTS

USA 98
Canada 18
Latin America 14
Asia Pacific 53
EMEA 84

$54 billion in annual transaction volume

829 million square feet under management
10,171 Professionals

CONTACT INFORMATION

Ho Chi Minh Cit y Hanoi

Colliers I nternational Colliers Int ernational
Viet nam Viet nam
Bit exco Building Domus Building
7t h Floor 9t h Floor
19- 25 N guyen Hue St reet 39 Ngo Qu yen St reet
Dist rict 1 Hoan K iem Dist rict
Ho Chi Minh Cit y Hanoi
Viet nam Viet nam

Tel: 84 8 827 5665 Tel: 84 4 220 5888

Fax: 84 8 827 5667 F ax: 84 4 220 1133
Email: Email:
Peter.Dinning@colliers.com DI.Quan@colliers.com
KP.Singh@colliers.com Mike.Langrishsmith@colliers.com

This report and ot her research mat erials may be found

on our w ebsit e at www.colliers.com. This is a research
document of Colliers I nt ernat ional Vietnam. Quest ions
relat ed t o informat ion herein should be direct ed t o t he
Research Depart ment in Vietnam. I nformat ion
cont ained herein has been obt ained from sources
deemed reliable an d no represent ation is made as t o
the accuracy t hereof. Colliers I nt ernat ional Viet nam is
an indepen dent ly owned and operat ed business and
a member firm of Colliers I nt ernat ional Propert y
Consult ants, an affiliat ion of independent companies
wit h over 293 offices t hroughout 61 count ries
w orldw ide.