Asia Expats Forum

Mike · Site Admin Joined: 07 Sep 2004 Posts: 4512 Location:

Saigon craves luxury living
By David Fullbrook
HO CHI MINH CITY - Vietnam's emerging middle class, eager for
quality housing and happy to pay hefty cash deposits up front, is
spurring an apartment-construction boom. If banks offer easier
mortgages, that boom could last - assuming the economy stays on
track. Meanwhile, resort projects targeting foreigners look set to
take off in the next few years, competing with Phuket and Bali.

Decades of war and economic stagnation left housing construction
severely lagging as families grew. What got built were poor-quality
apartments, especially in big cities. But things are changing as,
having seen to needs such as color television, air-conditioning and
motorbikes, upwardly mobile Vietnamese now want a home to match
their status.

"There's a massive undersupply of housing for the Vietnamese,
particularly for the burgeoning middle class. The purchasing power
here is a lot higher than any official statistics show," says Brett
Ashton, property consultant Chesterton Petty's Ho Chi Minh City
director.

Officials forecast that Ho Chi Minh City would require 10 million
square meters of housing by 2010, of which they could build perhaps
2 million square meters. That was two years ago. With few investment
alternatives available, Vietnamese families are now sinking their
money into real estate, driving prices north and starting the
country's first condominium property cycle.

"Urban populations are at the point now where they have the means,
they go to the bank and borrow and buy their first apartment or
villa. We think we're at the beginning of the very first long
property wave," says Peter Rider, fund manager with Indochina
Capital.

Some fear there may be a bubble developing. Yet with decades of pent-
up demand and a booming economy, it may not burst for quite some
time. That restrained bank lending, partly because 11% interest
rates are fairly high, has not stopped speculation or dimmed
interest is perhaps testimony to the market's inherent demand. "It's
all fairly new - interest rates are high and the percentage they are
prepared to lend is 50% for around seven years," says David Clarkin,
an Australian developer and consultant operating in Ho Chi Minh for
more than a decade.

Developers are relishing the appetite for property as people rush to
buy apartments that exist only on paper, handing over fat deposits -
about 30% of the sale price. That cuts financing costs. Projects
cost about US$18 million to $40 million, depending on unit numbers
and size, which vary widely as developers test the market to see
what niches work and what don't.

Relatively few foreign developers, despite investment laws allowing
full ownership, are working on major projects right now. But most
big property groups from Hong Kong and Singapore are looking, or
working on small developments while they suss out what will work in
Vietnamese market. Vietnamese developers quite often employ foreign
architects, design teams and project managers, bringing at least
some international best practice and standards. "I think the
Vietnamese are very quick to catch on to the importance of quality.
Certainly the better Vietnamese developers have realized that if you
want a quality international product, you need quality international
teams," says Clarkin.

Differences will emerge between Hanoi and Ho Chi Minh, partly
because of climate, but also because people in the two cities have
different outlooks, attitudes and needs. "Every market develops its
own attributes. We are too early in the development of each market
for these to come to the fore. This may emerge in the next couple of
years," says Rider.

A flood of apartments over the next few years is likely to see some
Vietnamese owners renting to foreigners, sapping rents in apartment
blocks built with foreign residents in mind over the last decade.
However, while the outlook for the foreign market - largely
consisting of serviced apartments - seems subdued, it may well
change later this decade as the strong economy attracts more foreign
investors and employees and the government eases ownership
restrictions.

Currently, foreigners cannot buy land-use rights - only 49-year
transferable leases, as land remains the state's property.
(Corporate entities are the exception; even a 100% foreign-owned
firm can, subject to government approval, buy land-use rights). That
China now allows foreigners to own land suggests that at least some
easing on lease terms will come to Vietnam as well. Ownership is but
one kink in the market. As apartments begin to rise, the law has a
lot to catch up with. Laws and regulations governing common areas
and maintenance funds will reduce the scope for disputes and help
ensure good care and management for apartment buildings. "In
apartment buildings there is no condominium or strata law. Even
ownership of an apartment is an evolving issue because it is up in
the air," says Clarkin.

Even when a developer legally acquires land-use rights from the
government, it can still take years to negotiate the departure of
those living on or using that land. Returns are potentially not as
good as other markets because of financing problems, although this
is improving. "There is still not absolute private land ownership.
Debt is extremely hard to come by for development projects,
therefore requiring large percentages of equity, lowering the
absolute returns on your invested capital," says Clarkin.

Construction costs are also forecast to rise, a trend that could
accelerate quickly if supply shortages become acute as
infrastructure and other projects get under way. "Early next year,
you are going to see cranes popping up all over the Saigon skyline,
probably doubling construction activity. Over the whole of the inner
city area you would have to expect 20-30 projects of a substantial
size to start next year," says Clarkin. (The name Saigon, which
formerly was used for the entire city, was retained for the city
center after the official name change to Ho Chi Minh City.)

Hotels and resorts are also going to see increasing activity as
Vietnam's tourism star continues its rise. Much of Vietnam's 2,000-
kilometer coastline, fringed with plenty of pristine beach, is
within a few hours' drive of an international airport. With the
right license, resorts may well be able to sell or offer timeshare
ownership. Da Nang and Nha Trang in central Vietnam are considerably
closer to Hong Kong than Thailand and Bali are.

"People are already contacting us about this market. Phuket, Samui
and Bali are considered overpriced, overbuilt," says Ashton. "Over
the next couple of years, you'll see a lot of this. Look for some
foreign involvement and management, which will be key to maintaining
the asset value and rentals."

Cool hill stations, developed by French colonials seeking respite
from the heat, such as Dalat near Ho Chi Minh, the Central Highlands
and places north of Hanoi may also experience a renaissance,
especially if more casinos open. Dalat will likely be first,
probably around 2006, when work upgrading its airport to handle
international flights should finish.

Put the hotels and resorts with apartments and a broad market is
starting to develop, likely drawing a lot of attention from foreign
developers over the remaining half of the decade, during which
foreign vacations, especially short breaks, will become normal for
urban Chinese living along the booming coast.

"I think property in Vietnam, for foreign investors, has very good
potential going forward, as opposed to back in the 1990s when the
whole investment opportunity here was smoke and mirrors. We
certainly wouldn't be launching a fund if we didn't believe that.
Today it is reasonably well developed - a foundation has been built
for sustainable, profitable medium-to-long-term projects," says
Rider.
_________________
Asia Expats Forum
Expat Friends Dating

tokyotom · Cohort Joined: 21 Sep 2004 Posts: 147 Location:

Looks like lots of opporitunity in Vietnam these days. I've got to start planning for my retirement in a few years and I am not fixed on returning to the states. I like Japan but think I can get much better valus for dollar in Southeast Asia. occasion

MrTudo · Joined: 01 Mar 2006 Posts: 11 Location:

Property values rose significantly and have started going the opposite direction since these two posts were made in this thread.

Looks like the property markets going to stay soft at least for a while and if you are a contrarian, then you can see the opportunities that exist.

Would someone please take a look at a globe, point at, er Florida, keep your finger there and spin the globe round to see whereabouts Vietnam is in comparison?

Eventually the marxist constitution which of course limits what people can do with regards to property will change and Vietnam could suddenly become ( as South Florida USA has) quite expensive and THE place to be only in Vietnam's case we're talking more than a billion potential travelers and Florida only a couple hundred million.

Mr T : china

Narachon · Cohort Joined: 11 Oct 2004 Posts: 109 Location:

I'd like to check out Vietnam.
Before the tourist crowds get there first! Very Happy

_________________
"Experience is Everything"

albia · Joined: 12 Nov 2010 Posts: 12 Location:

Hey people I am new to this post so please help me to get more idea about this post so even i can post my review here.
Thanks in advance,
Regards,
Bali Villas

albia · Joined: 12 Nov 2010 Posts: 12 Location:

Hey people I am new to this post so please help me to get more idea about this post so even i can post my review here.
Thanks in advance,
Regards,
luxury bali villa