F-73
F-74
F-75
F-76
F-77
F-78
F-79
F-80
F-81
F-82
F-83
F-84
F-85
F-86
F-87
F-88
F-89
F-90
F-91
F-92
F-93
F-94
F-95
F-96
F-97
F-98
F-99
F-100
F-101
F-102
F-103
F-104
F-105
F-106
F-107
F-108
F-109
F-110
F-111
F-112
F-113
F-114
F-115
F-116
F-117
F-118
F-119
F-120
F-121
F-122
F-123
F-124
F-125
F-126
F-127
F-128
F-129
F-130
F-131
F-132
F-133
F-134
F-135
F-136
F-137
F-138
F-139
F-140
F-141
F-142
F-143
F-144
F-145
F-146
F-147
F-148
F-149
F-150
F-151
F-152
F-153
F-154
F-155
F-156
F-157
F-158
F-159
F-160
F-161
F-162
F-163
F-164
F-165
APPENDIX A REPORT ON THE HO CHI MINH CITY REAL ESTATE MARKET A-1
Industry Market Study March 2018 Market Study For NO VA LAND INVESTMENT GROUP CORPORATION Savills Vietnam Co., Ltd. 18th Floor, Ruby Tower 81-85 Ham Nghi Street, District 1 HCMC, Vietnam A-2
Contents EXECUTIVE SUMMARY... 5 PART 1: VIETNAM OVERVIEW... 33 1 DEMOGRAPHY... 35 1.1 POPULATION & AGE STRUCTURE... 35 1.2 HOUSEHOLD SIZES... 36 1.3 URBANISATION... 38 1.4 GDP PER CAPITA, DISPOSABLE INCOME & EXPENDITURE... 39 1.5 MIDDLE & AFFLUENT CLASSES... 41 1.6 INCOME BRACKETS... 42 1.7 EMPLOYMENT... 43 1.8 HOME OWNERSHIP RATE... 45 2 MACROECONOMIC OVERVIEW... 46 2.1. GDP... 46 2.2. ECONOMIC STRUCTURE... 48 2.3. INFLATION... 49 2.4. RETAIL SALES & TOURISM REVENUE... 49 2.5. FOREIGN DIRECT INVESTMENT (FDI)... 50 2.6. CURRENT ACCOUNT & CURRENCY... 52 2.7. REMITTANCES & TRADE BALANCE... 53 2.8. LENDING & MORTGAGE RATES... 56 2.9. NEWLY REGISTERED BUSINESSES... 58 3 INFRASTRUCTURE... 59 4 VIETNAM REAL ESTATE MARKET OVERVIEW... 70 4.1 REAL ESTATE METRICS... 70 4.2 RENTAL YIELDS... 70 4.3 FDI INTO REAL ESTATE... 71 4.4 HOUSING NEED AND GAP ANALYSIS... 72 4.5 HOUSING AFFORDABILITY ANALYSIS... 78 5 LEGAL FRAMEWORK... 83 5.1 HOUSING OWNERSHIP... 83 5.2 OVERSEAS OWNERSHIP RESTRICTION... 84 5.3 AREA MEASUREMENTS... 84 5.4 TRANSACTION COSTS... 85 5.5 TAX LEGISLATION... 85 5.6 LEGAL ISSUES... 87 5.7 KEY LEGISLATION... 89 6 REAL ESTATE CYCLE... 90 NO VA LAND D20180328 2 A-3
PART 2: HCMC OVERVIEW... 92 1 OVERVIEW... 93 2 DEMOGRAPHICS... 95 2.1. POPULATION... 95 2.1. AGE STRUCTURE... 97 2.2. HOUSEHOLD SIZE... 97 2.3. URBANISATION... 99 2.4. HOUSEHOLD INCOME... 100 3 MACRO... 101 3.1 GDP AND GDP PER CAPITA... 101 3.2 INFLATION... 102 3.3 ECONOMIC STRUCTURE... 103 3.4 RETAIL & TOURISM REVENUE... 103 3.5 TRADE BALANCE & EXCHANGE RATE... 105 3.6 FDI... 106 3.7 REMITTANCE... 107 3.8 RENTAL YIELD... 108 3.9 HOUSING NEED ANALYSIS... 108 2 MAJOR DEVELOPERS... 110 PART 3: HCMC RESIDENTIAL... 113 1 APARTMENT... 114 1.1. SUPPLY... 114 1.2. PERFORMANCE... 122 1.3. DEMAND ANALYSIS... 133 1.4. OUTLOOK... 137 1.5. SWOT ANALYSIS... 141 2 VILLA/TOWNHOUSE... 142 2.1 SUPPLY... 142 2.2 PERFORMANCE... 148 2.3 DEMAND ANALYSIS... 153 2.4 OUTLOOK... 154 2.5 SWOT ANALYSIS... 156 PART 4: HCMC OFFICE... 157 1. SUPPLY... 158 1.1. OVERALL... 158 1.2. BY GRADE... 159 1.3. BY DISTRICT... 161 2. PERFORMANCE... 163 2.1. OVERALL... 163 2.2. BY GRADE... 164 2.3. BY DISTRICT... 167 3. DEMAND ANALYSIS... 169 NO VA LAND D20180328 3 A-4
4. OUTLOOK... 174 4.1. SUPPLY... 174 4.2. DEMAND... 176 5. REGIONAL COMPARISON... 178 6. SWOT... 181 DISCLAIMER... 182 Note: the exchange rate in 2017 was VND22,800/US$1. NO VA LAND D20180328 4 A-5
EXECUTIVE SUMMARY VIETNAM OVERVIEW Vietnam has recorded strong economic development over the last five years, with an average of 6% gross domestic product ( GDP ) growth per annum according to FocusEconomics. This positions Vietnam as one of the fastest growing economies amongst its ASEAN peers. Furthermore, FocusEconomics forecasts an average of 6.4% GDP growth in the next four years, suggesting that this trend is set to continue. In April 2017, Moody s upgraded the outlook on Vietnam to positive from stable, based on expectations that strong foreign direct investment ( FDI ) inflows will continue to diversify the economy and macroeconomic, thus maintaining external stability. It is clear that the domestic economic environment has improved and is conducive to stable growth. Figure 1: GDP growth 1,200 US$ billion % 10 1,000 8 800 6 600 4 400 200 2 0 Indonesia Thailand Philippines Malaysia Singapore Vietnam GDP (US$ billion)-lhs 1,015 436 315 308 304 214 Historic growth rate-rhs (avg. 2012-2017) 5.3 3.4 6.6 5.0 3.1 6.0 Source: FocusEconomics, 2017 0 In Vietnam, the economic structure has moved gradually towards industry and service sectors. The shrinking agriculture and booming service sectors have caused Vietnam to evolve towards a more modern economic structure. A strong export industry, for example, has been a key driver for economic growth. In 2017, retail sales grew by 10% YoY, increasingly attracting foreign retailers. NO VA LAND D20180328 5 A-6
Figure 2: Annual economic growth projection (%) 8 % Historic growth (avg. 2012-2017) Growth projection (avg. 2018-2021) 6 6.6 6.3 6.4 6.0 5.3 5.5 5.0 4.5 4 3.4 3.2 3.1 2.4 2 0 Philippines Vietnam Indonesia Malaysia Thailand Singapore Source: FocusEconomics, 2017 Figure 3: Economic structure 100% 80% 60% 73% 54% 55% 60% 46% 44% 40% 40% 39% 38% 36% 20% 31% 27% 0% 8% 9% 10% 14% 17% Singapore Malaysia Thailand Philippines Indonesia Vietnam Agriculture Industry Services Source: CIA World Factbook, 2017 Controlled inflation Vietnam s inflation has dropped significantly from 9.1% in 2011 to 2.7% in 2016. Average CPI in 2017 increased 3.5% YoY, higher than the 2.7% in 2016 but under the National Assembly target of 4%. Growth in 2017 was mainly due to higher priced medicines and health services, tuition fees and a minimum wage increase. NO VA LAND D20180328 6 A-7
While government has tight control on the movement of public service prices, crude oil and other commodities are currently supportive for the stability of Vietnam s inflation. According to FocusEconomics forecast, Vietnam s annual inflation rate will be stable at 4.2% during 2018-2021. Figure 4: Inflation 7.0 6.0 % 6.6 5.0 4.0 4.1 3.5 4.0 4.3 4.4 4.5 4.6 3.0 2.7 2.0 1.0 0.0 0.6 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Focus Economics, 2017 Improving foreign investment climate Higher FDI disbursement throughout the years has implied improved investor confidence in the economic outlook and their commitment to establish long-term investments in Vietnam. Manufacturing has attracted the highest FDI inflow, with 80% coming from Asian countries. NO VA LAND D20180328 7 A-8
Figure 5: FDI 40 US$ billion 35.9 30 20 22 20 12 12 23 15 24 16 17.5 10 0 2013 2014 2015 2016 2017 Total registered capital FDI disbursement Source: GSO, Dec 2017 Figure 6: Foreign reserves 60 50 US$ billion 52 40 34 37 30 23 24 26 26 28 20 10 16 12 14-2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Worldbank, State Bank 2017 The Vietnamese government s commitment to creating a fair and attractive business environment has increased the confidence of foreign investors. Vietnam possesses the necessary aspects for continual economic development, including a young and growing workforce with low labor costs, a rising middle class with disposable income and the government s commitment to increase infrastructure investment. In addition, the government s continued efforts to facilitate foreign investment are expected to help to further enhance the economy. NO VA LAND D20180328 8 A-9
Figure 7: Vietnam Remittances 16.0 US$ billion 14.0 12.0 10.0 8.6 10.0 11.0 12.0 12.3 13.4 8.0 6.0 4.0 2.0-2011 2012 2013 2014 2015 2016 Source: Worldbank, 2017 Young and growing workforce Figure 8: Age distribution 100% 80% 60% 40% 20% 0% Singapore Thailand Vietnam Indonesia Malaysia Philippines > 65 years 9% 10% 6% 7% 6% 4% 25-64 years 61% 58% 53% 51% 49% 43% 15-24 years 17% 14% 17% 17% 17% 19% 0-14 years 13% 17% 24% 25% 28% 34% Source: CIA World Factbook, 2016 Rising middle class to fuel consumption The Economist Intelligence Unit 2015-2030 forecast on ASEAN middle class growth (household incomes >US$10,000/pa) expects Ho Chi Minh City ( HCMC ) to experience a period of middle NO VA LAND D20180328 9 A-10
income population growth which, by 2025, is expected to surpass equivalent demographics in Singapore. Figure 9: ASEAN middle income class 14 Millions 2015 2030 12 10 8 6 4 2 - Jakarta Manila Bangkok Kuala Lumpur Singapore HCMC Source: EIU Canback, The Economist Intelligence Unit, 2016 The General Statistics Office of Vietnam ( GSO ) estimates that the number of Vietnamese households with annual incomes of US$9,000-20,000 (equivalent to middle class by Savills) is expected to increase from 2016-2020 by 150%, from 3.2 million to 4.8 million households and become a substantial segment with influential purchasing power. NO VA LAND D20180328 10 A-11
Figure 10 : Middle Class and Affluent households 6,000 Households 2016 2020 5,000 4,830 4,000 3,000 3,160 2,000 1,000 - Source: GSO, 2016 250 Affluent 530 Middle Figure 11: Vietnam personal disposable income, 2012-2017 200 US$ billion 20% 160 16% 120 12% 80 8% 40 4% 0 2012 2013 2014 2015 2016 2017 Personal disposable income 110 127 138 154 168 187 YoY growth 16% 15% 9% 12% 9% 11% 0% Source: Economist Intelligence Unit, 2017 NO VA LAND D20180328 11 A-12
Figure 12: HCMC estimated income structure 10% > US$20k 60% 30% US$9k-US$20k <US$20k Source: GSO, Savills Research & Consultancy, 2016 Infrastructure Boom Figure 13: GDP % infrastructure spend Vietnam 5.7 Indonesia 2.5 Singapore 2.2 Philippines 2 Malaysia 1.8 Thailand 1.7 0 1 2 3 4 5 6 7 Source: Asian Development Bank, 2016 % Data includes public and private sector Apart from existing international airports in major cities such as HCMC and Hanoi, new infrastructure investment will be key to enhance better connectivity. According to the Asian Development Bank ( ADB ), in recent years, Vietnam has made the highest proportional infrastructure investment in Southeast Asia, constituting 5.7% of GDP. Infrastructure improvement NO VA LAND D20180328 12 A-13
provides additional potential and investment opportunities for real estate developments near strategic locations. Several major infrastructure projects are currently in planning or under construction and are expected to improve connectivity between major cities and facilitate real estate development growth once completed. These include: A planned new international airport near HCMC (Long Thanh Airport) and expansion plans for three existing international airports. New metro systems for HCMC and Hanoi and bus-rapid transit system in HCMC. A high-speed railway between HCMC and Hanoi. Seven new highways and three ring roads in HCMC. HCMC As the nation s commercial hub, HCMC s strong economic growth is driven by low overhead costs, a rapid consumer market expansion and high levels of FDI. According to the GSO, HCMC s population was over 8.6 million in 2017. Having 9% of Vietnam s population and the highest income per capita, HCMC attracts a high level of local and foreign investors due to its dynamic business environment. Over the last five years, average GDP growth rate in HCMC was 9.5% pa. The city is currently the largest contributor to Vietnam s GDP, accounting for approximately 22% of the country s GDP. The service sector alone accounted for 58% of GDP growth. The economic structure of the city has meant that it has established itself as a center for manufacturing, as well maintaining a strong services sector. NO VA LAND D20180328 13 A-14
Figure 14: HCMC GDP 50 US$ billion % 15 40 12 30 9 20 6 10 3 0 2011 2012 2013 2014 2015 2016 2017 GDP, current prices 27.3 31.5 36.1 40.1 43.7 44.9 46.5 GDP growth rate 10.3 9.2 9.3 9.6 9.9 8.1 8.3 0 Source: HCMC's Statistical Office, 2017 According to government forecasts for 2017-2020, the city is expected to continue to achieve a GDP growth rate of 9.5-10% pa. Oxford Economics has projected that by 2021, HCMC will become the second fastest growing city economy in Asia. Strong labor force High economic growth has led to migration and an increase in inorganic population growth. Over the last decade, HCMC s population increased 3% pa, higher than Hanoi (1.7% pa) and the national average of 1.1% pa. HCMC has a robust working age group demographic and a high immigration rate. According to the HCMC Statistical Office, approximately 55% of the population is under 30 years old. The labor force, comprising people between 15 and 64 years old, represents approximately 70% of HCMC s population. NO VA LAND D20180328 14 A-15
Figure 15: HCMC Age structure Age 80+ 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 1% 1% 1% 3% 4% 6% 7% 8% 6% 6% 8% 9% 11% 6% 12% 10% 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 People Source: GSO, Population Forecast, December 2014 NO VA LAND D20180328 15 A-16
Figure 16: HCMC Population 10,000 Thousand people Total population 7,791 7,939 8,072 8,247 8,441 8,661 YoY growth 8,890 9,126 9,368 3% 7,500 2% 5,000 1% 2,500 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 0% Source: PSO, 2017 High foreign investment level Figure 17: FDI into cities/ provinces 4 US$ billion 3.2 3 2 1 2.6 2.3 2.1 1.4 1.3 1.1 0 Thanh Hoa Khanh Hoa HCMC Nam Dinh Binh Duong Kien Giang Ha Noi Source: GSO, 2017 By the end of 2017, newly registered FDI to HCMC was more than US$2.3 billion, ranking 3 rd in Vietnam. New real estate enterprises increased total FDI to approximately US$1 billion and NO VA LAND D20180328 16 A-17
accounted for 43% of all incoming FDI, suggesting that there will be numerous residential projects in the near future. Tourism International arrivals to HCMC have steadily increased over the last five years. In 2017, there were approximately 6.4 million international visitors, an increase of 23% YoY and representing 56% of all tourists to Vietnam. The biggest proportions were from China, South Korea and Japan. Even though HCMC faces competition from coastal cities such as Nha Trang and Da Nang, it is still an attractive destination for international visitors. HCMC international visitor volume was two times higher than Da Nang and three times higher than Khanh Hoa. With the highest density of foreign enterprises, HCMC receives most international business travellers and demand for hotels, especially in the 4 to 5-star segment. Domestic tourists to the city grew approximately 15% to reach 25 million. By 2020, HCMC expects 11 million international arrivals and 35 million domestic visitors, a compound annual growth rate ( CAGR ) of 20% and 12% respectively. Figure 18 : HCMC International arrivals 7,000 Thousand visitors % 25 6,000 20 5,000 4,000 15 3,000 10 2,000 1,000 5 0 2012 2013 2014 2015 2016 2017 International arrivals 3,800 4,109 4,400 4,600 5,200 6,400 Growth rate 9 8 7 5 13 23 0 Source: HCMC Tourism Department, 2017 NO VA LAND D20180328 17 A-18
RESIDENTIAL MARKET In the late 1980s, the urban population of Vietnam accounted for 20% of the total population. When economic liberalization was embraced in the 1990s, the rate of rural migration to urban centers increased; 30 years later, it now stands at 34%. In 2000, Vietnam had approximately 2,200 sq km of urban land; by 2010, that land area had expanded to 2,900 sq km, overtaking Thailand. With growth of almost 2% pa, the pace of urbanization over the last five years was the second highest in the Southeast Asia region. The ratio of urbanization in Vietnam, however, is still lower than in Malaysia at 76%, Indonesia with 55% and Thailand at 53%, indicating that there is still significant potential for accelerated urban expansion. Figure 19: Urbanization 100 7.5 80 6.0 60 4.5 40 3.0 20 1.5 0 Singapore Malaysia Indonesia Thailand Philippines Vietnam Urbanisation ratio (%)(2017)-LHS 100 76 55.2 52.7 44.2 34.9 Urbanisation rate (%)(Avr. 2015-2020)-RHS 1.5 2.19 2.3 2.2 1.57 2.59 0.0 Source: CIA World Factbook, 2017 Urban relocation will continue as agricultural, fisheries and commodity-based work become less dependent on labor, new industries receive investment and the knowledge-based economy expands. Urbanization helps accelerate economic growth and development. NO VA LAND D20180328 18 A-19
Rising demand The average urban household in 1989 was 4.82 persons per dwelling; in 2014, it was 3.60 persons, and in rural, more traditional areas, it was slightly higher at 3.80 per dwelling. With more modern lifestyles and greater per capita incomes, urban middle class families are increasingly opting for their own space. Over the years, there has also been a noticeable increase in single households. In 1999, the proportion of single urban households was 4.7%; by 2014, it had grown to 9.1%. The average Vietnamese household size is now one of the smallest in Southeast Asia, even smaller than countries with higher personal incomes such as Malaysia and the Philippines. A high urbanization rate, decreasing household sizes, and increased single households all support growing residential demand. The annual demand for new dwellings in the country is expected to be above 700,000 units from 2018-2022. Dwelling replacement trend is also high. According to Un-Habitat (2015), in Vietnam, approximately 27% of the urban population, or 8.5 million people, live in low-quality housing. 42% of urban area dwellings were classified semi-permanent, and 4% of a very rudimentary state. Assuming the national deficit could be reduced over 20 years, approximately 185,000 houses a year would require an upgrade. Foreigner housing demand has also increased after the Vietnamese government passed new rules in 2015 to relax foreign ownership restrictions, which has opened up the real estate market to international buyers. The new law limits overseas ownership to 30% of the total units within an apartment complex, and a maximum of 250 houses in a ward with a 50-year leasehold. Lending Homebuyers using housing loans 10 years ago experienced interest rates between 10-15%, with mortgage rates fluctuating from 10% to 19% during 2008 to 2012. Since 2013, the mortgage rates have regularly decreased and remained stable at around 8% since 2015. Lower lending costs and greater ease in accessing housing loans have led to increased number (>50% now) of homebuyers taking advantage of cheaper financing. NO VA LAND D20180328 19 A-20
Figure 20: Lending rate v. % using housing loan CPI One-year lending rate 25% 20% 19% 20% Very few homebuyers using housing loan (10-15%) 14% 18% 18% 15% At least 50% of homebuyers using housing loan 20% 16% 15% 10% 5% 0% 10% 12% 11% 10% 8% 8% 8% 7% 7% 6% 5% 3.53% 2% 1% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 12% 8% 4% 0% Source: GSO, 2017 Real Estate Cycle Movements and transactions within the HCMC s apartment market have been analyzed in order to provide a general overview of Vietnam s real estate cycle for the last 15 years. Since 2013, the apartment market has recovered with an average price increase of 9% pa. High urbanization rates and infrastructure development in HCMC have strongly contributed to the overall improvement. The government issued various operational regulations and financial policies in order to maintain sustainable real estate development. In this same period, the real estate market witnessed positive signs such as the rise of large domestic developers (Novaland and Vingroup), entrances of foreign developers (CapitaLand, Gamuda Land and Keppel Land), as well as a shift away from abundant speculation. Developer credibility and construction commitments have helped to increase homebuyer confidence. Financial support from bank partners and a stable interest rate have also encouraged the confidence of prospective purchasers, leading to increases in sales volume and market liquidity. Financial support from bank partners and a stable interest rate have also encouraged the confidence of prospective purchasers, leading to increases in sales volume and market liquidity. NO VA LAND D20180328 20 A-21
Figure 21: Whole market price trend 2,000 US$/sq m 1,600 1,200 800 400 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Savills Research & Consultancy, 2017 Figure 22: HCMC Residential Stock, 2017 Villa/townhouse Apartment 9,903 2017 HCM population: 8,611,100 141,448 Source: Savills Research & Consultancy, 2017 NO VA LAND D20180328 21 A-22
Top developers Domestic developers are the major residential developers in Vietnam. Novaland and Vingroup are known as the most reputable domestic developers with advanced portfolios and large lank bank. In HCMC, Novaland has inaugurated more than 30 mid to high-end projects and attracted loyal buyers due to their credibility and strong financial capability. Major residential developers generally differ in the north and south of Vietnam. In the south, Novaland had the highest number of developed projects and highest land bank. NO VA LAND D20180328 22 A-23
Table 1: Top HCMC developers in 2017, Grade B apartment market 2017 1 2 3 4 5 Novaland Phu My Hung Keppel Land Vingroup Ha Do Listing x x Local developer x Development focus Residential Residential Residential Residential, Retail, Residential Office Retail, Office Target market Middle + Upper Upper + Luxury Upper + Luxury Upper + Luxury Middle Revenue (real estate) US$ million 484.7 - - 2,750(*) 50.7 COGS (real estate) 339.6 - - 1,676 (*) 33.6 Market share 24% 9% 9% 7% 7% (*): corporate statistic across Vietnam Figure 23: Top developers in 2017, HCMC Novaland Phu My Hung 23% 24% Keppel Land Vingroup 3% 4% 4% 9% 4% 9% 6% 7% 7% Ha Do Corp Gamuda Land Sun Wah TNR Holdings Trung Thuy Capitaland Others Source: Savills Research & Consultancy Market share was calculated based on total number of transactions of Grade B apartments in HCMC in 2017. NO VA LAND D20180328 23 A-24
Apartment for sale In 2015, the net floor area (NFA) per capita in urban areas was 19 sq m on average, with the government setting an NFA per capita target of 22 sq m by 2020. With limited urban land and potential for unchecked urban sprawl, vertical development is an appealing and effective solution. The apartment sector saw sustainable and often robust development from 2009 to 2017, with total supply growing at over 20% pa. After Vietnam became part of the World Trade Organization in 2007, FDI levels suddenly increased, and in subsequent years, the real estate sector experienced a boom. Through 2015-2017, total apartment supply increased 12% pa in HCMC with most, if not all, still aimed at the mid segment. In 2017, approximately 63,000 primary apartments in HCMC were Grade B and C, accounting for a 97% share. Figure 24: Primary grade supply 80,000 Units 60,000 4% 3% 3% 36% 46% 40,000 55% 25% 7% 4% 20,000 35% 60% 10% 21% 50% 43% 65% 73% 61% 0 2012 2013 2014 2015 2016 2017 Grade A 5,369 1,266 996 1,387 2,524 2,081 Grade B 2,051 3,994 9,100 28,172 28,503 23,626 Grade C 13,938 14,151 15,911 22,100 31,323 39,023 Source: Savills Research & Consultancy, 2017 NO VA LAND D20180328 24 A-25
Figure 25: New launches in HCMC 60,000 50,000 40,000 30,000 20,000 10,000 Units Grade C Grade B Grade A 0 2016 2017 2018E 2019E Grade A 1,594 622 3,658 4,863 Grade B 13,659 7,049 13,839 14,020 Grade C 16,216 21,377 27,733 29,223 Source: Savills Research & Consultancy, 2017 Figure 26: Grade price 5,000 US$/sq m 4,000 3,000 2,000 1,000-2012 2013 2014 2015 2016 2017 Grade A 2,125 2,107 2,143 3,172 3,883 3,960 Grade B 1,541 1,441 1,482 1,786 1,855 1,944 Grade C 790 781 785 940 987 1,056 Source: Savills Research & Consultancy, 2017 In 2017, there was a 53% YoY increase in number of transactions within HCMC, with around 47,500 sales. Grade C projects accounted for 61% of total transactions. An emerging trend was the increasing number of first-time buyers. Vietnam had the highest ratio of buyers in the region, with NO VA LAND D20180328 25 A-26
three new apartments per 1,000 people sold each year in the two major cities. HCMC is now one of the leading markets for apartment sales in Southeast Asia. Figure 27: Grade performance 2012-2017 50 Thousand units % 80 40 60 30 20 40 10 20 0 2012 2013 2014 2015 2016 2017 Grade A 267 355 391 677 1,710 1,283 Grade B 463 1,346 4,054 11,206 14,224 17,266 Grade C 3,232 4,076 7,124 10,291 15,038 28,920 Absorption (%) 23 30 44 43 50 73 Source: Savills Research & Consultancy, 2017 0 Figure 28: Grade sales 50,000 Units 40,000 30,000 20,000 10,000 0 2016 2017 2018E 2019E Grade A 1,710 1,283 1,975 2,626 Grade B 14,224 17,266 7,196 7,290 Grade C 15,038 28,920 14,698 15,488 Source: Savills Research & Consultancy, 2017 NO VA LAND D20180328 26 A-27
HCMC rental yields were relatively high at 5.2% pa, outperforming peers such as Kuala Lumpur and Bangkok. Compared to alternative investments, buy-to-let property generate relatively high yields with lower risk. Apartment yields are similar to first-tier commercial bank deposit rates, but lower than second-tier banks. This helps to maintain investment appeal to local buyers who still perceive property as safer than bank deposits given that home loan mortgages are commonly 9% pa. With increasing primary supply, the rental market is under growing pressure. An estimated 50,000 units pa will be handed over during 2018-2019 in HCMC, double that of 2016. Investors still account for a significant percentage of sales. In the next three years, abundant new supply overwhelming rental demand will increase competition and rental yields will soften. Figure 29: Rental yields 8 7 6 % 7.44 5 4 4.67 4.52 4.07 3.8 3.75 3 2.75 2 1 0 Cambodia Indonesia Vietnam Malaysia Thailand Philippines Singapore Source: Savills Research & Consultancy and Numbeo 2017 NO VA LAND D20180328 27 A-28
Villa/ Townhouse Before 2015, there were few developers offering high-end products in well-established areas. Among those who did, Phu My Hung and Khang Dien in HCMC are typical names. Newfound demand spurred a boom for these projects in 2015; prior to this, there were no more than 58 registered projects in total. New supply is showing developers ability to adapt to buyer tastes; for example, new projects are generally smaller than five years ago to meet affordability. Small townhouses and villas with land areas of 50-75 sq m and less than 200 sq m have entered the market, quickly gaining strong market favor. Of these, townhouses accounted for around 65% of primary market share. There was high demand for landed property with affordable prices from well-planned compound projects. Figure 30: HCMC villa/townhouse, 2012-2017 NO VA LAND D20180328 28 A-29
Figure 31: Launched and sales, 2017 3,000 dwellings 2,500 2,000 1,500 1,000 500 0 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Launched 2,576 2,113 2,001 2,049 Sales 884 762 1,105 1,381 Source: Savills Research & Consultancy The number of villa/townhouse transactions decreased significantly when the property market dipped in 2012. However, from 2014, villa/townhouse performance has gradually improved. Small and medium-size landed properties continued their good performance due to high end-user demand. Townhouse transactions continued segment domination with average of 80% of total sales. In 2017, the market witnessed the highest amount of sales for the past five years. The total number of villa/townhouse transactions was up 19% YoY to over 4,100 dwellings, accompanied by absorption of 86%. Townhouses accounted for 81% of total primary sales in 2017 and the year-end inventory of 660 dwellings was at its lowest level for three years. Most infrastructure projects in HCMC, including metro systems and ring roads, have significantly improved accessibility to outlying areas. This has improved commuting times and convenience, providing the opportunity for the future landed supply to be even more affordable. Townhouses have outperformed other residential asset classes in investment returns over the last five years. A major reason is land value appreciation; without this appreciation, apartments still performed well due to high rental yields. NO VA LAND D20180328 29 A-30
OFFICE Over the last five years, stock of office space increased at an average rate of 5% pa, with peaks in 2015 and 2017 after multiple Grade A and B entries. In 2017, stock grew 6% year on year (YoY) by over 124,000 sq m to reach approximately 1.7 million sq m in total. The strong growth in FDI, along with satisfactory GDP growth, will have a positive impact on demand in the largest city of Vietnam. The last five years has seen increasing rents and high occupancy. Average rent has increased 2% pa since 2013 to reach a five year high at US$28/sq m/mth in 2017, attributed to high demand and new Grade A and B entries with high rent. Despite supply growth, each Grade has exceeded 90% occupancy for the last three years. Figure 32: HCMC office 2013-2017 1,800 Thousand sq m US$/sq m/mth 30 1,500 1,200 20 900 600 10 300 0 2012 2013 2014 2015 2016 2017 Vacant 200 153 140 93 54 63.99 Leased 1,123 1,242 1,318 1,488 1,548 1,640 Gross rent 25.9 24.7 25.2 25.4 26.3 27.5 0 Source: Savills Research & Consultancy, 2017 Growing segments such as finance (including insurance and real estate), Information Technology and Communication ( ITC ) and manufacturing has been propelling office demand to new heights. Finance accounted for 40% of the total Grade A leased area. In terms of sources for tenants, foreign companies are the largest occupier group, accounting for 67% Grade A share. NO VA LAND D20180328 30 A-31
The current market scale of HCMC and Hanoi remains small compared to regional markets. Total market supply of both two cities was less than 20% of comparable cities, indicating large development potential. Figure 33: Office benchmarks in 2017 12 million sq m % 100 10 80 8 60 6 4 40 2 20 0 Kuala Lumpur Jakarta Bangkok Manila HCMC Total supply 10.2 9.7 8.6 5.5 1.7 Occupancy 79 80 92 97 96 0 Source: Savills Research & Consultancy, 2017 Vietnam lacks institutional grade investment stock and so that which currently exists, remains relatively illiquid. The estimated institutional stock of Vietnam was approximately US$21 billion, lagging behind its Asian peers. There is strong demand across the board for good quality assets, driven both by domestic and international investors. Much of the demand is driven by investors seeking passive returns who prefer to purchase completed assets without taking on development risk. NO VA LAND D20180328 31 A-32
Figure 34: Estimated Size of Institutional-Grade Real Estate by Country, 2013 300 250 Bil US$ 241 200 189 150 100 89 84 50 48 21 0 Singapore Indonesia Thailand Malaysia Philippines Vietnam Source: Prudential, 2013 Figure 35: CBD Grade A net effective yields (%) 2017 9 8 7 8.29 7.53 7.2 6 5.96 5.54 5 4.51 4.05 3.95 3.85 3.58 3.57 4 3 2 3.02 2.14 1.9 1 0 Source: Savills Research & Consultancy, 2017 Figure 33 demonstrates the hypothetical Grade A yields; however, the opportunity to find properties that have clear legal titles, robust capital levels and high quality profiles, remains very limited. Net yields remain relatively high, with further capacity for compression. NO VA LAND D20180328 32 A-33
PART 1: VIETNAM OVERVIEW NO VA LAND D20180328 33 A-34
Similar to other Asian emerging countries during accelerated urbanization, the economic growth of Vietnam is mostly led by a few core economic nodes. The country has focused on developing two independent urban systems: HCMC and Hanoi. However, these two systems demonstrate different economic growth patterns which are partly attributed to specific fiscal geography. While HCMC and the southeast provinces are more specialized in light industry and low valueadded products, Hanoi and the Red River Delta Region focus on mostly heavy and high-tech industries. The industrialization of HCMC and its urban periphery has been aided by connections with global economic centers, due to developing port and logistic services. Hanoi and the Red River Delta are advantaged by proximity to large-scale manufacturing bases in southern China. As of 2017, Vietnam has 175 cities, classified into five grades. There are two special administrative cities with urban populations over five million: HCMC and Hanoi. HCMC is largest economic and population center with more than eight million people, generating approximately 25% of national GDP. Hanoi is the capital city and the second largest city with more than eight million people and accounts for approximately 15% of national GDP. Hai Phong is predicted to be a special administrative city by 2025. Seventeen cities are classified Grade I, with urban populations of over 500,000. These include three central cities, Hai Phong, Da Nang, Can Tho and 14 provincial cities. The 25 Grade II cities are centers of relatively developed provinces. Phu Quoc does not serve as a provincial center and is an exception. There are 41 Grade III cities and 90 Grade IV cities with urban populations of less than 150,000. Cities of these grades are typically satellites of Grade I and II centers. NO VA LAND D20180328 34 A-35
1 DEMOGRAPHY 1.1 POPULATION & AGE STRUCTURE According to Focus Economics, Vietnam was 3 rd in ASEAN with a population of approximately 93.6 million by year end 2017. Population growth has been moderate at 1.1% pa from 2012-2017. The working age population ranked the third place with those aged 25-64 representing approximately 53% of the total. Figure 1. 1: Population million people 300 262 250 200 150 106.3 100 93.6 69.1 52.3 50 32.2 15.8 7.2 5.6 0 Indonesia Philippines Vietnam Thailand Myanmar Malaysia Cambodia Laos Singapore Source: FocusEconomics, 2017 NO VA LAND D20180328 35 A-36
Figure 1. 2: Age structure 100% 80% 60% 40% 20% 0% Indonesi a Philippin es Vietnam Thailand Myanma r Malaysia Cambodi a Laos Singapor e > 65 years 7% 4% 6% 10% 5% 6% 4% 4% 9% 55-64 years 8% 6% 8% 12% 7% 8% 5% 5% 10% 25-54 years 42% 37% 45% 47% 44% 41% 40% 36% 50% 15-24 years 17% 19% 17% 14% 18% 17% 19% 21% 17% 0-14 years 25% 34% 24% 17% 26% 28% 31% 33% 13% Source: CIA World Factbook 1.2 HOUSEHOLD SIZES Economic development is often accompanied by structural changes to the population such as lower birth rates, higher non-marriage rates and a tendency toward nuclear family numbers all affect household sizes. The most recent censuses show average household sizes have decreased from 4.82 persons in 1989 to 4.51 in 1999; 3.78 in 2009, and 3.7 in 2014. In 1989, there was little difference between average rural and urban household sizes. However, as economic development and population changes occur faster in urban areas, the gap between household sizes started to change. In 2014, the average urban household size was 3.6 and 3.8 in rural areas. Average household size is now one of the smallest in the region; even smaller than countries with higher personal incomes such as Malaysia and the Philippines. NO VA LAND D20180328 36 A-37
Figure 1. 3: Average household size, 2014 6 People/household 5.9 5 4 3 3 3.4 3.6 3.9 4.3 4.4 4.4 4.6 2 1 0 Source: Statistics Agencies in examined countries, Euromonitor NO VA LAND D20180328 37 A-38
1.3 URBANISATION Over the past three decades, Vietnam has undergone an extensive urban transformation that has driven structural transformation and economic development. In 1986, there were less than 13 million urban residents; by 2016 it was 32 million. The urbanisation rate is such that between 2010 and 2020 the urban population is set to increase by approximately 30% to become 37% of the total population. Urbanization from 2015-2020 is forecast at 2.59 % pa, the fastest in Southeast Asia. The urbanisation ratio is lower than Malaysia at 76%, Indonesia 54% and Thailand at 52%. This indicates significant room for the trend to continue. A United Nations (UN) forecast Vietnam would achieve a 50% urban population with middle-income status by 2040. Figure 1. 4: Urbanisation 100 7.5 80 6.0 60 4.5 40 3.0 20 1.5 0 Singa pore Mala ysia Indo nesia Thail and Philip pines Urbanisation ratio (%)(2017)-LHS 100 76 55.2 52.7 44.2 34.9 Urbanisation rate (%)(Avr. 2015-2020)-RHS 1.5 2.19 2.3 2.2 1.57 2.59 Source: CIA World Factbook, 2017 Vietn am 0.0 NO VA LAND D20180328 38 A-39
1.4 GDP PER CAPITA, DISPOSABLE INCOME & EXPENDITURE According to the General Statistics Office, GDP per capita in 2017 reached US$2,385/person/year, an increase of 12% YoY. However, expenditure per capita (per person retail sales of goods and services), increased to US$1,846/person/year, up 10% YoY. Figure 1. 5: Income vs expenditure US$/year Retail sales of goods and services per capita (US$/ year) GDP per capita (US$/ year) 2,400 2,385 2,200 2,000 1,800 1,893 2,029 2,089 2,131 1,846 1,600 1,400 1,387 1,532 1,625 1,672 1,200 1,000 Source: GSO 2013 2014 2015 2016 2017 The gap between GDP per capita and expenses for goods and services has slightly widened. This reflects increases in the amount of savings which may have a positive impact on affordability, as they represent an important financial source when purchasing property. As of 2016, the disposable income of Vietnam is approximately 1,900 US$/person. During the last five years, Vietnam and Cambodia had the highest growth rate of disposable income. NO VA LAND D20180328 39 A-40
Figure 1. 6: Disposable income, 2016 Figure 1. 7: Annual disposable income per capita growth (%), 2011-2016 NO VA LAND D20180328 40 A-41
1.5 MIDDLE & AFFLUENT CLASSES Based on GSO data, Vietnamese households with annual incomes of US$9,000-20,000 are expected to increase 53% from 316,000 to 483,000 over 2016-2020 and become a substantial segment with influential purchasing power. The affluent class (pa household income > US$20,000) expansion actually outpaced middle income class growth. Boston Consulting Group (2013) projected Vietnam would have the fastest growing middle and affluent classes (MAC) in ASEAN by 2020. Figure 1. 8: MAC population 6,000 2016 2020 5,000 4,830 4,000 3,000 3,160 2,000 1,000 - Source: GSO 250 Affluent 530 Middle Figure 1. 9: MAC population growth over 2012-2020 14 % 12 10 8 6 4 2 0 Vietnam Myanmar Indonesia Thailand Source: BCG, 2013 NO VA LAND D20180328 41 A-42
The Economist Intelligence Unit 2015-2030 forecast that HCMC middle income population will (household incomes >US$10,000/pa) experience growth that will surpass equivalent demographics in Bangkok and Singapore by 2025. Figure 1. 10: ASEAN middle class growth 14 Millions 2015 2030 12 10 8 6 4 2 - Jakarta Manila Bangkok Kuala Lumpur Singapore HCMC Source: EIU Canback, The Economist Intelligence Unit, 2016 1.6 INCOME BRACKETS To gain a better understanding of buyer preferences and key decision making influences we conducted several surveys across those buying high-end property (upscale condominiums, villas and holiday homes) and affordable housing buyers. Most high-end segment buyers (73% of respondents) had annual household incomes between VND1-3 billion. Notably, they already own large asset portfolios and rarely utilise mortgages. NO VA LAND D20180328 42 A-43
Figure 1. 11: High-end segment annual household incomes 2% 5% 20% 19% <1 VND bil 1-2 VND bil 2-3 VND bil 3-4 VND bil Over 4 VND bil 54% Source: Savills Reseach & Consultancy 1.7 EMPLOYMENT At the end of 2016, Vietnam had over 54.4 million employed with an average growth of 2% pa from 2010-2016. The primary sector (agriculture, forestry and fishing) had the highest employed population of over 22 million people, accounting for 41% of countries labor force. However, this sector s employment rate decreased -1% pa from 2010-2016, showing that the labor force was allocated into other different sectors. The real estate and construction sectors achieved highest employment growth of 10% pa from 2010-2016. The unemployment rate of Vietnam s population within the working age was 2.3% in 2016, slightly increasing compared to 1.7% in 2015. NO VA LAND D20180328 43 A-44
Figure 1. 12: Employment 25 million people 12% 20 9% 15 6% 10 3% 5 0% Argicultur e Manufactu ring Wholesale & Retail Constructi on Accomoda tion Transporta Financial, tion banking ICT Administra Profession tive al Real estate Employed population (mil) 22.32 8.87 6.74 3.80 2.48 1.61 0.38 0.34 0.28 0.25 0.18 0.53 Avg. growth (2010-2016) -1% 5% 3% 10% 6% 2% 7% 5% 7% 3% 10% 2% Source: GSO 0 Others -3% Vietnam and ASEAN peer groups are forecast to increase labour force growth from 2015-2020, according to The Economist Intelligence Unit. Philippines, Malaysia and Indonesia are predicted to grow at 2% pa while Vietnam and Singapore may grow by 1% pa in the next five years. Figure 1. 13; Labour force growth forecast 5 % % change 2004-2014 % change 2015-2020 forecast 4 3 2 1 0-1 Philippines Malaysia Indonesia Singapore Vietnam Thailand Taiwan HongKong Japan Source: The Economist Intelligence Unit NO VA LAND D20180328 44 A-45
1.8 HOME OWNERSHIP RATE Home ownership rate is recorded at a relatively high percentage in Vietnam despite the countries low income level. High ownership rate is mainly due to property inherited from families and government land allocation. Table 1. 1: Home ownership rate Country Homeownership rate Report year Source Singapore 90.9% 2016 Trading economics Hong Kong 50.4% 2016 Trading economics South Korea 56.8% 2016 Trading economics Thailand 80% 2012 United Nations Vietnam 84% 2009 Census of Vietnam NO VA LAND D20180328 45 A-46
2 MACROECONOMIC OVERVIEW Vietnam had two outlook upgrades from Moody's and Fitch in April and May 2017. These were earned from growing economic strength, greater macroeconomic stability and debt stabilization and providing a benchmark debt rating boost. 2.1. GDP The economy has expanded for five consecutive years and the outlook in the near and medium future is continual steady growth. Vietnam is currently a low-middle income economy and 6 th in the ASEAN region by size. GDP in 2017 was almost half of that of Thailand at US$214 billion and GDP per capita (approximately US$2,100/person) was one third of that of Thailand. Figure 1. 14: GDP size & growth 1,200 US$ billion % 10 1,000 8 800 6 600 4 400 200 2 0 Indonesia Thailand Philippines Malaysia Singapore Vietnam GDP (US$ billion)-lhs 1,015 436 315 308 304 214 Historic growth rate-rhs (avg. 2012-2017) 5.3 3.4 6.6 5.0 3.1 6.0 0 Source: FocusEconomics, 2017 NO VA LAND D20180328 46 A-47
Figure 1. 15: GDP per capita & growth 0 Singapore Malaysia Thailand Indonesia Philippines Vietnam Laos Myanmar Cambodia GDP per capita (USD)-LHS 53,592 9,577 6,311 3,876 2,966 2,289 2,350 1,352 1,379 Historic growth rate-rhs (avg. 2012-2017) -0.3-2.2 1.5 0.7 2.7 5.5 8.9 2.7 7.9 Source: FocusEconomics, 2017 US$/Person 60,000 % 50,000 40,000 30,000 20,000 10,000 10 8 6 4 2 0-2 -4 FocusEconomics projects the economy will achieve 6.4% average over the next four years. The World Bank expects growth helped by strong exports will rise to 6.4% in 2018. Figure 1. 16: Annual economic growth projection (%) 8 % Historic growth (avg. 2012-2017) Growth projection (avg. 2018-2021) 6 6.6 6.3 6.4 6.0 5.3 5.5 5.0 4.5 4 3.4 3.2 3.1 2.4 2 0 Philippines Vietnam Indonesia Malaysia Thailand Singapore Source: FocusEconomics, 2017 NO VA LAND D20180328 47 A-48
2.2. ECONOMIC STRUCTURE Vietnam is evolving toward a more modern economic structure. Agriculture GDP decreased from 22% to 17% during 2012-2017. At the same time there was an increase in the service sector from 35% to 45% of GDP. Industry GDP share remained stable, reaching 39% in 2017. The industrial sector had the highest growth in 2017 of 8%, compared with 7.4% for Services and 2.9% in Agriculture. Manufacturing increased 7.8% in 2017 and is the fastest expanding segment of the industrial sector. Competitive labor costs and geographical advantages have transformed Vietnam into an outstanding FDI recipient for the growing outbound numbers of Asian manufacturers. Over US$21.3 billion was newly registered FDI in 2017 and manufacturing accounted for 68%. Figure 1. 17: GDP by sector 2017 100% 80% 60% 73% 54% 55% 60% 46% 44% 40% 20% 0% 40% 39% 38% 36% 31% 27% 8% 9% 10% 14% 17% Singapore Malaysia Thailand Philippines Indonesia Vietnam Agriculture Industry Services Source: CIA World Factbook, 2017 NO VA LAND D20180328 48 A-49
2.3. INFLATION Inflation has dropped significantly from 9.1% in 2011 to 2.7% in 2016. Average CPI in 2017 increased 3.5% YoY, higher than the 2.7% in 2016 but under the National Assembly target of 4%. Growth in 2017 was mainly due to higher priced medicines and health services, tuition fees and a minimum wage increase. According to FocusEconomics forecast, Vietnam s annual inflation rate will be stable at 4.2% during 2018-2021. Crude oil and other commodities are currently supportive for the stability of inflation. Figure 1. 18: Annual inflation rate 8 % 6 6.0 4 4.1 2.7 3.5 2 0.6 0 Source: GSO, Dec 2017 2013 2014 2015 2016 2017 2.4. RETAIL SALES & TOURISM REVENUE At year-end 2017, full year goods and services sales were approximately US$173 billion, increasing 11% YoY. Real growth of 9.5% was the highest for five years. Total sales of goods dominated with a 75% share with increasing consumption levels suggesting potential for retail development. According to the forecast of the Ministry of Industry and Trade, total retail sales will reach US$179 billion by 2020. In addition to the rapid expansion, the liberalisation of retail sector made Vietnam a more lucrative market for international retailers. The establishment of 100% foreign capital retail companies has been allowed since 2015, before then foreign investors who wanted to undertake distribution were forced into joint ventures with local partners with foreign capital contribution not allowed to exceed 49%. NO VA LAND D20180328 49 A-50
Figure 1.19: Retail sales 180 US$ billion % 12 135 9 90 6 45 3 0 2013 2014 2015 2016 2017 Retail sales,current price 124.5 139 149 155 173 Real growth rate (YoY) 5.6 6.3 8.4 7.8 9.5 0 Source: GSO, Dec 2017 According to GSO, the total tourism revenue in 2015 was US$3.2 billion, achieving an average growth of 10% pa from 2012-2015. Accommodation establishments accounted for 60% of total tourism revenue. Figure 1. 20: Tourism Revenue Travel agencies revenue 3 US$ billion 2 1.8 1.67 2 1.19 1 0.9 Accomodation establishments revenue 2.05 1.4 1.31 1.37 1 0 Souce: GSO 2012 2013 2014 2015 2.5. FOREIGN DIRECT INVESTMENT (FDI) While there were fluctuations in registered FDI from 2012-2017, disbursements grew steadily at NO VA LAND D20180328 50 A-51
10% pa. In 2017, total FDI disbursement reached a new high of approximately US$17.5 billion. Figure 1.21: FDI 40 US$ billion Total registered capital FDI disbursement 35.9 30 20 22 20 12 12 23 15 24 16 17.5 10 0 2013 2014 2015 2016 2017 Source: GSO, Dec 2017 Total FDI capital in 2017 reached almost US$36 billion, increasing 47% YoY. This was the highest growth since 2013. Newly registered capital was US$21.3 billion from 2,591 projects, an increase in capital of 42% and in projects by 4% YoY. By industry, manufacturing and processing attracted highest FDI registered capital in 2017 with US$14 billion, accounting for 48% market share. It is followed by electricity, gas, steam and air conditioning with US$8.4 billion. Figure 1. 22: FDI into sectors NO VA LAND D20180328 51 A-52
Manufacturing Electricity, gas, steam & Air conditioning Others 24% 48% 28% Source: GSO, 2017 Fifty-eight provinces and cities attracted FDI in 2017; Thanh Hoa received the largest registered capital of US$3.2 billion, accounting for 15% market share. Khanh Hoa followed with US$2.6 billion. Figure 1. 23: FDI into cities US$ billion 4 3.16 3 2 1 2.58 2.31 2.13 1.37 1.34 1.11 0 Thanh Hoa Khanh Hoa HCMC Nam Dinh Binh Duong Source: GSO, 2017 Kien Giang Hanoi 2.6. CURRENT ACCOUNT & CURRENCY Figure 1. 24: Current account & currency performance NO VA LAND D20180328 52 A-53
Current Account (% of GDP)-LHS Nominal Depreciation vs. USD (%)-RHS 25 20 15 10 5 0-5 -10-15 -20-25 -9-7 -6-2 0 3 2 11 19 10 8 6 4 2 0-2 -4-6 -8-10 Source: FocusEconomics, EIU 2017 In 2017, current-account surpluses were observed in Malaysia, Vietnam, Thailand and Singapore while others showed current-account deficit. Singapore s surplus has been stable in the 17-20% range, the highest in ASEAN. The Thailand baht recorded strong appreciation of over 3% against the US dollar, while Myanmar kyat fell by -9% against US dollar. Vietnam had a slight depreciation of -2% against the USD. 2.7. REMITTANCES & TRADE BALANCE Overseas remittances are an important foreign currency source to help sustain the national balance of payments. Remittances experienced a stable growth of around 8% pa during 2011-2016, reaching approximately US$13.4 billion in 2016, equivalent to 6.7% GDP. Vietnam was 2 nd after the Philippines in ASEAN countries for the highest overseas remittance receipts. According to the State Bank of Vietnam (SBV), approximately 20% were invested in real estate. In 2017, according to World Bank statistics, inward remittances were estimated to reach US$13.8 billion. According to the SBV, total remittances to HCMC in 2017 were estimated to be US$5.2 billion, increasing 5% YoY. NO VA LAND D20180328 53 A-54
Figure 1. 25: Remittances 2016 40,000 12% 30,000 9% 20,000 6% 10,000 3% 0 Philippines Vietnam Indonesia Thailand Myanmar Malaysia Cambodia Laos Remittance inflows (US$ million)-lhs 29,878 13,383 9,234 6,025 3,312 1,586 323 95 % GDP-RHS 10% 7% 1% 1% 5% 1% 2% 1% 0% Source: Migration and Remittances Data, World Bank 2017 A positive balance of trade has been maintained since 2012, helping support foreign reserves and greater macroeconomic stability. Figure 1. 26: Trade balance US$ Billion 230 US$ Billion 3 200 2 170 140 110 1 0-1 -2 80-3 50 2013 2015 2016 2017 Trade Balance (RHS) 0.9-3.2 2.6 2.7 Export (LHS) 132.2 162.4 175.9 213.8 Import (LHS) 131.3 165.6 173.3 211.1-4 Source: GSO, Dec 2017 NO VA LAND D20180328 54 A-55
Vietnam s foreign exchange reserves reached a record high of US$52 billion in 2017, which the National Financial Supervisory Commission believes will boost trust from potential local and foreign investors and open up new growth opportunities for the country. Figure 1. 27: Foreign reserve 60 US$ billion 50 52 40 34 37 30 23 24 26 26 28 20 16 12 14 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Worldbank, State Bank 2017 NO VA LAND D20180328 55 A-56
2.8. LENDING & MORTGAGE RATES Table 1. 2: Bank rates Bank Mortgage rate p.a. Maximum loan Term Dong A Bank 11.50% 70% loan demand Bac A Bank 11.00% 70% loan demand GP Bank 11.00% 70% loan demand Techcombank 10.35% Max. VND 19 billion 25 years ACB 8.00% Flexible MB 8.00% 90% loan demand VIB 7.90% 80% property value 20 years HSBC 7.49% 70% property value 20 years Vietcombank 7.30% 70% property value 15 years BIDV 7.00% 100% property value 20 years Vietin Bank 7.00% 80% loan demand 7 years VP Bank 6.99% 100% loan demand Sacombank 6.88% 100% loan demand ANZ 6.50% 75% property value 25 years AB Bank 6.49% 85% property value 20 years OCB 5.99% 100% property value 20 years Source: Banks rate, 2017 The percentage of homebuyers using housing loans 10 years ago ranged between 10-15%, with mortgage rates fluctuating from 10% to 19% during 2008 to 2012. Since 2013, the mortgage rate has regularly decreased and remained stable at around 8% since 2015. Lower lending costs and ease in accessing housing loans have led to increased (>50% now) of homebuyers using loans. NO VA LAND D20180328 56 A-57
Figure 1. 28: Lending rate v. % using housing loan CPI One-year lending rate Very few homebuyers using housing loan (10-15%) At least 50% of homebuyers using housing loan 25% 20% 19% 20% 14% 18% 18% 15% 20% 16% 15% 10% 5% 0% 10% 12% 11% 10% 8% 8% 8% 7% 7% 6% 5% 3.53% 2% 1% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 12% 8% 4% 0% Source: GSO Penetration v. SEA & China In 2015, household credit penetration was estimated at 43% of GDP, still low relative to nearby counties such as Thailand (81%) or Malaysia (89%). According to Numbeo, in January 2018, the average mortgage rate is 8.98% and the average mortgage as percentage of income is 231.68% (a 0.44 affordability index), ranked highest in South East Asia. Table 1. 3: Mortgage penetration Country As % of Income Loan Affordability Index Vietnam 227.34 0.44 Thailand 195.53 0.51 Singapore 138.59 0.72 Philippines 172.8 0.58 Indonesia 136.15 0.73 Malaysia 73.37 1.36 Source: Numbeo NO VA LAND D20180328 57 A-58
Figure 1. 29: Mortgage penetration rates Mortgage As a Percentage of Income Affordability Index 250 227 1.6 200 196 173 1.36 1.4 1.2 150 139 136 1 100 50 0.44 0.51 0.58 0.72 0.73 73 0.8 0.6 0.4 0.2 0 Vietnam Thailand Philippines Singapore Indonesia Malaysia Source: Numbeo, 2018 0 2.9. NEWLY REGISTERED BUSINESSES At the end of 2017, Vietnam had over 126,800 newly registered enterprises, increasing 15% YoY with total registered capital up 45% YoY to nearly US$57 billion. The fastest growth was in real estate with more than 5,100 new established enterprises, up 62% YoY. Approximately 16,000 newly established construction enterprises accounted for 13% of national registrations, increasing 11% YoY. NO VA LAND D20180328 58 A-59
3 INFRASTRUCTURE According to the Asian Development Bank (ADB), Vietnam had the highest proportional infrastructure investment in Southeast Asia. In recent years 5.7% of GDP has gone into public and private sector infrastructure investment. Figure 1. 30: GDP % infrastructure spend Vietnam 5.7 Indonesia 2.5 Myanmar 2.4 Singapore 2.2 Philipines 2 Malaysia 1.8 Thailand 1.7 0 1 2 3 4 5 6 % Source: Asian Development Bank Data includes public and private sector Robust economic growth and increasing population in Hanoi and HCMC has increasingly pressured infrastructure, especially transport. The present urban land allocation for roads is under 9% of the urban area. This is similar to Jakarta and Bangkok, but far lower than Singapore. HCMC is still one of the most efficient cities in the region for traffic movement. Average one-way traffic times of 30 minutes are relatively low compared to Hanoi s 45 minute average. However, with the rapid growth of private vehicles and inadequate public transportation services, urban transport issues are becoming a major concern. NO VA LAND D20180328 59 A-60
Figure 1. 31: Land for transport 14% 12% 10% 8% 6% 4% 2% Road area (% build-up area)-lhs Popularity density (pp/km2)-rhs 12,000 11,100 9,700 10,000 8,600 8% 8,000 7% 6,500 5,900 12% 6,000 9% 4,000 8% 2,000 0% Jakarta Bangkok HCMC Hanoi Singapore 0 Source: Huynh & Jose, 2016; Demographia, 2016 Figure 1. 32: Traffic inefficiency indices 70 60 50 40 30 20 10 minutes 420 350 280 210 140 70 - HCMC Singapore Hanoi Bangkok Jakarta One-way traffic time (minutes) LHS 31 43 41 51 57 Traffice Inefficiency Index 106 170 189 334 301 Source: Numbeo.com, 2017 - Private vehicle average growth over the last five years has been 6% pa. According to the Ministry of Transportation, at year end 2017, urban transportation is mainly via private vehicle. Approximately 48 million motorcycles represent 95% of all vehicles. NO VA LAND D20180328 60 A-61
Figure 1. 33: Registered private vehicles vehicles 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 2013 2014 2015 2016 2017 Registered car 1,630,000 1,837,436 2,579,675 2,516,144 2,700,000 Registered motorbike 38,643,091 39,030,000 41,880,000 45,000,000 48,272,373 Source: Ministry of Transportation HCMC The majority of infrastructure projects in HCMC are concentrated in the eastern districts, especially in District 2, such as the Thu Thiem tunnel, Saigon Bridge 2, Vo Van Kiet Highway and the HCMC Long Thanh Dau Giay Expressway. Due to high population and overloaded infrastructure, the Prime Minister has approved the HCMC Transportation System Development Planning toward 2020 and after plan. This plan includes HCMC and surrounding provinces such as Binh Duong, Dong Nai, Long An, Tay Ninh and Ba Ria- Vung Tau. City infrastructure plans: Upgrade and improve six radial/national highways; Construct and widen two radial roads; Construct seven highways; Construct Ring Roads No. 2, 3 and 4; Develop an urban railway system including six metro lines and one tramway; Move Sai Gon port to Hiep Phuoc port and upgrade the Cat Lai and Hiep Phuoc ports. Completed and future HCMC projects are shown in the below table: NO VA LAND D20180328 61 A-62
Map 8: Planned Highway & Ring Roads NO VA LAND D20180328 62 A-63
HCMC also has ambitious transport infrastructure programs to modernize existing road networks and expand public transport. Mass Rapid Transit (MRT) and Bus Rapid Transit (BRT) will provide a more appealing alternative to individual transport. Up to 2020, an estimated VND313.6 trillion (US$14 billion) will be injected into 160 major traffic infrastructure projects. Mass Rapid Transit (MRT) The planned HCMC Metro System will be a high capacity urban mass transit system. The new MRT will have underground and elevated lines and will help ease traffic congestion and environmental pollution problem. The metro service will be integrated with existing bus and other transportation systems. Metro Ben Thanh Suoi Tien Line 1 is the first of six HCMC Metro lines to be constructed. Metro Line 1 is expected to be officially operational by 2020 with three passenger car trains carrying around 930 passengers. NO VA LAND D20180328 63 A-64
Map 9: HCMC Public transport to 2030 Source: Working Paper of Urban Development Management Support Centre - PADDI NO VA LAND D20180328 64 A-65
Table 1. 4: Metro Lines Implementation Q1/2017 Line Routes Stations Length Estimated Financing sources Status 14 stations (3 MRT No1 Ben Thanh - Suoi Tien underground/ 11 elevated) Phase 1: Ben Thanh - Tham Luong MRT No2 11 stations (10 underground and1 elevated) 19.7 km (2.6 km underground) 11.3 km (9.3km underground) US$ 2.49 billion US$ 2.15 billion JICA (US$ 2.2 billion) VN-G (US$ 289 billion) ADB (US$ 450 million) KfW (US$ 313 million) EIB (US$ 195 million) VN-G (US$ 326.5million) Construction phase started 2014 / In service by 2020. Metro line 2 completion expected 2023/2024. Phase 2: Line extension Under Study 8.7 km towards Tay Ninh / Thu Thiem Under TBC Under Study Study Line No. 3A: Ben Thanh Tan 14 stations Under Study Kien MRT No3 Line No. 3B: Cong Hoa Hiep 11 stations Under Study Binh Phuoc Under TBC Plan approved and in progress. Study Under TBC Project design approved. Study MRT No4 MRT No5 Ben Cat bridge Nguyen Van 29 stations 24km Linh highway Phase 1: Saigon bridge - Bay Hien Phase 2: Bay Hien - Can Giuoc 7 underground 1 elevated 8 underground 5 elevated 8.9 km (6.6 km underground) 14.5 km (8.6 km underground) US$4.4 TBC Proposal to lengthen the line. billion ADB (US$500 million) US$ 1.1 billion US$ 1.8 billion ESP-G (US$200 million) EIB (US$200 million) VN-G (US$200 million) TBC Under Study Proposal to adjust investment capital. 7 underground MRT No6 Ba Queo Phu Lam 6km stations US$1.3 TBC Under Study billion NO VA LAND D20180328 65 A-66
Bus Rapid Transit (BRT) The new system expects to have 30 modern buses servicing districts 1, 2, 5, 6, Binh Tan and Binh Chanh. This 25km route will take around 45 minutes. The BRT system will particularly benefit lowincome residents, manual workers and students. Estimated prices for 2021-2025 are VND6,000/passenger/trip and VND7,000 (2026-2032). Table 1. 5: Bus Rapid Transit (BRT) implementation No. Project Length Cost Estimation Project status BRT Route 1 An Lac intersection to Cat Lai intersection 23.5km BRT Route 2 Ben Thanh - Ba Queo fork 9.1km BRT Route 3 Bach Dang port to Quang Trung IT park 14.8km BRT Route 4 Cay Go roundabout to Hanoi highway 22km BRT Route 5 District 8 bus station to Hang Xanh 13km BRT Route 6 Bach Dang port to 23/9 park 14.6km BRT Route 7 Ben Thanh market to An Suong station 16.3km BRT Route 8 Ba Queo fork to 3/2 street 5km Total capital expected of approximately US$137.5 million. BRT 1 approved 2015. Construction expected to start in 2017 with completion by late 2018. Elevated Roads To further reduce traffic congestion, the municipal government is seeking central government permission to build an elevated road. The four-lane Road Number 1 will be 9.5km with total investment of about VND15 trillion ($652 million) from Lang Cha Ca Roundabout near Tan Son Nhat Int. Airport to Phu An Bridge in Binh Thanh District. It will be the central spine for additional elevated road systems. Linking downtown to arterial city roads will help alleviate rising transport pressure. NO VA LAND D20180328 66 A-67
Other Major Infrastructure Developments Table 1. 6: Key HCMC infrastructure No. Project Location description Capacity/remarks Project status 1 Thu Thiem bridges Four new bridges connecting districts 1, 4, 7 and Binh Thanh with the Thu Thiem new urban area (district 2). 2 Flood prevention In Districts 1, 4, 7, 8, Binh Chanh and Nha Be. Construction of 6 sewers and dykes along the Saigon river; from Vam Thuan to Kinh river, 25 small sewers from Vam Thuan to Muong Chuoi. Thu Thiem Bridge 2 total capital ~ VND3,082 billion (US$140.8 million). Proposed total capital Thu Thiem bridge 4 ~ VND5,254 billion (US$230.4 million). Total capital of VND 10,000 billion (US$438 million). Thu Thiem 1 operational. Thu Thiem 2 started construction on 3 February 2015 completion scheduled Q2/2018. Thu Thiem 3 in research. Thu Thiem 4 under planning in BT contract. Phase 1 started 26 August 2016. Estimated completion in 36 months. 3 Expansion of Hanoi Highway (Parallel road) Expanding two sections from Sai Gon bridge to Binh Thai and Tan Van intersections. Total capital VND3,822 billion (US$175 million). Construction started 2010. Some intersections completed. Others having clearance issues. Parallel route not yet fully enabled to ease HN highway traffic as planned. 4 Ben Luc Long Thanh Highway 58km 4 lanes and 2 emergency lanes across Long An, Dong Nai and HCMC: Start includes packages A1, A2-1, A2-2 and A3 through HCMC and Long An Provinces; funded by ADB. Total 18.7 km Total capital VND31,000 billion (US$1.6 billion). Construction started July 2014. Scheduled to complete in 2020. NO VA LAND D20180328 67 A-68
No. Project Location description Capacity/remarks Project status 5 New bridge to replace Cat Lai ferry Connecting District 2 with Nhon Trach suburban District, Dong Nai Province. 3km Total capital VND5,717 billion (US$250 million). Planning approved. Construction to begin late 2017 and expected complete by 2020. 6 6 projects to reduce congestion on main routes to Tan Son Nhat airport. 1. Tan Son Nhat flyover: intersection of Truong Son Tan Son Nhat Binh Loi outer ring road: Y-shape steel bridge to be built. One section from Truong Son Street to domestic terminal. The other to the international terminal from domestic terminal entrance road to Hong Ha Street. 2. Flyover at Nguyen Thai Son Nguyen Kiem intersection 3. Expansion of Hoang Minh Giam street Total investment capital VND1,380 billion (US$60.5 million) 1. Tan Son Nhat flyover completed July 2017. 2. Flyover at intersection of Nguyen Thai Son Nguyen Kiem started Feb 2017. Completion in 8 months. Other projects approved. Construction to start in 2017. 4. Expansion of Cong Hoa Street (Tan Binh District) 5. Expansion of Hoang Van Thu street (Phu Nhuan district) 6. Expansion of Phan Thuc Duyen Street (Tan Binh District) NO VA LAND D20180328 68 A-69
Map11: HCMC Population Density & Retail Market NO VA LAND D20180328 69 A-70
4 VIETNAM REAL ESTATE MARKET OVERVIEW 4.1 REAL ESTATE METRICS Office market cycle According to Savills Prime Benchmark, Hanoi and HCMC currently within the Early Upswing of Office Market Cycle. Figure 1. 34; Office market cycle 4.2 RENTAL YIELDS Gross Rental Yield is total yearly gross rent divided by the house price and expressed by percentage. Vietnam gross rental yields in 2017 were 4.52% and up 23% YoY. Compared to regional countries, Vietnam had the third highest rental yields, after Cambodia (7.44%) and Indonesia (4.67%). NO VA LAND D20180328 70 A-71
Figure 1. 35: Rental returns % 8 7 7 6 5 4 3 5 5 4 4 4 3 2 1 0 Cambodia Indonesia Vietnam Malaysia Thailand Philippines Singapore Source: Savills Research & Consultancy and Numbeo 4.3 FDI INTO REAL ESTATE Figure 1. 36: Real estate registered FDI US$ billion % 8 40 6 30 4 20 2 10 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Registered FDI 7.6 4 0.8456 1.85 0.951 2.83 2.39 1.68 3.05 Proportion 35.4 21.5 5.8 14.2 4 12.9 10.5 6.9 8.5 0 Source: GSO NO VA LAND D20180328 71 A-72
Registered FDI into real estate fluctuated during 2009-2017. Due to a booming real estate market in 2009, it hit a peak US$7.6 billion, equivalent to 35.4% of total registered FDI. However, with a depressed economy FDI capital dropped to US$0.8 billion in 2011. In the last four years, real estate received stable foreign capital inflows, with US$3.05 billion or 8.5% of total registered FDI in 2017. FDI capital to real estate in Vietnam has overall been higher than into Thailand, Indonesia and Philippines. While the inflow to Vietnam has experienced the most fluctuations (from US$1-US$7.6 billion); inflow to Thailand (US$1-US$1.6 billion) has remained steady. Indonesia and Philippines have recorded lower volumes, but they have both trended upwards in the last 2 years. Figure 1. 37: Asian countries registered FDI into Real estate 8 US$ billion 6 4 2 0 2009 2010 2011 2012 2013 2014 2015 2016 Indonesia 0.3 1.1 0.2 0.4 0.7 1.2 2.4 2.3 Philippines 0.1 0.0 0.9 0.2 0.1 0.2 0.0 0.9 Thailand 1.3 1.0 1.2 1.0 1.6 1.3 1.3 1.4 Vietnam 7.6 4.0 0.8 1.9 1.0 2.8 2.4 1.7 Source: Savills Research & Consultancy 4.4 HOUSING NEED AND GAP ANALYSIS Despite the rapid growth of the construction industry, Vietnam still faces a substantial housing deficit. According to Decision 2127/ QD-TTg on the national housing development strategy to 2020 with vision to 2030, the NFA per capita reached 22sq m as of 2015; 26 sq m in urban areas and 19 sq m in rural areas. The current supply of housing is far from the 2020 target of 29 sq m in urban areas and 22 sq m in rural areas. It is estimated that at least 380 million sq m of NFA is required to meet targets outlined above. NO VA LAND D20180328 72 A-73
The housing need is spurred by new household formations and a qualitative deficit. The following information was provided from the Census 2009, Census 2014, and 2016 Housing Survey: Urban population/ households by provinces/cities; Urban household sizes by provinces/cities; Percentage of urban households living in Permanent/Semi-permanent/Simple housing conditions. These databases help to identify the following: Growth rate of urban households by provinces/cities from 2009-2016. New household formation by provinces/cities from 2009-2016 and forecast for 2017 onwards using an historical growth rate. Houses of qualitative deficit: the assumption that semi-permanent/simple housing conditions will need replacing within a 10-year period. Total annual housing needs from 2018 onwards. The supply and demand in main cities are measured to identify any gaps. From the above database, Savills observed the following findings and conclusions: The demand for new annual dwellings will be above 700,000 units from 2018-2022. Hanoi and Ho Chi Minh will require an annual demand of 130,000 new dwellings from 2018-2020. From Savills database of historical primary supply/sales in Hanoi and HCMC from 2014-2017, current developments only meet 20-30% of future demand. A future annual shortage is predicted in both cities at 3,000-5,000 units. Sales ratios from 2018-2022 are estimated based on moving-average of the last three years. The amount of supply increased 2014 to 2017 to meet new housing demands. Savills primary supply and sales tracking in Hanoi and Ho Chi Minh only covers project developments. The following housing segments were not tracked: land plots, private houses and social housing. NO VA LAND D20180328 73 A-74
Table 1. 7: Strategic Population Model- Vietnam Rate/ Urban households 2009 2014 2015 2016 2017 2018 2019 2020 2021 2022 Trend Northern midlands 2.7% 535,084 610,167 626,403 643,072 660,184 677,751 695,786 714,300 733,307 752,820 Red River Delta 3.8% 1,656,469 1,995,605 2,071,347 2,149,964 2,231,564 2,316,262 2,404,174 2,495,423 2,590,135 2,688,442 - Hanoi 6.3% 733,729 994,070 1,056,315 1,122,457 1,192,741 1,267,425 1,346,786 1,431,116 1,520,727 1,615,949 North Central & Central Coastal 3.4% 1,217,115 1,435,365 1,483,504 1,533,256 1,584,678 1,637,823 1,692,752 1,749,522 1,808,196 1,868,838 Central Highlands 2.3% 380,079 426,127 435,986 446,073 456,393 466,952 477,755 488,808 500,117 511,687 South East 4.6% 2,086,051 2,613,135 2,733,564 2,859,543 2,991,328 3,129,186 3,273,398 3,424,255 3,582,066 3,747,149 - Ho Chi Minh 3.1% 1,509,930 1,760,886 1,815,876 1,872,583 1,931,061 1,991,365 2,053,553 2,117,682 2,183,814 2,252,011 Mekong River Delta 2.6% 998,882 1,136,589 1,166,329 1,196,848 1,228,166 1,260,302 1,293,280 1,327,121 1,361,847 1,397,482 Total Vietnam Urban HHs (1) 3.6% 6,873,680 8,216,988 8,517,133 8,828,755 9,152,311 9,488,276 9,837,143 10,199,429 10,575,668 10,966,418 Northern midlands 15,815 16,236 16,668 17,112 17,567 18,035 18,515 19,007 19,513 Red River Delta 72,972 75,742 78,617 81,600 84,698 87,912 91,249 94,712 98,307 - Hanoi 58,577 62,245 66,142 70,284 74,685 79,361 84,330 89,611 95,222 North Central & Central Coastal 46,576 48,138 49,753 51,421 53,146 54,928 56,770 58,674 60,642 Central Highlands 9,636 9,859 10,087 10,320 10,559 10,803 11,053 11,309 11,570 South East 115,123 120,429 125,979 131,785 137,858 144,212 150,858 157,810 165,083 - Ho Chi Minh 53,325 54,990 56,707 58,478 60,304 62,187 64,129 66,132 68,197 Mekong River Delta 28,982 29,741 30,519 31,317 32,137 32,978 33,841 34,726 35,635 Total New Urban households formation 289,105 300,145 311,622 323,556 335,965 348,868 362,285 376,239 390,750 NO VA LAND D20180328 74 A-75
Rate/ Urban households 2009 2014 2015 2016 2017 2018 2019 2020 2021 2022 Trend (2) Housing need from qualitative deficit Total urban housing = (1) 3.6% 6,873,680 8,216,988 8,517,133 8,828,755 9,152,311 9,488,276 9,837,143 10,199,429 10,575,668 10,966,418 Percentage of semipermanent/ simple 59% 46% 44% 42% 40% 38% 36% 35% 33% 31% housing Houses of qualitative deficit (3) -1.1% 3,988,140 3,771,598 3,729,721 3,688,309 3,647,358 3,606,860 3,566,813 3,527,210 3,488,047 3,449,319 Annual housing need from house degrade 265,876 377,160 372,972 368,831 364,736 360,686 356,681 352,721 348,805 344,932 (4)= (3)/10 Total annual housing need (5)= (4)+(2) 666,265 673,117 680,453 688,292 696,651 705,549 715,006 725,043 735,682 NO VA LAND D20180328 75 A-76
Table 1. 8: SPM continued Housing Need by Provinces Rate/Trend 2014 2015 2016 2017 2018 2019 2020 2021 2022 Northern midlands = (5)*6% 6% 38,099 38,491 38,910.57 39,358.80 39,836.79 40,345.62 40,886.43 41,460.39 42,068.74 Red River Delta =(5)*25% 25% 168,229 169,959 171,811 173,790 175,901 178,148 180,536 183,070 185,756 - Hanoi = (5)* 18% 18% 122,935 124,199 125,553 126,999 128,542 130,183 131,928 133,780 135,743 North Central & Central Coastal = (5)* 16% 16% 109,223 110,347 111,549 112,834 114,205 115,663 117,214 118,859 120,603 Central Highlands = (5)* 4% 4% 23,529 23,771 24,030 24,307 24,602 24,916 25,250 25,605 25,981 South East = (5)* 39% 39% 257,246 259,892 262,724 265,751 268,978 272,414 276,065 279,941 284,048 - Ho Chi Minh = (5)* 19% 19% 126,172 127,470 128,859 130,343 131,926 133,611 135,402 137,303 139,318 Mekong River Delta = (5)* 10% 10% 69,938 70,658 71,428 72,251 73,128 74,062 75,055 76,108 77,225 Hanoi (6) 122,935 124,199 125,553 126,999 128,542 130,183 131,928 133,780 135,743 Ho Chi Minh (7) 126,172 127,470 128,859 130,343 131,926 133,611 135,402 137,303 139,318 Hanoi Apartment primary supply 11,542 24,901 38,822 44,186 Villa/townhouse primary supply 1,378 2,182 3,379 6,943 Total Primary 12,920 27,083 42,201 51,129 Actual Apartment sales 11,172 23,829 23,886 25,669 Actual VLTH sales 342 846 1,560 4,434 Total actual sales 11,514 24,675 25,446 30,103 27,353 27,702 28,073 28,467 28,885 Proportion of Sales to Demand= (6)*21% 21% 9% 20% 20% 24% Future Supply 22,624 25,623 25,623 24,623 25,289 Shortage 4,729 2,080 2,451 3,844 3,596 HCMC Apartment 26,007 51,659 62,350 64,730 VLTH 1,378 2,182 3,379 6,943 Total Supply 27,385 53,841 65,729 71,673 Actual Apartment sales 11,569 22,174 30,972 47,469 Actual VLTH sales 821 1,760 3,467 4,132 Total sales 12,390 23,934 34,439 51,601 37,419 37,897 38,405 38,944 39,516 NO VA LAND D20180328 76 A-77
Housing Need by Provinces Rate/Trend 2014 2015 2016 2017 2018 2019 2020 2021 2022 Proportion of Sales to Demand= (7)*28% 28% 10% 19% 27% 40% Future Supply 36,778 32,263 34,521 33,392 33,956 Shortage 641 5,634 3,885 5,552 5,559 NO VA LAND D20180328 77 A-78
4.5 HOUSING AFFORDABILITY ANALYSIS Housing affordability is affected by income and savings after spending for other basic needs (e.g. food, transport, and children s education), and ability to access financial sources. Basic Living Costs and Savings According to the Institute for Workers Unions (2015), 2016 s basic monthly living costs of raising a child ranges from VND 4.2 million in Grade 1 cities to VND 3.6 million in Grade 2 and 3 cities. The basic living costs refer to the amount of money required to maintain a minimum standard of living, housing, food, and healthcare. For a nuclear household, the basic living costs are VND 86-100 million/household/year. In order to estimate household expenditure, the marginal propensity to consume is estimated, using data from Vietnam Household Living Standards Survey (2014). The estimated marginal propensity to consume is 21% for urban households. Table 1. 9: Urban household savings, 2016 (US$, thousand) Percentile 10% 20% 30% 40% 50% 60% 70% 80% 90% Annual household income 2.5 3.6 4.6 5.6 6.5 7.6 8.8 10.8 14.5 Marginal propensity 21% Expenditure 3.2 3.3 3.5 3.7 3.9 4.1 4.4 4.8 5.6 Savings -0.7 0.3 1.1 1.9 2.6 3.5 4.4 6.0 8.9 Note: 2016 s household income is estimated from 2014 s income, using an income per capita growth rate of 5% pa and an inflation rate of 2.35% pa. Source: Savills Research & Consultancy Savings capacity is limited for the bottom 40% of household income. Households at the 40 income percentile have annual savings of less than US$2,000 (VND 45 million). It is expected that households with five years of savings could afford the standard 30% down payment for a mortgage. However, the lowest 40 percentile households have expenditures either higher than income or at marginal savings rates. Their capability to save for a down payment is limited as their annual income beyond basic spending is not adequate to cover the installments and interest on the remaining 70%. These households may be able to seek other funding sources. According to a survey conducted by W&S in 2013, 21% of homebuyers received money as a gift from family when buying a house. 5.5% NO VA LAND D20180328 78 A-79
of homebuyers used gifted money as a single source while 15.5% combined gifted money with loans. Figure 1. 38: Financing methods Housing Financing Methods Commercial mortgage Most banks provide commercial mortgages to borrowers purchasing properties, and thereby being eligible to commercial lending programs. This financing method is only available to middle and higher income households who work in the formal sector and can prove their employment and income by legal documentation. Three parameters of most interest are the mortgage rate, the amortization period and the loan to value (LTV) ratio. Commercial banks often apply promotion packages for specific projects. For example, as of Q2/2016, Vietcombank offers a mortgage rate of 7.5% pa in the first 12 months and then adjusts the rate to the 2-year savings rate plus 3.5%. This practice misaligns quoted mortgage rates from the long-run and sustainable mortgage rate. A rule of thumb is that the long-run mortgage rate should be equal to the 12-month savings rate plus a net interest margin of 3-4% pa. A survey of more than 20 credit institutions showed that the long-run mortgage rate would be around 10% pa. NO VA LAND D20180328 79 A-80
Figure 1. 39: Saving and mortgage rates Amortization periods range from 10 to 25 years among local banks, the mode is 15 years. All surveyed credit institutions use the highest LTV ratio of 70% for mortgages. However, the maximum financing ratio could be higher in some banks if a mortgage is secured by supplementary collateral. Table 1. 10: Maximum amortization period at banks No Bank Max amortization period (years) 1 Agribank 15 2 Maritime Bank 20 3 Vietcombank 15 4 Vietin Bank 15 5 ACB 15 6 Techcombank 25 7 Sacombank 25 8 BIDV 20 9 Seabank 15 10 SHB 15 11 ABBank 20 12 VPBank 20 13 HDBank 20 NO VA LAND D20180328 80 A-81
No Bank Max amortization period (years) 14 Military Bank 20 15 DongA Bank 10 16 PVComBank 20 17 OCB 15 18 Baoviet Bank 15 19 VietA Bank 20 20 NCB 15 21 TPBank 20 22 VietCapital Bank 15 23 ANZ 25 24 HSBC 25 Source: Savills Research & Consultancy, 2017 Government-supported financing programs The Vietnamese government does not maintain a continual subsidized mortgage program. The VND 30 trillion package officially closed as of March 2016 and was the most noticeable government-supported financing program. It provides mortgages to low-middle income households in urban areas with a fixed interest rate of 6% pa, a maximum tenure of 15 years and an LTV of 70%. The borrower must be a first-time homebuyer in low-income housing projects approved by the Government. Housing Affordability Housing affordability has been estimated based on households income, living costs and mortgage specification. Calculations have been carried out for all urban areas in Vietnam, using data from Vietnam Household Living Standards Survey 2014 and prevalent mortgage products. It is assumed that a typical household uses their 5-year savings to put a down payment on a mortgage and annual savings to cover equated monthly installment (EMI). NO VA LAND D20180328 81 A-82
Table 1. 11: Housing affordability (US$ thousands) Percentile 20% 30% 40% 50% 60% 70% 80% 90% Annual urban HH income (a) 3.6 4.6 5.6 6.5 7.6 8.8 10.8 14.5 Base living costs (b) 3.3 3.5 3.7 3.9 4.1 4.4 4.8 5.6 Savings/Max EMI (a-b) (c) 0.3 1.1 1.9 2.6 3.5 4.4 6.0 8.9 % Savings/ Annual Income (c/a) 8% 24% 34% 40% 46% 50% 56% 61% 5-year savings/down payment (d) 1.5 5.3 9.4 13.0 17.3 22.2 29.8 44.5 Typical mortgage condition (e) 15 years; interest of 10% pa; Maximal LTV of 70% Max mortgage (f) 2.3 8.3 14.6 20.1 26.8 34.4 46.3 69.0 Max property value (d+f) (g) 3.9 13.6 24.1 33.1 44.0 56.5 76.1 113.5 (a) (b) (e) (f) From Vietnam Household Living Standards Survey 2014; extrapolating 2016 s income level using an assumed annual growth rate of 8% Based on minimum living costs and estimated marginal propensity to consume From Savills Research & Consultancy survey Based on (c) and (d) Source: Savills Research & Consultancy Effective housing demand of the top 30 income percentile is from US$56,500 (VND 1.26 billion), comparatively high affordability. They are flexible with various housing solutions supplied by plentiful mid to high-end apartments and landed property. Households in the 50 70 income percentile can afford properties from US$33,100 US$56,500 (VND 0.74-1.26 billion). Their housing affordability is acceptable as they can purchase properties in affordable housing segment or social housing programs. For the 40 50 income percentile, the supply of affordable housing varies from US$24,100 US$33,100 (VND 0.54-0.74 billion); affordability of households in this segment is constrained. Social housing programs could be an optimal choice but the supply is limited and accompanied with strict criteria. Incremental housing construction also appears to be reasonable for households in this segment. Households in the bottom 40 income percentile struggle with housing affordability. Purchasing a property would be difficult for those households due to unavailability of supply in the range lower than US$24,100 (VND 0.54 billion). Without existing plots or homes, these households have to stay in the rental market. NO VA LAND D20180328 82 A-83
5 LEGAL FRAMEWORK 5.1 HOUSING OWNERSHIP The Land Law was updated in 2013 and has been effective since 1 July 2014. The land owner, in effect, manages the land on behalf of the state; land cannot be privately owned. Organisations and individuals can acquire land-use rights (LURs) via a land lease or a land allocation that may require a land-use fee (LUF). The land allocation is also known as a land grant. The differences between a land lease and a land allocation under the LUF are: For the land allocation, the land user pays a one-off fee, while for the land lease, the land user has a choice to pay the land rental on an annual basis or a one-off sum for the entire term of the lease A land allocation term of agreement can be either for a definite or indefinite timeframe, whereas a land lease is for a fixed term The land-use plan is approved annually by the local authorities, allowing land users to know which LURs are available. According to the revised law, foreign enterprises are now eligible to allocate land requiring land use fees for the development of residential projects for sale, or for sale and lease, promoting fairness between local and foreign investors in the property market. In addition, foreign investors may also acquire LURs through a land lease under which they can pay the land rental on an annual or lump-sum basis for residential projects for lease. The term of a land lease and a land allocation for foreign enterprises must not exceed 50 years, although for certain major projects under difficult circumstances, there is the possibility to increase the term to 70 years. However, eligible buyers will obtain freehold LURs. For sites used for diplomatic purposes, the lease term can be up to 99 years and extended. The new law also states that foreign entities eligible for land allocation and land lease with a oneoff lease payment are entitled to transfer, sublease, give, mortgage and contribute the LURs during the term. NO VA LAND D20180328 83 A-84
5.2 OVERSEAS OWNERSHIP RESTRICTION The amended Housing Law granting greater property rights to overseas nationals has been effective since 1 July 2015, with an implementation guide recently issued under Decree No. 99/2015/ND-CP. There are two groups of overseas nationals that are allowed to own properties: legal entities such as foreign investment funds and banks, Vietnamese, branches and representative offices of overseas companies that are established in Vietnam; and overseas nationals who have an appropriate visa entry. The Ministry of Construction issued Circular No.19/2016/TT-BXD guiding the implementation of the Housing Law, and Decree No. 99/2015/ND-CP stipulating the number of apartments that foreigners can own, aiming to tighten resale procedures that will increase real estate transparency as well as streamline paperwork and administrative procedures. The new law limits overseas ownership to 30% of the total units within an apartment complex, and a maximum of 250 houses in a ward. Overseas nationals are allowed to own properties as stated in commercial contracts, but are limited to a 50-year tenure. An overseas national married to a Vietnamese citizen or a Vietnamese expat is entitled to freehold tenure. The decree also allows foreigners to pay for the property via a financial organisation operating in Vietnam. The retail banking sector is highly competitive, and this could promote property mortgage access for overseas nationals. 5.3 AREA MEASUREMENTS All areas are quoted in sq. m. There are a variety of area measurements that may be quoted in agreements: Net area: usable area within a building measuring the internal face of the walls perimeter on each level, excluding columns. Gross area: all area containing the outside of the external walls. To protect apartment buyers rights, The Ministry of Construction issued a new regulation relating to the unit area of apartments that took effect on 8 April 2014. The area of an apartment unit is the net area that is applied in S&P contracts and the titles issued to buyers. This area calculates the management fee chargeable to the apartment owners. The net area is the usable area including the NO VA LAND D20180328 84 A-85
separated walls within the apartment, balcony and loggia attached to the apartment, but excluding the external walls, interior columns and the technical box. 5.4 TRANSACTION COSTS Agency Fees Leasing fees are equivalent to one month s rent and paid by the property owner, while purchase fees are usually 2% of the agreed price and paid by the seller. Security Deposits This is commonly a non-interest bearing, returnable deposit of three months gross rent that includes the service charge and rates. Legal Costs Legal costs vary on a case-by-case basis. Most fees are negotiable. 5.5 TAX LEGISLATION Land Stamp Duty Land stamp duty is charged at 0.5% of the total value and paid by the purchaser. Property Tax From 1 January 2015, sellers of any transaction will be taxed 2% of the selling price upon transference. VAT The amended VAT Law was implemented 1 January 2014. The new law defines exported goods and services that benefit from a 0% VAT rate as those consumed outside Vietnam and in non-tariff areas such as duty-free zones where goods and services are supplied to overseas clients as stipulated by the government. The new law added 5% VAT for the leasing and purchasing of social housing. Also entitled to a 5% rate are 15 groups of goods and services required for agricultural production; basic daily necessities and services for production and daily life; cultural activities, exhibitions and sports activities not for business; art performances and film production, import, publication and projection. A standard 10% applies for all other categories. NO VA LAND D20180328 85 A-86
Tax Depreciation The straight-line method is used for buildings. Corporation Tax From 1 January 2014, the Corporate Income Tax (CIT) rate is 22%, except for cases eligible for preferential tax. From 1 January 2016, enterprises paying 22% CIT rates will be charged 20% CIT. Enterprises that are established according to Vietnamese law and have a total annual turnover of goods and services below VND20 billion (equivalent to about US$896,861) will be granted the CIT rate of 20%. Enterprises that engage in leasing and purchasing social housing will have a 10% CIT rate. PIT According to Resolution No. 26/2012/QH13 of the Law on Personal Income Tax (LPIT), issued on 22 November 2012 and effective on 1 July 2013, the scale of progressive tax tariffs on each portion of income applied to business income and salaries are as shown in Table 76. Table 76 applies to residential individuals with a taxable income from a business and/or from salary after deductions for dependents, insurance premiums and contributions to charitable funds. Tax bracket Portion of annual assessable income (VND million) Portion of monthly assessable income (VND million) Tax rate (%) 1 Up to 60 (US$2,881) Up to 5 (US$240) 5 2 Over 60 120 (US$2,881 US$5,761) Over 5 10 (US$240 US$480) 10 3 Over 120 216 (US$5,761 US$10,371) Over 10 18 (US$480 US$864) 15 4 Over 216 384 (US$10,371 US$18,437) Over 18 32 (US$864 US$1,536) 20 5 Over 384 624 (US$18,437 US$29,960) Over 32 52 (US$1,536 US$2,497) 25 6 Over 624 960 (US$29,960 US$46,092) Over 52 80 (US$2,497 US$3,841) 30 7 Over 960 (US$46,092) Over 80 (US$3,841) 35 Source: Source: Savills Research & Consultancy Family exemption is deducted from taxable income before levying income tax on business activities, salaries and wages. Family exemption includes the following: A taxpayer deduction of US$432 per month (US$5,185 per year); A deduction for each dependent of US$173 per month. If the volatility of the CPI is over 20% that of when the law went into effect, or there is a recent adjustment in family exemption, the government will request the National Assembly Standing NO VA LAND D20180328 86 A-87
Committee to adjust exemptions based on price volatility. This exemption will be carried forward to the next tax period. With regard to other income streams, tax rates are shown in Table 77. Taxable income Tax rate (%) Income from capital investments (including interest from loan and dividend) 5 Income being royalties and income from franchises 5 Income being winnings or prizes valued more than VND10 million for each reward 10 Income from inheritances, gifts valued more than VND10 million for each receipt 10 Income from capital transfers pursuant to Clause 1 Article 13 of LPIT 20 Income from transfers of securities regulated in Clause 2 Article 14 of LPIT 0.1 Income from real property transfers regulated in Clause 2 Article 14 of LPIT 2 Source: Savills Research & Consultancy Withholding Tax & Tax Treaties So far, Vietnam has signed tax treaties with more than 50 nations and territories, which include: Australia, Austria, Bangladesh, Belarus, Belgium, Brunei, Bulgaria, Canada, China, Cuba, Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Republic of Korea, Democratic People s Republic of Korea, Laos, Luxembourg, Malaysia, Mongolia, Morocco, Myanmar, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Qatar, Romania, Russia, Saudi Arabia, Serbia, Seychelles, Singapore, Slovakia, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Tunisia, UAE, UK, Ukraine, Uzbekistan and Venezuela. 5.6 LEGAL ISSUES Foreign currency control Decree No. 70/2014/ND-CP allows foreign investors to use their revenues in Vietnamese dong to buy foreign currencies from authorised banks and transfer them abroad within 30 days from the exchange date if they have requested to transfer their legal income in Vietnamese Dong from their direct investment in Vietnam. Land Price Framework According to the Revised Land Law 2013, the local People s Committee will no longer establish a yearly frame for land prices. Instead, the government will regulate the general frame for land prices NO VA LAND D20180328 87 A-88
on a five-year basis. The local People s Committee will consider the decisions on a yearly frame on a case-by-case basis. Authorities can refer to land prices surveyed through valuation institutions for decisions and compensation that are not based on governmental frames. This policy will support investors who take an active approach during their projects selection stage and in hiring valuation consultants. Land-Use Taxation Under the Law on Land Use Taxation as of 17 June 2010, the following kinds of LURs are subjected to taxation: 1) urban and rural residential land; 2) land used for non-agricultural production, such as industrial parks, production facilities and mines; and3) other non-agricultural land uses for business or religious purposes, including cemeteries. The law specifies methods of tax calculation and provides progressive tax rates beginning at a minimum of 0.03% and up to a maximum of 0.15%. Apartments as Offices Ban The use of apartments for office or trading space is banned as ruled in Article 6, Clause 11 of the Residential Housing Law 2014, as this type of activity causes disruption to other residents and decreases the general safety of the apartment building. Sale of Land Plots without Raw Buildings Decree No. 11/2013/ND-CP allows investors to sell land plots without any raw buildings. Investors must fulfil all necessary infrastructure requirements before handing over the title to buyers. This regulation will be applied to projects located in only specified areas. Payment Profile Restrictions for Development Projects The implementation of the Revised Housing Law has been effective since 1 July 2015. Residential developers can only accept payment upon the completion of the project s foundation. The first payment cannot exceed 30% of the unit value and the sum of all the payments is not to exceed 70% before the unit is handed over. The threshold is limited to 50% for overseas developers. Real Estate Trading Floors The revised Law on Real Estate Business (LREB) was passed on 25 November 2014, and was effective as of 1 July 2015. The new law does not require individuals and enterprises to lease, sell or purchase NO VA LAND D20180328 88 A-89
their properties through a real estate trading floor. An enterprise that engages in real estate trading floor activities must have at least two employees that are certified real estate brokers. Contract Templates Decree No. 76/2015/ND-CP regulating the implementation of the LREB was finally issued on 10 September 2015, and was effective as of 1 November 2015. Decree 76 provides contract templates for a number of real estate transactions e.g. sale and purchase agreements, pre-sales contracts and hire-purchase contracts. 5.7 KEY LEGISLATION Revised Law on Real Estate Business 2014 Revised Law on Residential Housing 2014 Revised Land Law 2013 Revised VAT Law 2013 Decree 11/2013/ND-CP Decree 70/2014/ND-CP Decree 76/2015/ND-CP Decree 99/2015/ND-CP Circular No. 19/2016/TT-BXD Circular No. 06/2016/TT-NHNN NO VA LAND D20180328 89 A-90
6 REAL ESTATE CYCLE Apartment market movements in HCMC have been analysed to provide a general overview of the real estate cycle for the last 15 years. The residential market faced various difficulties from 2007 to 2012, prior to recovery in 2013. A property bubble experienced in 2008 was a direct outcome of impressive GDP growth, loosening of credit policies, and abundant speculation. In 2007, Gross Domestic Product (GDP) growth achieved a peak of 12.6%; making the real estate market more attractive. The Consumer Price Index (CPI) was 18.1% in 2008, due to credit growth experiencing a 37% increase in 2007. According to the SBV, in 2007, real estate loans in HCMC accounted for 10% of total outstanding loans, rather than the standard figure of 3%. From 2009 to 2012 (with the exception of 2010) the real estate market was frozen, with apartment prices significantly softened. The government implemented a macro-economic stabilization policy and curbed inflation, impacting the growth of GDP. Economic crises experienced during the period of 2008-2009 and 2011-2012 also negatively impacted Vietnam s economy. In 2012, bad debt within the real estate market in HCMC reached the substantial figure of VND4,125 billion; accounting for 6.3% of outstanding real estate debt, equivalent to 15% of bad debt within the industry nationwide. Real estate developers were required to adjust selling prices in order to increase absorption. This is demonstrated in the Savills Property Price Index (SPPI) in Figure 1.2. Indexes experienced a downtrend from 2011 to the end of 2012. Furthermore, a high inventory level had a major impact on price trends. Since 2013, the apartment market has recovered with a price increase of 9% pa. High urbanization rates and infrastructure development in HCMC strongly contributed to the overall improvement. The government issued various operational regulations and financial policies in order to maintain sustainable real estate development. Also from 2013, the real estate market witnessed positive signs such as the rise of large domestic developers (Novaland, Vingroup) and entrances of foreign developers (CapitaLand, Gamuda Land and Keppel Land) as well as a shift from abundant speculation. Developer credibility and NO VA LAND D20180328 90 A-91
construction commitments helped to increase homebuyer confidence. Financial support from bank partners and a stable interest rate also encouraged the confidence of prospective purchasers, leading to increases in sales volume and market liquidity. Figure 1. 40: Whole market price trend 1,800 US$/sq 1,600 1,400 1,200 1,000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Savills Research & Consultancy Apartment prices quoted above are the average primary selling prices in HCMC from 2001 2017. NO VA LAND D20180328 91 A-92
PART 2: HCMC OVERVIEW NO VA LAND D20180328 92 A-93
1 OVERVIEW According to HCMC s Plan for Socio-Economic Development to 2020 and Vision to 2025, the city will focus on hi-tech and knowledge intensive industries and shift labor intensive industries to surrounding cities/ provinces. Ho Chi Minh City will begin to prioritize information technology (IT) and telecommunication industries development. The new center of HCMC will cover five central areas, including districts 1, 3, part of district 4 and Binh Thanh, and Thu Thiem New Urban Area (NUA) in district 2. In the CBD, district 1 is the administrative, financial and business hub of the city. This district accounts for more than 50% of total office space in HCMC and has many modern retail centers, resulting in the city s highest retail density at 0.9 sq m/person. Most industrial parks (IPs) in HCMC are located in suburban districts, the largest suppliers being Cu Chi and Nha Be. There are four satellite urban areas in four directions: east, west, south, and north. The eastern urban area will comprise of districts 2, 9 and Thu Duc, with total 211 sq km area. Adjacent to the HCMC - Long Thanh - Dau Giay Expressway, Thu Thiem NUA will be its center. This central NUA will develop high-class services (including finance and credit), hi-tech industries, ecological tourism and others. The western urban area will consist of all Binh Tan District, parts of wards 7 and 16 of district 8, four Binh Chanh district communes, An Phu Tay, Tan Kien, Vinh Loc A and Vinh Loc B. This area will have Tan Kien as the central quarter and spans contiguously to National Highway 1. With 109 sq km area and 810,000 population, focus will be on service industries, industrial parks, and new residential areas. The southern urban area will include districts 7, Nha Be, a part of ward 7 of district 8, and two communes of Binh Chanh Binh Hung and Phong Phu. The South Saigon urban area, including Phu My Hung NUA, will have a 169 sq km area and a population of 470,000. This urban area economy will focus on industry and port services. NO VA LAND D20180328 93 A-94
The northern urban area will comprise district 12 and Hoc Mon, with a total 162 sq km area and 860,000 population. Tan Thoi Nhi commune will be its central quarter and focus will be on servicebased economy, ecological tourism, hi-tech agriculture, and new residential areas. Map 13: HCMC urban development plan HCMC will focus development to the east and south. The main districts 2 and 7, are expected to attract many new residents. The east covers districts 2, 9 and Thu Duc and connects to Binh Duong and Dong Nai provinces, as well as Southeast region provinces. Key area infrastructure projects are the Vo Van Kiet Highway and the HCMC Long Thanh Dau Giay Expressway. Beyond those existing, more NUAs will be developed along the Hanoi Highway. The south is also an important direction with key infrastructure projects such as Nguyen Huu Tho Street, future residential projects in D1 and Nha Be are expected to have a connection to this main route. NO VA LAND D20180328 94 A-95
2 DEMOGRAPHICS 2.1. POPULATION According to the GSO, HCMC s population is over 8.6 million in 2017, accounting for approximately 9% of Vietnam s population. High economic growth has led to migration and more mechanical population growth. Over the last decade, the city s population increased 3% pa, higher than the national average of 1.1% pa. Population growth slowed to 1% in 2016 due to rising labor costs and the authorities ceasing programs to attract investment into labor-intensive industries. According to the Institute for Development Studies, HCMC s population will have an average 2.65% pa growth from 2018 to 2020. Figure 2. 1: HCMC population to 2020 10,000 7,500 Total population 7,791 7,939 8,072 8,247 8,441 8,661 YoY growth 8,890 9,126 9,368 3% 2% 5,000 1% 2,500 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: PSO, 2017 0% NO VA LAND D20180328 95 A-96
Map11: HCMC Population Density & Retail Market NO VA LAND D20180328 96 A-97
2.1. AGE STRUCTURE In 2017, HCMC has a robust working age group demographic window and a high immigration rate. According to the HCMC Statistical Office, approximately 55% of the population are under 30 years old. The labor force represents approximately 70% of total city population. Figure 2. 2: HCMC population by age group Age 80+ 75-79 70-74 65-69 80,000 70,000 95,000 120,000 60-64 230,000 55-59 360,000 50-54 450,000 45-49 530,000 40-44 640,000 35-39 710,000 30-34 850,000 25-29 980,000 20-24 800,000 15-19 10-14 5-9 500,000 480,000 520,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Source: GSO, Population Forecast, December 2014 People HCMC s demographic make-up has been fast evolving. Due to government implementation of family planning, the birth rate dropped during the 1980 s, resulting in the current reduction of the young adult population and an expansion of the young family class. 2.2. HOUSEHOLD SIZE According to Census 2009 and Inter-Census 2014, HCMC s average household size reduced from 3.97 to 3.83 persons during 2009-2014. The household size decreased at the rate of 0.72% pa during this period. Urban families had an average size of 3.85 persons, larger than rural families average size of 3.72. NO VA LAND D20180328 97 A-98
HCMC s household size is at a similar level to comparable cities such as Hanoi, KL and Manila and much lower than less developed cities namely Vientiane and Phnom Penh. Figure 2. 3: HCMC household size 6 people/household 5 4.6 4.8 4 3.8 3.8 3.8 4.1 3 2.7 2 1 0 Bangkok (2010) Hanoi (2014) KL (2010) HCMC (2014) Manila (2015) Vientiane (2015) Phnom Penh (2013) Source: Statistics Offices of Surveyed Countries NO VA LAND D20180328 98 A-99
2.3. URBANISATION The urbanization rate of HCMC was approximately 3% pa during 2010-2016, lower than Hanoi and Vientiane and outperforming other regional peers. Figure 2. 4: Urbanisation 14,000 7% 12,000 6% 10,000 5% 8,000 4% 6,000 3% 4,000 2% 2,000 1% 0 Manila Jakarta Bangkok HCMC KL Singapore Yangon Hanoi Phnom Penh Vientiane Urban inhabitants (Thousand) 13,168 10,468 9,497 7,542 7,063 5,734 4,900 3,820 1,779 1,052 Urbanisation rate, 2010-2016 2% 1% 2% 3% 3% 2% 2% 5% 3% 6% 0% Source: The UN, World Urban Areas, 2016 Edition NO VA LAND D20180328 99 A-100
2.4. HOUSEHOLD INCOME According to the Vietnam Household Living Standards Survey (2014), the median household income in urban areas of HCMC reached VND 157 million in 2014 while the average income was 25% higher at VND 195 million. The income distribution is skewed to the right with 65% of household having income lower than the average. HCMC s average nominal GDP growth was approximately 12% pa over the last two years (2015 2017). Given the population growth rate of nearly 3% pa as provided by the GSO, household incomes could increase by 10% pa. Using this household income growth rate, the median household income should be VND190 million as of 2016. Figure 2. 5: HCMC household income structure, 2014 NO VA LAND D20180328 100 A-101
3 MACRO 3.1 GDP AND GDP PER CAPITA Over the last five years, HCMC average GDP growth was 9.5% pa. In 2017, HCMC s GDP was estimated at US$46.5 billion, an increase of 8.3% YoY. HCMC is currently the largest contributor and accounts for approximately 22% of the country s GDP. Figure 2. 6: HCMC GDP 2011-2017 US$ Billion 50 % 15 40 12 30 9 20 6 10 3 0 2011 2012 2013 2014 2015 2016 2017 GDP, current prices 27.3 31.5 36.1 40.1 43.7 44.9 46.5 GDP growth rate 10.3 9.2 9.3 9.6 9.9 8.1 8.3 Source: HCMC's Statistical Office 0 HCMC has sustained strong growth momentum in the recent years. Average annual economic growth reached 9.2% in 2012-2016, outperforming the national average. According to HCMC authorities, the city will achieve a GDP growth rate of 9.5-10% pa during 2017-2020. NO VA LAND D20180328 101 A-102
Figure 2. 7: HCMC GDP per capita, 2011-2016 7,000 US$/Person % 14 6,000 12 5,000 10 4,000 8 3,000 6 2,000 4 1,000 2 0 2011 2012 2013 2014 2015 2016 GDP per capita (LHS) 3,599 4,037 4,542 4,957 5,318 5,739 Growth rate (RHS) 12.5 12.2 12.5 9.1 7.3 7.9 Source: HCMC's Statistical Office 0 3.2 INFLATION The government succeeded in controlling the low inflation rate from 2012-2016 at under 2%. However, CPI strongly increased by 4.2% in 2017, due to increasing healthcare and medicine costs, tuition fees and a minimum wage increase. Figure 2. 8: CPI 5 % 4 4 3 2 2 1 0 0 0 0-1 -1 2012 2013 2014 2015 2016 2017 Source: PSO, 2017 NO VA LAND D20180328 102 A-103
3.3 ECONOMIC STRUCTURE HCMC s economy is currently dominated by services and manufacturing and construction. The service sector continues to expand while manufacturing is shrinking and relocating to neighboring provinces such as Binh Duong, Dong Nai and Long An. This aligns with HCMC s development plan emphasizing high-tech industries and the service sector. Figure 2. 9: HCMC economic structure 100% 75% Services Industry & Construction Agriculture Indirect tax 1% 16% 1% 45% 25% 50% 25% 54% 58% 0% Source: PSO, 2017 2011 2017 3.4 RETAIL & TOURISM REVENUE Retail sales of goods increased 5% pa from 2012-2017. According to the Provincial Statistics Office (PSO), HCMC retail sales reached US$26 billion in 2017, increasing 11% YoY. Excluding inflation, real growth of 7% demonstrates increasing opportunities for retail development. Tourism revenue increased 8% pa from 2012-2016, supported by strong tourist growth. NO VA LAND D20180328 103 A-104
Figure 2. 10: Retail sales US$ Billion 30 25 20 15 10 5 0 2013 2014 2015 2016 2017 Retail sales 20.3 21.7 22.0 23.8 26.2 YOY growth 2% 7% 2% 8% 10% 12% 10% 8% 6% 4% 2% 0% Source: Ho Chi Minh Statistical Office, 2017 Figure 2. 11: Tourism Revenue 1.4 1.2 1.0 0.8 0.6 0.4 0.2 US$ billion 12% 10% 8% 6% 4% 2% 0.0 2013 2014 2015 2016 Tourism revenue 0.9 1.0 1.1 1.2 YOY growth 7% 9% 10% 6% 0% Source: Ho Chi Minh Statistical Office, 2017 NO VA LAND D20180328 104 A-105
3.5 TRADE BALANCE & EXCHANGE RATE Supply The city maintained a positive trade balance from 2012-2015, however strong growth of imports over the last two years resulted in a trade balance deficit. In 2017, trade deficit was substantial at US$7.8 billion, despite strong 22% YoY import growth. The exchange rate of US$ ]strongly increased 2% pa from 2012-2017. Figure 2. 12: HCMC trade balance billion USD 50 40 30 20 10 0-10 -20 2012 2013 2014 2015 2016 2017 Export 28.3 26.9 29.1 27.1 29.3 35.5 Import 22.5 26 25.6 25.6 32.9 43.3 Trade balance 5.8 0.9 3.5 1.5-3.6-7.8 Source: Ho Chi Minh Statisitical Office Figure 2. 13: Exchange rate 23,000 VND 22,500 22,443 22,735 22,000 21,989 21,500 21,000 20,938 21,185 21,243 20,500 20,000 2012 2013 2014 2015 2016 2017 Source: Ho Chi Minh Statisitical Office NO VA LAND D20180328 105 A-106
3.6 FDI According to the Statistical Office, newly registered capital for FDI projects in HCMC at the end of 2012 was US$0.6 billion. During 2013-2015, newly registered capital increased 72% pa and by 2015 grew to US$3 billion. However, due to fewer large-scale FDI projects it was down -57% YoY in 2016 to approximately US$1.3 billion. At year-end 2017, total registered FDI to HCMC was more than US$6.3 billion. Additional registered FDI from 193 projects was over US$960 million; FDI from mergers and acquisitions (M&A) of 2,253 projects was approximately US$3 billion and new registered FDI from 802 projects was over US$2.3 billion. New real estate enterprises increased FDI to approximately US$1 billion and accounted for 43.4% of all newly-registered capital. This increase infers that there will be many new residential projects in the near future. Figure 2. 14: HCMC newly registered FDI Projects 900 750 600 450 300 150 Billion US$ 4 3 2 1 0 2012 2013 2014 2015 2016 2017 Newly registered FDI 0.6 1.0 2.8 3.0 1.3 2.3 Number of projects 436 477 457 595 852 802 0 Source: HCMC Statistical Office NO VA LAND D20180328 106 A-107
3.7 REMITTANCE By end of 11M/2017, remittances to HCMC only reached US$4.8 billion. Zero deposit rates on foreign currency savings and new USA immigration restrictions limited money sent abroad. Figure 2. 15: HCMC remittances Billion US$ 6 5 4.1 4 4.9 5.0 5.5 5.0 4.6 3 2 1 0 2012 2013 2014 2015 2016 11M/2017 Source: State Bank of Vietnam NO VA LAND D20180328 107 A-108
3.8 RENTAL YIELD Figure 2. 16: HCMC rental yield 6 %pa 5.18 4.89 4 2.45 2 0 HCMC Kuala Lumpur Singapore Source: Savills Research & Consultancy, Numbeo The average rental yield in 2017 of HCMC apartment market was 5.2%, slightly higher than Kuala Lumpur but double than Singapore. The city apartment market has attracted a large proportion of buy-to-let investors, thanks to reasonable prices and appealing yields. 3.9 HOUSING NEED ANALYSIS As a metropolitan area with high population density, HCMC has relatively Low Net Floor Area (NFA) per capita. NFA per capita reached 17 sq m as of 2015, substantially lower than the nationwide 25 sq m average. As planned by government, 80 million sq m NFA is to be constructed during 2016-2020 to raise NFA per capita to 19.8 sq m. Housing needs can stem from new household formation and qualitative housing deficit. With a high urbanization rate and small household size, urban households will increase relatively quickly. Based on SPM results in section 4.6, annual new housing demand will be over 130,000 units from 2018-2022. According to the VHLSS 2014, median urban area household incomes in HCMC reached VND 157 million in 2014. Income distribution was skewed to the right with 65% of households having income NO VA LAND D20180328 108 A-109
lower than the average. According to this data, it was estimated that the top 30% of income earners in HCMC would be able to afford mid- and high-end housing. Figure 2. 17: HCMC household income structure 2014 Table 2. 1: Household savings HCMC (thousand US$) Percentile 60% 70% 80% 90% Annual household income (a) 9.5 11.4 13.9 18.8 Marginal propensity 20% Expenditure (b) 5.5 5.9 6.4 7.4 Savings/ EIM (a-b) ( c) 4.0 5.5 7.5 11.4 5-year savings/down payment (d) 20.0 27.5 37.3 57.0 Typical mortgage condition (e) 15 years; interest of 10% pa; Maximal LTV of 70% Max mortgage (f) 31.0 42.7 57.9 88.4 Max property value (d+f) (g) 51.0 70.3 95.2 145.4 (c) From Vietnam Household Living Standards Survey 2014; extrapolating 2016 s income level using an assumed annual growth rate of 8% (d) Based on minimum living costs and estimated marginal consumption propensity (e) From Savills survey (f) Based on (c) and (d) Source: Savills Research & Consultancy NO VA LAND D20180328 109 A-110
4 MAJOR DEVELOPERS Domestic developers are the major residential developers in Vietnam. Novaland and Vingroup are known as the most reputable developers with advanced portfolios and large lank bank. In the south of the country, Novaland has inaugurated more than 30 mid to high-end projects in HCMC and attracted loyal buyers due to their credibility and strong financial capability. In the same segment, Phu My Hung, a credible foreign developer, has succeeding in developing Phu My Hung NUA. Table 1. 12: Top HCMC developers in 2017, Grade B apartment market 2017 1 2 3 4 5 Novaland Phu My Hung Keppel Land Vingroup Ha Do Listing x x Local developer x Residential, Retail, Development focus Residential Residential Office Residential Residential Retail, Office Target market Middle + Upper Upper + Luxury Upper + Luxury Upper + Luxury Middle Revenue (real estate) US$ million 484.7 - - 2,750(*) 50.7 COGS (real estate) 339.6 - - 1,676 (*) 33.6 Market share 24% 9% 9% 7% 7% (*): corporate statistic across Vietnam NO VA LAND D20180328 110 A-111
Major residential developers differ in north and south of Vietnam. In the south, Novaland had the largest market shares and highest number of developed projects. Southern area HCMC Considering Grade B apartment market, Novaland was the largest developer with 24% market share. As an upmarket developer, Novaland has inaugurated more than 30 developments around the city, mostly in the secondary area. Figure 1. 41: Top HCMC developers in 2017, Grade B apartment Novaland 23% 24% Phu My Hung Keppel Land Vingroup 3% 4% 4% 4% 6% 7% 7% 9% 9% Ha Do Corp Gamuda Land Sun Wah TNR Holdings Trung Thuy Capitaland Others Source: Savills Research & Consultancy Market share was calculated based on total number of transactions of Grade B apartments in HCMC in 2017. NO VA LAND D20180328 111 A-112
Table 1. 13: Top future developments Developer Future project Target segments Scale (ha) Project B Apartment 1 Project C Apartment 12 Project D Villa/Townhouse 9 Project E Apartment 1 Project F Apartment 5 Project H Apartment 10 Novaland Project I Apartment 83 Project J Apartment 1 Project K Apartment 3 Project P Apartment 30 Palm Marina A Villa/Townhouse 134 Palm Marina B Villa/Townhouse 158 Harbor City Villa/Townhouse 50 Empire City Apartment 14.5 Riviera Point Apartment 12.7 Keppel Land Saigon Sport City Apartment, Villa/Townhouse 64 Palm Garden Apartment 1.9 Dong Nai Waterfront City Apartment, Villa/Townhouse 367 Ehomes Nam Saigon Apartment, Villa/Townhouse 2.6 Nam Long Hoàng Nam Apartment 8.5 Areco Apartment, Villa/Townhouse N/A Valora Mizuki Villa/Townhouse 26.3 Opal Sky View Apartment 0.3 Lux Riverview Apartment 0.9 Square Plaza Apartment 0.4 Dat Xanh Opal Plaza Apartment 1.1 Cara Riverview Apartment 0.4 High Intela Apartment 0.9 Lux Star Apartment 1.1 NO VA LAND D20180328 112 A-113
PART 3: HCMC RESIDENTIAL NO VA LAND D20180328 113 A-114
1 APARTMENT 1.1. SUPPLY Overview After strong increases in primary supply and transactions in 2010, the apartment market experienced a downturn through 2011-2012. From 2012-2016, apartment primary supply in HCMC increased 38% pa. To meet high demand from low to middle income end-users, Grade C has dominated the market over the last five years. In 2017, Grade B had the highest annual growth rate to capture requirements from mid to highincome groups looking for better living standard environments with professional management and full internal facilities. Grade B growth was 93% pa while Grade A and C was 22% and 15% respectively. By 2017, some 467 apartment projects provided more than 200,200 units. Primary supply was more than 32,600 units, decreasing -8% QoQ and -27% YoY due to limited new launches. Table 3. 1: Summary Status/type Projects Units Active primary 128 91,019 100% sold 339 109,197 Active & 100% sold 467 200,216 From 2018-2020 65 68,230 Source: Savills Research and Consultancy NO VA LAND D20180328 114 A-115
Figure 3. 1: Primary grade supply 80,000 Units 60,000 40,000 20,000 0 2012 2013 2014 2015 2016 2017 Grade A 5,369 1,266 996 1,387 2,524 2,081 Grade B 2,051 3,994 9,100 28,172 28,503 23,626 Grade C 13,938 14,151 15,911 22,100 31,323 39,023 Source: Savills Research & Consultancy New Launches In the last three years, HCMC apartment market welcomed new supply of more than 30,000 units/year. Figure 3. 2: Newly launched units 40,000 Units 30,000 20,000 10,000 0 2012 2013 2014 2015 2016 2017 Grade A - - - 782 1,594 622 Grade B 84 2,232 6,175 23,034 13,659 7,049 Grade C 3,154 4,143 9,450 13,400 16,216 21,377 Source: Savills Research & Consultancy NO VA LAND D20180328 115 A-116
In Q4/2017, thirteen new and six active phases supplied approximately 8,500 units, down -20% QoQ but up 7% YoY. In 2017, total new supply reached over 29,000 units. Grade C continued having largest supply after 4 consecutive quarters, accounting for 74% share. Grades A and B new supply declined -61% and -48% YoY respectively while Grade C increased 32% YoY. Binh Chanh had the largest new supply with over 1,300 units, accounting for a 27% share. District 2 had a 21% share by having approximately 1,000 units launched. Table 1.14: Newly launched projects New Next phase No. Project Location Grade Units 1 Kenton Node Nha Be B 316 2 New City Thu Thiem dist. 2 B 509 3 HausNeo dist. 9 C 560 4 Saigon Avenue Thu Duc C 840 5 Saigon Intela Binh Chanh C 544 6 Flora Mizuki Binh Chanh C 576 7 M-One Gia Dinh Go Vap C 156 8 Pegasuite 2 dist. 8 C 301 9 Citi Esto dist. 2 C 264 10 Thu Thiem Dragon dist. 2 C 275 11 Green Field 686 Binh Thanh C 322 12 Rosena Binh Thanh C 98 13 Calla Garden Binh Chanh C 217 1 Sun Wah Pearl Binh Thanh B 70 2 Celadon City - Emerald Precinct Tan Phu B 795 3 Jamila dist. 9 C 205 4 The Art dist. 9 C 843 5 Topaz Elite dist. 8 C 1,099 6 Tara Residence dist. 8 C 518 Total Launched Supply 8,508 Two new Grade B projects entered the market in Q4/2017: Kenton Node, in Nha Be District, changed its name from Kenton Residences and re-entered after a construction halt in 2011. The project is located on Nguyen Van Linh Boulevard and Nguyen Huu Tho Street intersection and has excellent river views. Kenton Node is a largescale complex with retail, apartment, shophouse, hotel and office components. There are fourteen 21-23 level residential towers, providing 316 units at an average price of US$1,850/sq m. Project amenities include a 2,000 sq m swimming pool, and entertainment square and a sky theatre. NO VA LAND D20180328 116 A-117
New City Thu Thiem, developed by Thuan Viet, is located on Mai Chi Tho Street in District 2. It has excellent connectivity and is within 3km of the CBD. Resident and commercial facilities include a shopping mall and schools. Four 26-29 level towers provide more than 1,200 units from 45 to 300sq m at an average selling price of US$1,980/sq m. With handover in early 2018, the project has attracted attention. Eleven new Grade C projects launched in Q4/2017: Located in District 9, HausNeo is the first project from European developer EZ Land. The project has two 18 level towers and 1- and 2-bedroom units from 45 to 67sq m at average prices of US$950/sq m. With these smaller sized units, Hausneo targets small families and buy-to-let investors. Down payment is 47% of total unit price with low 1%/mth instalments until handover. Saigon Avenue has frontage to Ring Road 2 in Thu Duc District and was developed by the Lan Phuong Corporation. The project provides mainly 2- and 3-bedroom units with an average selling price of US$872/sq m. Located in Go Vap District, M-One Gia Dinh was developed by Thao Dien Investment. With no new supply in this district for three consecutive quarters, the project garnered a great deal of buyer attention. The two 13-15 level towers have a total of 156 one- to 3-bedroom units from 49 sq m to 90 sq m at an average selling price of US$1,370/sq m. Facilities include a gym and infinity pool. Residents can easily access amenities within 2km such as Auchan supermarket; Big C Go Vap; Vincom Go Vap; Gia Dinh Park; schools and hospitals. Pegasuite 2 by PV Invest is located on Ta Quang Buu Street in District 8. The 28-level tower provides 361 units from 51 to 96 sq m with an average selling price US$1,130/sq m. Inner facilities include a gym, playground, BBQ area and infinity pool. Binh Chanh had 3 new project launches, together supplying over 1,300 units with 80% of the mix being 2-bedroom. With a location in an outlying area, average selling prices range from US$790/sq m to US$1,100/sq m. Binh Thanh saw 2 new projects launch providing over 400 units: Green Field 686 and the Rosena. Green Field 686 is the first apartment project by ACSC with 85% of the mix being 2-bedroom units. Located on Xo Viet Nghe Tinh Street, Green Field 686 has easy connection with Thu Duc District, suburban areas and Binh Duong via National Highway 13. It had a cheaper than average selling price of approximately US$1,200/sq m compared to Rosena s higher price of US$1,300/sq m. Rosena, the first project developed by Newcity NO VA LAND D20180328 117 A-118
Group and Baolongland, attracted buyers with its close proximity to universities, shopping malls, markets and hospitals. 2 new projects launched in district 2: Citi Esto by Kien A and Thu Thiem Dragon by Thu Thiem Investment Group. Located in the Cat Lai NUA, Citi Esto leverages accessibility to amenities such as kindergarten, shopping mall, gym, spa, sport center with central park and surrounding areas. Citi Esto is competitively priced at approximately US$1,100/sq m when compared to Thu Thiem Dragon at US$1,520/sq m. Thu Thiem Dragon is located near the district administration center and residential developments. Successful projects continued to launch later phases: Emerald Precinct by Gamuda Land, located in Celadon City in Tan Phu, launched three of six towers, providing 795 units at an average price of US$1,530/sq m. Topaz Elite launched the Dragon 1 and Dragon 2 towers supplying nearly 1,100 two- to 3- bedroom units with an average selling price of US$1,030/sq m. NO VA LAND D20180328 118 A-119
By Grade Grade A Over the past five years due to a lack of new supply, Grade A primary stock has accounted for less than a 10% market share. In 2016, the entrance of five Grade A projects resulted in primary supply reaching a five-year high with approximately 1,400 primary units, an increase of 82% YoY. Notably, Vinhomes Golden River developed by Vingroup in District 1 entered providing more than 1,500 units. In 2017, Grade A had 3% share and the smallest primary proportion, providing approximately 2,100 units, down -18% YoY. District 1 had the majority Grade supply with over 800 units, representing 74% of grade share. Grade B Primary supply had strong increases of 93% pa from 2012 to 2016. However in 2017, Grade stock decreased -17% YoY to over 23,600 units. Grade B development has been mainly concentrated in districts surrounding District 1, including Districts 2, 4 and 7. This grade also attracts the highest numbers of foreign developers such as CapitaLand, Keppel Land and the Phu My Hung Corporation. Notable local developer Novaland is the largest Grade B developer with more than 3,400 units. Grade C This grade accounted for over 70% of total primary stock from 2012 to 2014. However, from 2015-2016, grade share decreased to 45% after the growth of Grade B. In 2017, Grade C dominated the primary market. Supply was over 39,000 units, accounting for a 60% market share. The majority of Grade C projects are in Districts 6, 7, 8, 9, Binh Thanh, Thu Duc and Tan Phu. Some developers furthered their brand by building apartment chains in certain grades. Different chains will cater different target buyers and provide stronger developer brand identity. For example: Nam Long, Dat Xanh and Hung Thinh focus on more affordable Grade C housing with developments mainly in outlying districts such as Districts 9, Thu Duc and Binh Tan. In recent quarters, Grade C projects have seen improved internal facilities as developers shift focus to improve quality. Apart from basic facilities such as swimming pool, gym and convenience stores, Grade C inner facilities often now include parks, kindergartens, cinemas and NO VA LAND D20180328 119 A-120
restaurants. Topaz Elite, Tara Residence, Citi Esto and Flora Mizuki provide extensive internal facilities such as large parks and shopping malls up to 30,000 sq m. Grade B developers have been differentiating their products by providing private elevators for 4-bedroom units and/or duplexes and raising standards of handover condition and equipment. By Location As of Q4/2017, primary supply was dominated by Binh Thanh District and District 8 which together hold a 30% market share. Figure 3. 3: Primary District stock Q4/2017 6,000 Units % 21 5,000 18 4,000 15 12 3,000 9 2,000 6 1,000 3 0 Binh Thanh D.8 Tan Phu D.9 Nha Be D.2 D.7 Thu Duc Binh Chanh D.6 Binh Tan D.4 D.10 D.1 D.12 Primary stock 4,917 4,799 3,228 2,903 2,381 2,296 1,831 1,761 1,537 1,342 998 943 919 811 734 362 905 Market share 15 15 10 9 7 7 6 5 5 4 3 3 3 2 2 1 3 Tan Binh Others 0 Source: Savills Research & Consultancy Binh Thanh continued to have the greatest share in primary supply with over 4,900 units, accounting for a 15% share. Due to significant levels of remaining stock of the large-scale Vinhomes Central Park and two newly launched projects in Q4/2017, this was the 10 th consecutive quarter the district has had the highest primary supply. District 8 has been the second largest primary supplier for four consecutive quarters. In Q4/2017, nearly 4,800 units represent a 15% market share and 2% QoQ increased primary supply. With improving infrastructure and existing amenities, this district has gained increasing developer attention. District 9 had a primary supply surge with over 2,900 Grade C units up 36% QoQ and a 9% market share. With a substantial land funds enabling affordable development and infrastructure improvements the district offers wide range of price and products. NO VA LAND D20180328 120 A-121
Secondary Supply Figure 3. 4: Districts secondary stock Q4/2017 35,000 Units % 30 30,000 25 25,000 20 20,000 15,000 15 10,000 10 5,000 5 0 Dist. 7 Dist. 2 Binh Thanh Tan Phu Dist. 8 Nha Be Binh Tan Thu Duc Dist. Dist. 9 Dist. 4 12 Go Vap Binh Chan h Secondary stock 30,00 25,41 16,24 12,75 11,91 9,389 9,170 7,980 7,835 7,191 5,894 5,333 4,712 4,434 18,54 Market share 17 14 9 7 7 5 5 5 4 4 3 3 3 3 10 Source: Savills Research & Consultancy Tan Binh Other s 0 As of Q4/2017, there were approximately 176,800 secondary units, increasing 10% QoQ. 61% were from 100% sold projects and the remainder from active primary projects. District 7 with a 17% share and District 2 with 14% were the main secondary suppliers. Classified as Others, Districts 1, 3, 5, 6, 10, 11 and Phu Nhuan each had less than 3% secondary share. These together supply more than 18,500 units, accounting for a 10% market share. NO VA LAND D20180328 121 A-122
1.2. PERFORMANCE Primary Market After an impressive 2010, the apartment market experienced continuous downturn from 2011 through 2012. From 2013 to 2014, sales gradually recovered. The upward trend continued since 2015. Sales peaked in 2017 with approximately 47,500 units, up 53% YoY. Sales of Grade C have steadily grow since 2012 by 55% pa. In 2017, Grade C with a 61% share and 29,000 sales was the highest performing grade. Grade B has seen improved sales since 2015 with 21% YoY growth. Grade A sales in 2017 decreased -25% YoY due to limited supply. Figure 3. 5: Grade performance 2012-2017 50 thousand units % 80 40 60 30 20 40 10 20 0 2012 2013 2014 2015 2016 2017 Grade A 267 355 391 677 1,710 1,283 Grade B 463 1,346 4,054 11206 14,224 17,266 Grade C 3,232 4,076 7,124 10291 15,038 28,920 Absorption (%) 23 30 44 43 50 73 0 Source: Savills Research & Consultancy In Q4/2017, there were approximately 15,100 sales, increasing 32% QoQ and 44% YoY. Of the three Grades, C had the most with a 61% share, increasing 55% QoQ and 88% YoY. High selling price and no new supply had Grade A account for only 3% share of sales, dropping significantly -46% QoQ and -28% YoY. Grade B sales remained stable QoQ and up 3% YoY. In Q4/2017, newly launched projects made over 4,300 sales, accounting for a 29% share, up 20% QoQ. There were approximately 3,600 sales from newly launched Grade C projects, a 48% QoQ increase. Grade B had slow performance from new launched units with sales down -20% QoQ. NO VA LAND D20180328 122 A-123
By Location In Q4/2017, District 8 led with nearly 1,800 sales, accounting for a 12% share. Limited available units from existing projects and a slowdown in new supply has affected sales. Nevertheless, after a quarterly sales drop, District 2 came back strong with approximately 1,600 sales, of which newly launched projects accounted for a 60% share. Share of sales from newly launched projects over the last four quarters has gone up 6 times, showing demand has stayed high. District 9 showed impressive performance this quarter with 1,490 sales. The significant 65% QoQ increase was due to the performance of Grade C. Binh Chanh saw strong QoQ growth with more than 1,000 sales, representing a 7% share and a remarkable 1,931% QoQ increase. A location within 7km of PMH and projects from reputable developers such as LDG, Nam Long and Tan Binh ICC helped boost buyer confidence. Three new Grade C projects provide full internal facilities such as infinity pools, garden, playground, BBQ and terrace café. The average selling prices of US$800-US$1,000/sq m underpinned district performance. Figure 3. 6: Districts performance Q4/2017 6,000 Units US$/sq m 5,000 4,800 4,000 3,600 3,000 2,400 2,000 1,200 1,000 0 Binh Thanh dist. 8 Tan Phu dist. 9 Nha Be dist. 2 dist. 7 Thu Duc Binh Chanh dist. 6 Primary stock 4,917 4,799 3,228 2,903 2,381 2,296 1,831 1,761 1,537 1,342 998 943 919 811 Sold units 1,301 1,791 1,275 1,485 995 1,592 888 1,175 1,056 444 559 667 612 248 Average price 1,792 1,014 1,394 1,033 1,555 1,662 1,466 925 1,035 1,174 837 2,379 1,951 4,259 Binh Tan dist. 4 dist. 10 dist. 1 0 Source: Savills Research & Consultancy District 8 continued having the most sales from existing Grade C projects: The last two towers in Topaz Elite, Dragon 1 and Dragon 2 were the main drivers of District 8 sales. Nearly 900 transactions were made with an average price of US$1,000/sq m, NO VA LAND D20180328 123 A-124
accounting for 50% of district performance. The majority is 2- to 3- bedroom units ranging from 60 to 94 sq m. Apart from a good location at the corner of Streets Cao Lo and Ta Quang Buu, the project has a 6-level commercial podium, large-scale park and access to over 60 inner facilities. Tara Residence launched two towers at its next phase. The project had 376 sales with 96% from the new phase. Compared with previous launches, average selling price of the new phase was 2% higher at US$974/sq m. Diverse facilities helped but the flexible and prolonged payment schemes with a 70% zero-interest Saigon Hanoi Commercial Joint Stock Bank (SHB) bank loan contributed to performance. Pegasuite 2, on Ta Quang Buu Street performed well with 191 sales, of an average US$1,100/sq m price. Improved infrastructure provides good accessibility to the CBD and the Phu My Hung NUA. District 2 sales improved from new Grade B and Grade C projects: Located on Mai Chi Tho Boulevard, New City Thu Thiem is Thuan Viet s first mid-end project in the NUA. Renowned for commercial, residential and hospital projects in HCMC and Da Lat, Thuan Viet aimed for a stand-out residential project. New City Thu Thiem has a wide range of basic completed units from 1- to 3-bedroom to duplexes from 43sq m to 310sq m. Quick handover in early 2018, various terms including payment of 95% or standard payment, 30% down payment and the remainder by interest free bank loan were the key drivers to the 455 sales. The selling price was approximately US$2,000/sq m and project performance accounted for nearly 30% of district sales. Grade C newly launched projects in Q4/2017 Thu Thiem Dragon and Citi Esto together made over 530 sales. Thu Thiem Dragon is developed by the Thu Thiem Investment Group. Located close to the administrative center of District 2 and supported by strong marketing, the project sold out within 2 months of launch with a selling price of approximately US$1,500/sq m. The project is expected to handover in Q2/2020. The first phase of Citi Esto, supplying 264 units, sold out within a month at an average price of US$1,100/sq m. The next launch phase, anticipates the same success or at least high sales. NO VA LAND D20180328 124 A-125
Developer Kien A s reputation with proven developments of Citi Soho and City Home, a good location in Cat Lai Residences and internal amenities drove performance. By Grade Grade A From 2012-2014, Grade performance had 20% pa growth. Grade A sales grew by 110% pa from 2014 to 2016 with approximately 2,000 new units supplied over the period. Figure 3.7: Grades performance Q4/2017 24,000 Units US$/ sq m 4,800 18,000 4,000 3,200 12,000 2,400 6,000 1,600 800 0 Grade A Grade B Grade C Primary stock 1,099 11,610 19,958 Units sold 301 5,105 9,784 Average price 3,960 1,944 1,056 0 Source: Savills Research & Consultancy In Q4/2017, sales declined -46% QoQ due to a lack of new supply. Absorption was down -6 ppts QoQ to 27%. The average selling price was over US$3,900/sq m, double the Grade B average and up 13% QoQ. In 2017, Grade sales had their first decline in over 5 years to approximately 1,300 transactions, down by -25% YoY. Vinhomes Golden River continued to drive performance with 203 sales, accounting for 67% of the total. Four Aqua towers were completing facilities and Lux 6 was in fit-out. Lux 6 offered free 10 year management fees and guaranteed yields of 10% pa for 2 years. D1 Mension is on Vo Van Kiet Boulevard in District 1. After achieving the 30% foreigner sales quota, 26 sales followed with a high average asking price at US$4,800/sq m. The project benefits from prime location, high standard of handover and equipment, developer reputation and good financial support. Guaranteed rental yields are 7% pa in the first 2 years and terms included 50% down payment until handover in Q4/2018. NO VA LAND D20180328 125 A-126
Serenity is in central HCMC, on Dien Bien Phu Street in District 3. Developed by reputed Son Kim Land, the project provided 45 contemporary designed apartments and duplexes with luxury standard handover equipment. The high US$5,460/sq m saw just 5 sales in Q4/2017. Grade B This Grade showed high absorption with total sales increasing 135% pa from 2012 to 2016. Success came from location, strong infrastructure improvement, developer credibility and good marketing and sales strategies. Developers have focused more on market analysis to better understand and meet real demand. In Q4/2017, there were approximately 5,100 sales, increasing 10% QoQ and 3% YoY. Absorption was 44%, up 12 ppts QoQ. Average selling price was US$1,900/sq m, down -3% QoQ. The majority were from projects with few remaining units and no changes to unit price. In 2017 Grade sales were over 17,200 units, up 21% YoY. Grade B has seen 106% pa sales growth since 2012. With the launch of three new blocks, Emerald Precinct retained good performance with over 700 sales at a price of US$1,500/sq m and accounted for 14% of total Grade sales. The good location in well-planned Celadon City with its numerous facilities and an effective marketing strategy all supported performance. The Goldview performed well with 251 sales, up 156% QoQ with a selling price of US$2,150/sq m. Located by Ben Nghe Canal, the project has good connectivity to the CBD within 3km and Nguyen Van Cu Bridge enables easy access to Vo Van Kiet Boulevard. Early handover in Q1/2018, a leaseback program up to 24 months and complimentary furniture packages all contributed. Due to a relatively high average price of US$3,100/sq m compared to other Grade projects in District 4 (below US$2,500/sq m such as the Goldview), Saigon Royal had slightly lower performance with 99 quarterly sales. Novaland implemented sales strategies such as six years complimentary management fees, guaranteed rental yields up to 12% pa to push performance. By end of 2017, of the 478 units on offer, 461 had sold. Saigon Mia had improved performance with 85 sales, up 107% QoQ. An average selling price of US$1,700/sq m and a location adjacent to Phu My Hung NUA within 2km of schools, universities and shopping malls all helped sales. NO VA LAND D20180328 126 A-127
Grade C Grade projects saw steady sales growth of approximately 47% pa from 2012 to 2016. In Q4/2017, quarterly Grade C performance was the highest since 2010, with nearly 9,800 sales, up 55% QoQ and 88% YoY. Newly-launched projects continued to drive Grade performance with up to 37% of total sales. Absorption was 49%, up 16% pa with an average selling price of US$1,100/sq m. This suggests pricing is perceived as more affordable and appealing to a larger buyer pool.. There is high-demand for this price band. This Grade performed the best and achieved more than 28,900 sales in 2017, increasing 192% YoY. In Q4/2017, District 8 accounted for 18% of Grade performance with nearly 1,800 sales. District 9 had a 15% share, equivalent to 1,500 transactions. The availability of land bank for affordable projects, full amenities in surrounding areas and improvement in infrastructure helped power performance. Figure 3. 8: District grade performance 2,000 Units Grade A Grade B Grade C 1,500 1,000 500 0 dist. 8 dist. 2 dist. 9 Binh Thanh Tan Phu Thu Duc Binh Chanh Nha Be dist. 7 dist. 4 dist. 10 Binh Tan dist. 12 dist. 6 dist. 1 Phu Nhuan Go Vap Tan Binh dist. 3 dist. 11 Source: Savills Research & Consultancy NO VA LAND D20180328 127 A-128
Apartment Price Movement In the last five years, average apartment prices have experienced a consistent upward trend due to the introduction of new supply and higher selling prices. Grade A average price strongly increased by 17% pa due to the entry of numerous luxury Grade A developments in the CBD. In previous years, there were limited Grade A developments within this district. Figure 3. 9: Average price movement 4,500 4,000 US$/sq m Grade A Grade B Grade C 3,883 3,960 3,500 3,000 3,172 2,500 2,000 1,500 2,107 2,143 1,441 1,482 1,786 1,855 1,944 1,000 500 781 785 940 987 1,056 0 2013 2014 2015 2016 2017 Source: Savills Research & Consultancy Strong future supply in Grade A and Grade B segment will place pressure on the average price. It is predicted that the average prices of the high-end segment will continue trend up but at a smaller growth rate. Grade C is also expected to increase due to better development standards and strong residential demand. NO VA LAND D20180328 128 A-129
Secondary Market Figure 3. 10: Average secondary prices 2,500 US$/sq m 2,000 1,981 1,500 1,000 500 1,601 1,536 1,486 1,398 1,391 1,387 1,339 1,142 995 876 849 814 809 802 792 786 751 751 610 0 Source: Savills Research & Consultancy To analyze secondary market price movement, 110 samples were taken from typical 100% sold projects from the early 2000 s to year end 2015. The highest secondary asking prices of around US$2,000/sq m were in District 1, followed by Phu Nhuan at US$1,600/sq m. Other districts with greater concentrations of Grade B projects include Districts 2, 3, 4, 5, 7, 11 and Tan Binh. Asking prices were from US$1,000/sq m to US$1,500/sq m. The remaining districts mostly had Grade C with lower asking prices of US$600/sq m to US$880/sq m. A long-term growth rate is derived through comparing secondary asking price averages with initial asking prices. A short-term growth rate is established comparing secondary price against the previous quarter. District 9 has good long-term (21% YoY) and good short-term yield (24% YoY). Good potential for short-term investments were seen in Binh Chanh, Binh Tan, Go Vap and Tan Binh with 6% QoQ growth. Binh Thanh District has had a slight decrease in long and short-term growth rates, down -3% QoQ and YoY. NO VA LAND D20180328 129 A-130
Figure 3. 11: Secondary price growth Q4/2017 30% 20% 10% 0% 15% 13% 6% 6% 5% QoQ growth rate 18% 15% 10% 10% 2% 2% 2% 1% YoY growth rate 24% 20% 21% 13% 8% 6% 2% 1% 0% 0% 1% 19% 18% 6% 4% -10% -1% -3% -3% -3% -1% -10% -4% -10% -1% -3% -20% Binh Chanh Binh Tan Binh Thanh dist. 1 dist. 10 dist. 11 dist. 12 dist. 2 dist. 3 dist. 4 dist. 5 dist. 6 dist. 7 dist. 8 dist. 9 Go Vap Hoc Mon Nha Be Phu Nhuan Tan Binh Source: Savills Research & Consultancy Price Index The Savills Property Price Index (SPPI) is an excellent tool for tracking quarterly price movement of different property markets. The index offers market participants a quantitative way to determine market trends, helps to increase market transparency and provides more decisionmaking tools. In calculating the index, Savills has applied the constant dynamic basket. The constant basket is maintained as price comparison between quarters; however new projects are included in the basket to ensure in-time reflection of the market dynamic. The QoQ index is based on the aforementioned constant - dynamic basket and is able to measure price changes on the continuous growth of the market above the base, i.e. the entrance of new project(s). Overall, the SPPI of each grade experienced a downward trend from 2009 to 2013; however, an upwards swing was witnessed from 2013 to 2017. Amongst the three grades, Grade A had quite stable indices, showing unchanged prices since 2013, mainly due to limited supply. Apartments in this grade are mainly concentrated in district 1 and the NUAs of districts 2 and 7. Most are developed by reputable companies such as Novaland, Vingroup and Phu My Hung, leading to a stable residential index of 88 and 89. The Grade C index was steady from 2013 to 2015, with an upward trend in effect over the last two years. Facing extreme competition from an abundant Grade C supply and a large demand NO VA LAND D20180328 130 A-131
for affordable housing, developers offered competitive prices in order to successfully sell projects. Over the last two years, developers have had to enhance projects with additional internal facilities in order to remain attractive to potential buyers. Apart from basic facilities such as a swimming pool, gym and convenience stores; facilities now include large parks, kindergartens, and cinema, restaurants, clinics, and cafes. The addition of these amenities have helped to boost the high transaction volume and absorption rate in recent years. Grade B had strongest increase in indices over the last five years. The index increased from 84 in Q1/2013 to a peak of 103 in Q4/2017. Grade B has benefited from a strong urbanization rate and continual infrastructure development. The development of Metro Line 1 and the well-planned infrastructure of Thu Thiem New Urban has seen district 2 as the largest supplier of Grade B apartments. Projects with good construction progress contributed to the increase in selling price. An increase in living standards, the rising middle-class population and a high rental yield have also supported development. Healthier construction progress of Grade B developments and a good product mix have increased homebuyer confidence. NO VA LAND D20180328 131 A-132
Figure 3. 12: SPPI by Grade 120 Grade A Grade B Grade C Whole market 110 100 90 80 70 60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Base Index in Q1 2009 = 100 Source: Savills Research & Consultancy NO VA LAND D20180328 132 A-133
1.3. DEMAND ANALYSIS Product Trends Recently launched projects are offering greater diversity in design and unit size. A wide range of unit type including 1- to 4-bedrooms, dual keys and duplexes are available now. Grade A had the majority of three-bedroom units with sizes up to 320sq m. There were 3- bedroom duplexes in projects such as C.T Plaza Nguyen Dinh Chieu and Serenity. One-bedroom units used to be popular in many Grade B projects such as Masteri, Estella Heights, Vinhomes Central Park and Lexington Residence. In recent quarters, most Novaland Grade B projects including Sunrise Cityview, Tresor and Saigon Royal, provided only 2- bedrooms of 65 sq m to 89sq m and 3-bedroom units from 90 sq m to 175 sq m. Grade C projects have from 65% to 80% of 2-bedroom units. Some notable newly launched projects, Saigon Intela, Saigon Avenue and Hausneo, have even higher proportions. Different unit types were introduced to reflect more modern lifestyle. One- to 4-bedroom duplexes of 90 sq m to 300sq m were in newly launched projects such as New City Thu Thiem, Citi Esto and Pegasuite 2. More duplex units are expected to enter from projects in Districts 2 and 7. Linkable apartments have become popular in Lancaster Lincoln and River Panorama. These allow dual key buyers to connect two adjacent apartments for an expanded unit area. Dual key units from Lancaster Lincoln have attracted attention since launch. Buy-to-let investors appear to like the idea of one unit for lease and the one next door for living. Financial Incentives Flexible payment terms with small instalments contributed greatly to sales, especially in Grades B and C. Most projects still under construction offer multiple payment terms while projects with low absorption offer guaranteed yields or complimentary furniture package program. After low absorption in the Q3/2017, D1 Mension and The Goldview implemented a guaranteed yield program of 7% pa up to 2 years and a VND90-250 million furniture package. Vinhomes Golden River combined various financial support programs to such as up to 2 year guaranteed yield program and up to ten years of complimentary management fees. NO VA LAND D20180328 133 A-134
Grade B Lancaster Lincoln offered special payment terms with a 30% down payment until handover with the balance paid, interest free over 2 years. Most Grade C projects provide attractive payment terms with small 1% to 2% monthly instalments such as: River Panorama, Topaz Elite and Hausneo. Buyer Profiles In recent quarters, primary market buy-to-let investors have been very active, especially in the mid to high-end segments. Prominent projects by credible developers received much investor attention in the first launch quarters. For example, over 60% of Vinhomes Golden River buyers were from the north of Vietnam and approximately 40-50% were investors. In addition, within Feliz En Vista, Palm Heights and Empire City buy-to-let investors accounted for 30-40% of total buyers. Demographic Indicators High population growth, urbanisation and immigration supported HCMC residential demand. The main factor affecting the apartment market is population structure. Stable urbanization growth of 2% and the highest urbanization rate in the country at approximately 80% (2014) indicates greater housing need. Household sizes in HCMC have declined -1% pa for the last eight years. In 2014, the typical household was 3.7 people, which is expected to further decrease due to an increase in housing affordability and an upsurge in independent lifestyles. According to HCMC s Statistical Office, approximately 55% of the population is under 30 years old, with the labour force accounting for approximately 70% of the city s total population. HCMC has long been an economic hub in southern Vietnam and attracted many domestic labour migrants. According to the GSO, there were approximately 1.35 million migrants as of 2014, accounting for 17% of the population. NO VA LAND D20180328 134 A-135
Sales Strategies Pre-launch marketing activities were the main performance drivers of Grade A and B projects. A pre-launch also positively affects performance with approximately 80% of bookings becoming transactions. This strategy allows distribution channels more time to target buyers who then have more time for investment decisions. A pre-sales strategy was applied very effectively in Sunwah and d Edge, resulting in high launch absorption. Some notable projects set to be launched in early 2018 with already vibrant pre-sale activities include Masteri An Phu and Q2 Thao Dien. Interest has been high with over 50% of units reserved. Apart from developer reputation, location and average price, effective distribution is a major factor in low to mid end segment sales. International launch events in Hong Kong, Taiwan and Singapore have helped developers sell the maximum 30% of total supply foreigners can buy in projects such as D1 Mansion and Empire City. New Laws The amended Housing Law granting greater property rights to foreigners has been effective since 1 July 2015, with an implementation guide recently issued under Decree No. 99/2015/ND-CP. After it was finalised in 2015, the number of foreign buyers has increased significantly. Prominent projects developed by overseas companies such as D1 Mension (CapitaLand) saw foreign buyers accounting for 60% of total sales. Projects in Phu My Hung such as Happy Residence and Scenic Valley 2 saw foreign buyers accounting for over 10% of total sales. In 2016, there were new laws that hope to positively impact the real estate market: Amended circular No. 06 proposed by the State Bank of Vietnam (SBV) was effective from 1 Jan 2017, adjusting the risk weighting for lending to real estate businesses from 150 to 200% and the room ratio cap (short term fund used for medium and long term lending) from the current 60 to 50%. Circular No. 19 proposed by the Ministry of Construction (MOC) tightens pre-handover resale procedures by requesting the transfer of sales contracts to be notarized, expectedly increasing real estate market transparency. Circular 31 from the Ministry of Construction became effective in February 2017. It is aimed at classifying the apartment market for proper value assessment, management and trading. Criteria includes architecture planning, technology system, services and community infrastructure, quality, management and operations. Apartments are graded into three classes: A, B or C. However, this NO VA LAND D20180328 135 A-136
circular is not compulsory for all apartment projects. The Construction Department will undertake classification only when requested by the developer, administrators and building owners. If all projects followed this circular, greater market transparency and increases in buyer confidence would occur. Rental Yields Figure 3. 13: District rental yield 7% 6% 5% 4% 3% 2% 1% 0% D9 Binh Tan D7 D12 D6 Tan Binh D2 Binh Chanh Binh Thanh Phu Nhuan D8 Thu Duc D5 Nha Be Tan Phu D3 D4 D11 Go Vap D1 Source: Savills Research & Consultancy Projects by credible developers in strategic locations have attracted buy-to-let investors. To consider investor motives, in Q4/2017, Savills chose 57 projects across all districts to analyse expected rental yields. Based on rental rates from 171 samples from 20 districts: districts 7, 9 and Binh Tan are best performers with up to 6% pa gross yields. With a typical 3.7 people household size, small units are affordable. Foreigners tend to prefer locations such as districts 2 and 7 with good accessibility providing two to three-bedrooms. Remittances From 2012 2015, overseas transfers into HCMC have consistently grown at an average 10% pa. By 2016 these were approximately US$5 billion and nearly 57% of the national total. According to SBV HCMC branch, overseas remittances rose notably in 2017. As of 11M/2017, the value had reached approximately US$4.6 billion, up 6% YoY. With recent positive movements, property has been attracting a significant proportion, an estimated 22% of these are inflows. NO VA LAND D20180328 136 A-137
The trend was forecast to slow due to zero deposit rates on foreign currency savings; new restrictions on USA immigration limiting money and yields sent abroad. In 2016, HCMC overseas remittance slowed -9% YoY, creating downward pressure for 2017. Nevertheless, the increase in overseas remittances and the new housing law for foreigners are expected to boost confidence in future projects. Figure 3.14: HCMC remittances 6 5 4 Billion US$ 4.1 4.85 5 5.5 5 4.6 3 2 1 0 2012 2013 2014 2015 2016 11M/2017 Source: State Bank of Vietnam 1.4. OUTLOOK Supply Future supply is from projects in planning and projects yet to be launched. From 2018 to 2020, supply will be more than 68,000 units from 54 projects and 11 next phases of active projects. About 11% of this is expected to launch in Q1/2018. Increased supply will create competition amongst all segments, especially in the mid to high-end. NO VA LAND D20180328 137 A-138
Figure 3. 15: Future supply 70,000 Units Projects 60 60,000 50,000 48 40,000 36 30,000 24 20,000 10,000 12 0 2018 2019 2020 Planned units 59,810 4,300 4,120 Identified projects 55 7 3 0 Source: Savills Research & Consultancy Infrastructure plays a role in supporting future development prospects in Districts 2 and 7 by enabling better accessibility with the CBD and surrounding areas. Once infrastructure in these areas is completed, demand will almost certainly increase. With Thu Thiem 2 Bridge site work ongoing and planning approval granted for the Thu Thiem 3 and 4 Bridges, District 2 has further potential for residential development. The expected supply is over 31,500 units, or 46% of the next two years total supply. Since the approval of Nguyen Khoai Bridge and the Nguyen Van Linh - Nguyen Huu Tho tunnel, District 7 has approximately 7,300 units planned. Apart from District 2 and 7 s continuous new supply over recent quarters, the CBD will receive new supply. The CBD has future supply of over 4,260 units, accounting for approximately 6% of total supply from 2018-2020. The area has had limited new supply due to high land prices and limited project scale. The majority of projects are expected to be Grades A and B. Districts 8, 9 and Thu Duc are expected to become the main low-end segment supplier. Future supply in these Districts is expected to increase further from 2018-2020 and be up to approximately 11,800 units: a 56% share of total Grade C future supply. NO VA LAND D20180328 138 A-139
District 8 is expected to provide more than 4,800 units. The large supply of Grade C units will account for 7% of the next 2 years supply. Districts 9 and Thu Duc expect over 6,970 units to enter the market. Vincity in District 9 is expected to provide approximately 3,000 affordable-priced units. With infrastructure development and land availability, the Eastern districts attract developers, end-users and buyto-let investors. Figure 3. 16: Districts supply 2018-2020 36,000 Units % 50 32,000 28,000 40 24,000 20,000 30 16,000 20 12,000 8,000 10 4,000 0 dist. 2 dist. 7 dist. 8 dist. 1 dist. 9 Thu Duc Binh Chanh dist. 4 Binh Tan Thanh Nha Be dist. 5 Phu dist. 10 Future supply 31,562 7,322 4,844 3,763 3,600 3,371 2,950 1,890 1,636 1,541 1,498 1,149 986 2,118 Market share 46 11 7 6 5 5 4 3 2 2 2 2 1 3 Others 0 Source: Savills Research & Consultancy Demand Infrastructure Boom In 2016, according to the Asian Development Bank report, Vietnam had the highest infrastructure investment in Southeast Asia. An average of 5.7% of GDP in recent years was put into public and private sector infrastructure investment, only 1.1 ppts less than China, Asia s leader in infrastructure development. With high infrastructure demand there is potential for investment opportunities in apartments near strategic intersections and areas with improved city access. NO VA LAND D20180328 139 A-140
Figure 3. 17: Infrastructure spend as percentage of GDP Thailand Malaysia Philippines Singapore Myanmar Indonesia Vietnam 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Source: Asian Development Bank Data includes public and private sector NO VA LAND D20180328 140 A-141
1.5. SWOT ANALYSIS Strong population growth, high urbanization and decreasing household sizes supporting demand. Affordable projects (<US$900/sq m) gain high sales and attract attention of Strengths low-income purchasers. Decrease in unit size appeal to large pool of purchasers. Flexible payment terms, guaranteed yields and effective sales strategies encourage purchasers. Slow construction progress in some projects due to capital shortages Weaknesses discourages homebuyers. Grade A projects struggle to compete with slow absorption due to high price and limited new supply. Increasing overseas remittance flow into real estate. Opportunities Substantial growth in infrastructure strengthens connectivity amongst districts and captures great interest of investors, specifically for Eastern districts. Excessive future supply could induce soft market conditions and threaten Threats rental yields. Uncertain construction status of public infrastructures due to limited capital could cast shadow on connectivity of future projects and alarm developers. NO VA LAND D20180328 141 A-142
2 VILLA/TOWNHOUSE 2.1 SUPPLY Primary: villas & townhouses available for sale from active projects in the studied quarter. Buyers may deal directly with the developers. Secondary: villas & townhouses sold from active projects before the studied quarter and total villas & townhouses from 100% sold projects. Villa & Townhouse: bare shell or finished villas & townhouses for sale, not including land plots. The HCMC villa and townhouse market underwent significant changes from 2011 to 2013. In Q1/2011 villas had an 80% primary market share. In the following quarters, townhouse stock increased rapidly and by Q2/2013, townhouse volume had risen to 55% of total primary stock and segment domination. From 2014 to 2017, greater increases in primary stock of villas and townhouses showed as developers regained confidence in the market. Townhouses continued to prevail, accounting for around 65% of primary market share. There was high demand of landed property with affordable price from well-planned compound projects. Figure 3. 18: Primary stock 4,500 Dwellings Villa Townhouse 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2016 2017 Townhouse 144 156 168 142 142 225 197 116 161 274 574 683 724 712 1,002 1,063 1,283 2,062 2,460 1,969 1,719 1,429 1,299 1,525 Villa 143 186 169 184 152 145 165 133 103 87 117 307 382 429 673 857 775 1,134 1,355 1,012 857 686 702 524 Source: Savills Research & Consultancy NO VA LAND D20180328 142 A-143
As of Q4/2017, total primary stock was more than 2,000 dwellings, up 2% QoQ yet -32% YoY. Overall stock was approximately 13,100 dwellings with secondary stock accounting for 86%, increasing 10% QoQ and 29% YoY. New Stock All new local developers led projects with available land banks handed over bareshell and externally finished. Villa townhouse developers have also focused on developing compound projects with facilities such as a pool, fitness club, BBQ areas, mini-mart, playground and green area to meet high requirement of buyers for living environment. In Q4/2017, 5 new projects and 1 new phase launched, providing more than 1,100 dwellings. The primary market had approximately 2,050 dwellings, up 2% QoQ but down -32% YoY. 93% of new supply are townhouses are from Binh Chanh District. Two new projects were launched, one by the reputable developer Nam Long. Mizuki Park is a mixed-use project located on Nguyen Van Linh Street, Binh Chanh developed in a co-operation by Nam Long and Nishitetshu & Hankyu. The project spans 26 ha and will supply retail, apartments; villas and townhouses. Forty four villas launched with land sizes from 120 to 260 sq m. Lovera Park developed by Ceninvest has a total project area covering 20 ha along Trinh Quang Nghi Street, Binh Chanh. The project launched 600 of a total 900 townhouses with popular land sizes from 75 to 105 sq m. District 9, Can Gio and Tan Phu each had 1 new project released this quarter. After the success of the previous project Park Riverside, developer M.I.K. launched the Rio Vista. Located in Phuoc Long B, District 9, the project has 215 townhouses and 9 villas supported with internal facilities. Green Lotus Residence in Tan Phu by Phuc Khang Corp has two components: apartment and landed shophouse. Site access is via the frontage to Phan Anh Street. There are 33 landed shophouses with a higher than average price of US$265,000. As one of the most densely populated HCMC Districts, Tan Phu shophouses have higher commercial value potential. Le Maison de Can Gio is the first villa/townhouse project in Can Gio. Developed by Phuoc Loc JSC, the project covers 60 ha with 640 villas and townhouses supported by full internal facilities. This quarter saw the launch of 30 villas and 59 townhouses with a low entry price of NO VA LAND D20180328 143 A-144
US$70,000/dwelling. Can Gio and Binh Khanh Bridge and the future Vinpearl Can Gio were key selling points. Table 3. 2: Q4/2017 launches Status Project District Developer Type Launched Green Lotus Residence Tan Phu Phuc Khang TH 33 La Maison De Can Gio Can Gio Phuoc Loc Jsc VL 30 TH 59 New Lovera Park Binh Chanh Ceninvest TH 600 Mizuki Park Binh Chanh Nam Long VL 44 Rio Vista D.9 M.I.K VL 9 TH 215 Next VL 52 Sim city D.9 Anpha Holding launch TH 267 Total villa/townhouse 1,309 Dai Phu Residence Binh Chanh Yeshouse LP 79 Diamond Island Residence D.9 Tin Hung Land LP 194 Dong Tang Long Hung Loc D.9 Ba Son Jsc LP 270 First Land Hiep Thanh D.12 First Land LP 49 New Heart Land Residence Tan Phu Nam Viet Homes LP 34 Rio Bonito D.9 Rio Land LP 300 Rio Grande D.9 Rio Land LP 130 Saigon Farm Binh Chanh HTG LP 330 Saigon Mystery Villa D.2 The Ky 21 & Hung Thinh LP 185 Singa City D.9 A Dong Hai Limited LP 431 Total Plots 2,002 VL: Villa. TH: Townhouse. LP: Land plot By Location With substantial new supply in Q4/2017, Binh Chanh had the highest primary stock with a 30% market share followed by Eastern districts. The launch of a large-scale project, Lovera Park has Binh Chanh leading primary supply for the first time. The three main supply areas accounting for 80% of the total primary supply are Districts 2, 9 and Binh Chanh. District 9 had mainly townhouses targeting middle-income households while upscale District 2 was dominated by more luxurious villas. NO VA LAND D20180328 144 A-145
Figure 3. 19: Primary villa & townhouse by district, Q4/2017 District 9 has been one of the top landed property suppliers in the last two years thanks to the large land bank, supporting infrastructure and reputable developers. Khang Dien and MIK have largescale projects under handover and gated communities with full inner facilities. Notable completed projects include Mega Residence, Mega Ruby, Park Riverside, etc. District 2 is third largest supplier with over 300 dwellings, mostly from Saroma, a villa project in the Sala Township in Thu Thiem NUA. No new projects in District 2 have been developed since Saroma Villa launched in Q1/2016. By Size 800 Dwellings 700 600 500 400 300 200 100 0 Binh dist. 9 dist. 2 Thu Chanh Cu Chi with its abundance of available land provides the largest land sizes and GFA. One project, Leman Golf Villa, provides resort-style villas from 500 sq m to 1,200 sq m with GFA from 700 sq m to 1,300 sq m. Each villa has a car parking space, garden and private pool. Districts 2 and 7 offer spacious villa and townhouse LA compared to other Districts. Popular townhouse sizes range from 100 to 150 sq m while the villas have LA up to 1,000 sq m. District 12, Nha Be and Can Gio target more middle-income households and supply mainly small to medium 75 sq m to 120 sq m townhouses. Duc Can Gio dist. 1 dist. 7 Tan Phu dist. 12 Nha Be Binh Thanh dist. 8 Villas 70 102 188-30 45 34-16 20 10 - - Townhouses 627 522 126 126 59-5 33 8 - - 10 9 Source: Savills Research & Consultancy Binh Tan NO VA LAND D20180328 145 A-146
Figure 3. 20: Popular villa/townhouse LA by location 1,400 m² Highest Lowest 1,200 1,000 800 600 400 200 0 Cu Chi dist. 9 dist. 7 dist. 2 Binh Thanh Source: Savills Research & Consultancy dist. 12 dist. 1 Nha Be Can Gio Thu Duc dist. 10 Binh Chanh Binh Tan Figure 3. 21: Popular villa/townhouse GFA by location 1,400 m² Highest Lowest 1,200 1,000 800 600 400 200 0 Cu Chi dist. 7 dist. 2 Thu Duc dist. 1 dist. 9 Binh Thanh Source: Savills Research & Consultancy Binh Chanh dist. 12 dist. 10 Binh Tan By Size Townhouses continued to dominate primary supply with a 75% market share. In the last two years these have become the most developed products. The majority of primary townhouse LA is from 75-100 sq m with the dwelling over two to three levels and with 2- to 4-bedrooms. With the HCMC household averaging 3.7 people, 2- to 3-bedroom townhouses are increasingly favoured. NO VA LAND D20180328 146 A-147
The majority of villas have a 35% to 40% construction ratio and with two to three levels. Townhouses have a 70% to 80% construction ratio and offer three levels. Handover condition of both styles are typically bareshell with finished exterior. Secondary Supply Figure 3. 22: Secondary stock 4,000 Dwellings 3,500 3,000 2,500 2,000 1,500 1,000 500 - dist. 9 dist. 7 dist. 2 Go Vap Binh Binh Chanh Nha Be Thu Duc dist. 12 Tan dist. 10 dist. 8 Others * Villas 994 1,726 472 112 109 686 187 106 33 11 7 215 Townhouses 2,749 594 1,294 866 866 111 416 308 290 115 107 5 Source: Savils Research & Consultancy *Others include D.1 Phu Nhuan and Cu Chi There are over 12,300 dwellings in the secondary market. Townhouses accounted for a 62% share. District 9 has been the largest secondary supplier since Q4/2016 thanks to strong supply growth and good performance. It now has 30% of all secondary stock and District 7 has 20%. District 9 secondary stock is mainly townhouses and District 7 stock the majority is villas. This clearly shows the development trends in these areas over the last few years. District 7 is favoured for villa development especially around Phu My Hung NUA. District 9 is better known for compound townhouse developments, notably by developers Khang Dien and the M.I.K Company. NO VA LAND D20180328 147 A-148
2.2 PERFORMANCE Overall The number of transactions decreased significantly when the property market dipped in 2012 and through 2013. With signs of recovery in 2014, performance gradually improved. From 2014-2016, transactions had the best performance yet with steady 50% pa growth. Small and medium-size landed properties continued their good performance due to high end-user demand. Townhouse transactions continued segment domination with 80% of total sales. Figure 3. 23: Performance 2012-2017 6,000 dwellings % 100 5,000 80 4,000 60 3,000 2,000 40 1,000 20 0 2012 2013 2014 2015 2016 2017 Unsold dwellings 284 204 623 1318 1990 668 Sold townhouses 17 139 681 1364 2459 3373 Sold villas 79 59 140 396 1008 759 Absorption rate 25 49 57 57 64 86 0 Source: Savills Research & Consultancy Year end 2017 saw the highest sales for 5 years. Total villa/townhouse transactions grew 19% YoY to reach over 4,100 dwellings and absorption of 86%. Townhouses had 81% of total primary sales and the year-end inventory of 660 dwellings was at its lowest level for three years. NO VA LAND D20180328 148 A-149
Primary Performance Over the last three years, primary sales have been heavily skewed with 65% of the market having dwelling prices of less than US$300,000. In 2017, this proportion increased to 74%. With lower priced supply, townhouses are set to dominate for the foreseeable future. Figure 3. 24: Primary sales 100 % Absorption % 100 80 80 60 60 40 40 20 20-2015 2016 2017 > US$300,000/ dwelling 18 32 26 =< US$300,000/ dwelling 82 68 74 Absorption rate 57 64 86 Source: Savills Research & Consultancy 0 Binh Chanh led the segment for the first time. Two new projects launched in Q4/2017 and with Eastern districts having limited new supply, Binh Chanh achieved over 650 sales, accounting for a 48% share. Most were small to medium townhouses that enable more appealing unit prices for occupier or investor. Reputable developers such as Nam Long and Japanese investors having a greater presence contributed to the high quarterly sales. Mizuki Park sold 44 villas at an average US$300,000. Having frontage to Nguyen Van Linh Boulevard, the project has convenient access to Phu My Hung and districts 5 and 8. The project has a full range of internal facilities including schools, a medical centre, green park, etc. The small supply of river view villas with a pleasing element of privacy attracted buyers. Lovera Park achieved 600 sales and all launched supply was absorbed. With small land sizes of 75 sq m to 150 sq m, townhouse prices of US$120,000 were popular. Good construction status and handover expected in Q2/2018 all contributed to project success. NO VA LAND D20180328 149 A-150
Figure 3. 25: District performance 700 Sales 600 500 400 300 200 100 0 Binh Chanh dist. 9 dist. 2 Can Gio Thu Duc Tan Phu dist. 7 dist. 8 Others No. of townhouses 614 400 71 59 39 30 3 4 6 No. of villas 44 43 22 27 0 0 7 0 12 Source: Savills Research & Consultancy District 9 was the second best segment performer with 32% of sales. Rio Vista achieved good performance with 215 townhouses and 4 villa sales. Located in Phuoc Long B Ward, Rio Vista has good access to District 1 and surrounding Districts 2 and 7 via the Long Thanh Highway, Mai Chi Tho Street and the Phu My Bridge. The project has medium sized 3-level townhouses with land sizes from 80-100 sq m and an average price of US$140,000. On Lo Lu Street, Truong Thanh Ward, Simcity is further out than other District 9 landed projects. As a result, the project focused on smaller 75 to 80 sq m LA townhouses with large 160-180 sq m GFA and a relatively low US$120,000 selling price. The project has full facilities, medical services and smart home technology. The developer also offered free ten year management fees, free shuttle bus, direct discounts, etc. District 2 and Can Gio had nearly 100 sales each this quarter, accounting for 7% market share. District 2 has seen limited new supply for the last few quarters. Sales were relatively slow with the remaining inventory being larger-size villas and townhouse. The 60 sales were mostly from the Pho Dong Village project where the average townhouse price is US$270,000. Le Maison de Can Gio, the first project in Can Gio District had 85 sales. Nearby infrastructure includes the US$223 million Can Gio Bridge connecting Nguyen Luong Bang Street, Nha Be District to Rung Sac in Can Gio. This bridge has drastically reduced travel time to Can Gio by replacing the Binh Khanh ferry. NO VA LAND D20180328 150 A-151
Figure 3. 26: Popular land prices 25,000 US$/sq m Lowest Highest 20,000 15,000 10,000 5,000 0 Dist. 1 Binh Thanh Source: Savills Research & Consultancy Dist. 2 Dist. 10 Dist. 8 Dist. 7 Nha Be Dist. 9 Thu Duc Binh Dist. 12 Chanh Binh Tan Cu Chi Figure 3. 27: Popular GFA price range US$/sq m 9,000 Lowest Highest 7,500 6,000 4,500 3,000 1,500 0 Dist. 1 Binh Thanh Source: Savills Research & Consultancy Dist. 2 Dist. 7 Dist. 10 Nha Be Dist. 9 Binh Chanh Dist. 8 Dist. 12 Binh Tan Thu Duc Cu Chi Having a prime CBD location, Districts 1 and Binh Thanh had the highest price per sq m land and GFA in Q4/2017. Two primary projects in these Districts are by Vingroup with strategic locations along the Saigon River. District 1 selling prices are from US$18,000 to US$22,000/sq m LA, giving a starting price of US$5.5 million/dwelling. Binh Thanh dwelling prices start from US$4.4 million with land costing US$9,200/sq m. NO VA LAND D20180328 151 A-152
Cu Chi, having less well developed urban planning and infrastructure, had the lowest land price of approximately US$750/sq m LA and US$500/sq m GFA. Secondary Market A total of 29 100% sold projects in seven districts were analysed to review secondary market price movement. Figure 3. 28. Secondary price movement 25% 20% 20% QoQ growth YoY growth 15% 10% 8% 8.2% 6% 5% 5% 3% 1% 0% -5% -4% -10% District 9 District 2 Go Vap District 7 (Incl. PMH) Source: Savills Research & Consultancy 11% 6% 4% 3% 1% -1% Binh Thanh Nha Be Binh Chanh Districts 2, 9, Binh Thanh, Nha Be and Go Vap showed great secondary price growth. District 9 had the highest price growth of 8% QoQ and 20% YoY, followed by District 2 with 8% QoQ and 6% YoY. As the Eastern districts contain extensive new infrastructure they have led primary supply and performance over recent quarters which has led to the secondary market becoming more vibrant and increasing prices. District 7 increased slightly 1% QoQ but decreased -4% YoY. Average district asking prices were high at over US$930,000, mainly from villa projects in Phu My Hung. NO VA LAND D20180328 152 A-153
2.3 DEMAND ANALYSIS Buyer Preferences After a lack of supply from Q2/2015-Q2/2016, medium and large townhouses with a LA of 90 120 sq m returned to the market. Lakeview City, Nam Long and M.I.Ks projects target middle income buyers and upgraders. Products absorbed well had suitable dwelling sizes, appropriate pricing, internal facilities, security and city centre connectivity. Compounds in suburban Districts 9 and Binh Chanh appealed to middle-income buyers with full facilities compete with apartments. Buyers prefer affordable medium sized 75 to 100 sq m townhouses. Good construction and delivery capability in these Districts also add to buyer confidence. In 2017, almost 3,700 dwellings were been handed over. Estimations are that more than 4,500 dwellings will be handed over in 2018. District 9 had the most with 1,750 followed by District 2, Binh Chanh and Nha Be. This demonstrated good construction management in landed development. These compound projects will create high-end communities, increasing buyer confidence and indicating more sustainable development. Yields Annual villa/townhouse rental yield was stable at 2% to 4% of secondary price. With high secondary asking prices, villa projects in Districts 7, Nha Be, and Binh Thanh maintained 2-3% yields. District 7 landed housing projects have the most stable rental yield due to prime location and amenities. Target lessees are generally expat families. Investors have been especially attracted to projects in Districts 9 and 2. With significant infrastructure improvements, District 9 gross yield was approximately 3%. District 2 with better proximity to the CBD, better infrastructure, and better amenities showed a 4% yield. Table 3. 3: Gross yields Property Type District Gross yield Average price (US$/dwelling) Project 1 Villa 2 4% 1,483,000 Project 2 Villa 7 2% 855,000 Project 3 Villa 7 3% 635,000 Project 4 Villa Binh Thanh 3% 1,929,000 Project 5 Villa Nha Be 3% 375,000 Project 6 Villa 9 3% 352,000 Source: Savills Research & Consultancy NO VA LAND D20180328 153 A-154
2.4 OUTLOOK Supply From 2018-2019, 25 new and the next phase of 13 projects will supply over 13,000 dwellings/plots, with over 7,300 expected to launch in 2018. Districts 2 and 9 will continue to lead supply with a 50% market share in the next 2 years. District 8, Can Gio and Binh Chanh expect high future supply growth to provide a 25% market share. Figure 3. 29: Supply share to 2019 Others 24% D.9 35% Can Gio 8% Binh Chanh 8% D.8 10% D.2 15% Source: Savills Research & Consultancy Local players are key in developing future landed projects. After the announcement of several large new projects in District 2, Novaland will achieve 27% of future supply. The largest-scale project in District 9 developed by Vingroup expects to supply over 3,000 dwellings, providing a 33% market share. Demand According to the New Wealth Builders (NWBs) report by The Economist Intelligence Unit, NWB households in Vietnam with financial assets from US$100,000 to US$2 million grew 35% pa, the third highest in Asia, only behind India and Indonesia, while outperforming Thailand, Philippines and Malaysia. A recent Boston Consulting Group report estimated the middle and affluent classes (MAC) in will more than double in size by 2020, from 12 million to 33 million people. This will increase property NO VA LAND D20180328 154 A-155
demand, especially for landed developments. Potential Legal Issues HCMC authorities recently issued new regulations regarding land plot sub-separation. Decision No. 60/2017 replaced Decision 33/2014 stipulating the minimum land plot area able to be split and qualify for legal certification. The minimum land plot size after separation (subtracting boundaries) is divided into 3 areas: Table 3. 4: New regulations Minimum Plot size Zone 1 Zone 2 Zone 3 QD33/2014 50 80 120 QD60/2017 36 50 80 Zone 1 will cover Districts 1, 3, 4, 5, 8, 10 and 11, Go Vap, Binh Thanh, Phu Nhuan, Tan Binh and Tan Phu. Zone 2 will include Districts 2, 7, 9, 12, Binh Tan and Thu Duc. Zone 3 will include Districts: Binh Chanh, Cu Chi, Hoc Mon, Nha Be and Can Gio. Minimum land plot areas allowing smaller sizes than previously will result in larger future supply and create a lower entry price for speculators. In the short term, this will boost growth with investment activities potentially becoming very lively. However, over the long term it implies a sustainability challenge with population densities increasing and the ever growing pressure on urban planning and infrastructure. NO VA LAND D20180328 155 A-156
2.5 SWOT ANALYSIS Significant increase in landed property supply and demand. Strong macro indicators facilitating residential demand, upgrading and investment Strengths activities. Growing middle and affluent classes. Good construction status and large handover increasing confidence Landed segment the most favoured by locals. Slow progress announcing/approving infrastructure in some areas. Weaknesses Infrastructure improvement in some areas slow, especially suburban and outlying areas. Process for foreigners buying property still unclear and inconsistent. Many land plot projects unclear legal standing cause investor concern. Less risk than other investment channels. Opportunities High short term yields. Real estate perceived a good inflation hedge. Local preference for landed property over apartments. Land price escalation after segment speculation Threats Limited land banks in NUAs. Weak legal mechanism and limited local awareness Increasing HCMC and Long An, Dong Nai and Binh Duong competition with improved infrastructure enabling outlying area connection. NO VA LAND D20180328 156 A-157
PART 4: HCMC OFFICE NO VA LAND D20180328 157 A-158
1. SUPPLY 1.1. OVERALL Over the last five years, stock has increased at an average 5% pa with peaks in 2015 and 2017 after multiple Grade A and B entries. Of the three grades, Grade A had the highest supply growth at 16% pa, followed by Grade B at 4% pa and Grade B with 3% pa. In 2017, stock grew 6% year on year (YoY) by over 124,000 sq m to reach approximately 1.7 million sq m in total. Two projects from each upscale Grade entered, Saigon Center 2 (Grade A), Deutsches Haus (A), Viettel A (B) and Thanh Cong (B). However seven projects closed, withdrawing 24,400sq m. Most were either old (>10 years) or in non-cbd areas. Figure 4. 1: Total stock 2013-2017 Thousand sq m 1,800 % 9 1,600 8 6 1,400 5 1,200 3 2 1,000 2013 2014 2015 2016 2017 Total stock 1,395 1,458 1,582 1,602 1,704 Growth rate 5 5 8 1 6 Source: Savills Research & Consultancy 0 NO VA LAND D20180328 158 A-159
1.2. BY GRADE The three Grades supply structure changed YoY with large-scale projects Saigon Centre 2 and Deutsches Haus launching in 2017. Grade A share increased 3 ppts YoY to 16% and Grade C share decreased 3ppts YoY to 41%. No Grade A offices entered between 1998 and 2009, since then on average one Grade A project has entered each year. In 2017, Grade A surged 29% YoY to reach approximately 265,000 sq m from 11 projects. The growing economy, increasing FDI and growing numbers of new enterprises have all created office development opportunities. Major Grade developments were mostly Asian invested, only Vietcombank Tower and Bitexco Financial Tower were locally developed. Over the last five years, Grade B has seen steady average 4% pa stock growth. By Q4/2017, stock was over 742,000 sq m, increasing 7% YoY and the largest supplier with a 44% share. New Grade stock has improved with modern design, a location within a mixed-use project and offering more competitive rent and lease terms than Grade A. For three years, no new stock has launched in district 1. Notable new stock include developer head offices Viettel A with 26,000 sq m and Thanh Cong with 19,300 sq m in surrounding districts. Although gaining 2,400 sq m this quarter from Pax sky 51 combined with 7 closures in 2017, Grade supply was relatively unchanged YoY. Grade projects had an average 4,000 sq m scale and were mainly by local developers. Local enterprises are the main tenants and stock aligns with demand. According to the Statistical Office, 90% of businesses are small to medium sized domestic companies. NO VA LAND D20180328 159 A-160
Figure 4. 2: Five year grade share 100% 80% 60% 40% 20% 0% 2013 2014 2015 2016 2017 Grade A 11% 10% 13% 13% 16% Grade B 45% 44% 44% 44% 44% Grade C 44% 46% 44% 44% 41% Source: Savills Research & Consultancy Figure 4. 3: Grade supply NO VA LAND D20180328 160 A-161
1.3. BY DISTRICT By year-end 2017, the CBD with equivalent to 1 million sq m from 153 projects retained 62% market share. Increases in District 1 saw stock up 7% YoY. As the business hub District 1 has the highest concentration of office buildings and all large-scale CBD projects are here. Most District 3 projects are smaller scale. District 1 projects provide 8,500 sq m on average, 134% more than District 3. District 1 with 890,000 sq m has at 52%, the largest supply proportion. The 45 Grade A and B buildings represent 70% of upscale stock. District 3 supplying 173,000sq m had a 10% share. Most District projects have a NLA under 4,000 sq m and are relatively small. Non-CBD stock was 643,000 sq m, up 8% YoY. The decentralization trend continues with more offices being developed in the non-cbd areas where land is more readily available and at a more competitive cost. The highest new supply in 2017 was in these areas with 5 projects providing 55,500sq m. Of non-cbd areas, district 10 had the highest supply growth this year. With Pax Sky 3/2 and Viettel Complex A opening, stock had significant growth of 128% YoY to over 49,400sq m from 5 projects. Viettel Complex A is the first Grade B office in district 10, all others are of lower grade buildings. NO VA LAND D20180328 161 A-162
Figure 4. 4: Stock by location 2013-2017 1,200,000 sq m 1,000,000 800,000 600,000 400,000 200,000-2013 2014 2015 2016 2017 CBD 860,808 899,615 990,239 1,005,154 1,061,030 Non-CBD 534,565 558,685 591,291 596,920 643,317 Source: Savills Research & Consultancy Figure 4. 5: Districts stock 2017 1,050,000 sq m projects 120 900,000 100 750,000 80 600,000 450,000 60 300,000 40 150,000 20 0 District 1 Tan Binh District 3 District 7 Others Total leaseable area 887,685 197,660 173,345 108,872 336,785 Projects 105 24 48 12 45 - Source: Savills Research & Consultancy Note: Others column includes districts 2, 4, 5, 8, 9, 10, 11, 12 and Binh Thanh, Phu Nhuan and Nha Be. NO VA LAND D20180328 162 A-163
2. PERFORMANCE 2.1. OVERALL Note: average gross rent is calculated on net leasable area, including service charge but excluding VAT. The last five years have seen increasing rents and high occupancy. Average rent has increased 2% pa since 2013 to reach US$28/sq m/mth in 2017, attributed to high demand and new Grade A and B entries with high rent. Occupancy remained high at 96% though slightly softened by -1ppts YoY as new supply appeared. Figure 4. 6: HCMC 5 Year Performance 30 US$/sq m/mth % 100 26 80 22 60 18 40 14 20 10 2013 2014 2015 2016 2017 Rent 25 25 25 26 28 Occupancy 88 90 93 97 96 0 Source: Savills Research & Consultancy Performance continued to improve in 2017 with occupancy increasing and rent at a 5-year high. Average rent was US$28/sq m/mth with rising demand and rapidly reducing vacancies. Despite supply growth, each Grade has exceeded 90% occupancy for ten consecutive quarters. New stock has been absorbed quickly as witnessed in Saigon Center 2 and Viettel A. These projects experienced an increased demand after two operating quarters and both have a 95% occupancy rate. NO VA LAND D20180328 163 A-164
2.2. BY GRADE Grade A In 2017, average occupancy was slightly down YoY and ended the steady growth from 2013 to 2016. However, with limited stock in the grade A pool, a slight adjustment in any new supply will drag down the asking rent, such is the case of the lower occupancy in Deutsches Haus after its last quarter entry. Having the highest rent in the city, being home to the new German Consulate and having a strict leasing policy distinctly slowed uptake compared to other new launches. By yearend 2017, occupancy was 65%, up 21ppts QoQ yet still below Grade average. Most tenants were European and in distribution, finance and other service industries. However, average rent continued to trend up 3% pa to US$52/sq m/mth. New stock with premium rent was one reason for the increase. Grade A offices such as Saigon Centre, Bitexco Financial Tower and Times Square also increased rents in newly-released areas. Figure 4. 7: Five year Grade A 60 US$/sq m/mth % 100 50 80 40 60 30 20 40 10 20 0 2013 2014 2015 2016 2017 Rent 46 48 46 47 51 Occupancy 89 92 95 97 94 0 Source: Savills Research & Consultancy NO VA LAND D20180328 164 A-165
Grade B The year of 2017 saw continued good performance with occupancy improvements and increasing rent. Average rent of US$29/sq m/mth was the highest in five years with a compound annual growth rate (CAGR) of 2%. Occupancy reached 97%, up 1ppt YoY to a new high. Over the last five years, Grade demand has regularly outpaced supply, with leased areas up 6% YoY against 4% YoY stock growth. Grade B had the best performance with average rents up 4% YoY to US$29/sq m/mth. Increasingly limited vacancy has seen higher YoY rent in most projects. A&B Tower rents moved up 18% YoY and Crescent Plaza was up 14%. Average occupancy was up to 98% and 1ppt YoY. Quarterly increases were due to improvements outside District 1 including Viettel A, Saigon Giai Phong, Parkson Paragon and Crescent Plaza. Recently improved facilities, public infrastructure and competitive pricing has made non-cbd districts an appealing alternative to the CBD. Offices in District 1 remain the most attractive option for development and leasing. Due to a premium location, all projects have kept occupancy above 95%. Figure 4. 8: Five year Grade B 30 US$/sq m/mth % 100 24 80 18 60 12 40 6 20 0 2013 2014 2015 2016 2017 Rent 26 28 28 28 29 Occupancy 90 90 94 97 97 Source: Savills Research & Consultancy 0 NO VA LAND D20180328 165 A-166
Grade C In 2017, peak occupancy was 96%, stable YoY and the highest since 2013. Despite five years of supply increases averaging 3% pa, occupancy has remained above 80%. Demand has been consistent from representative offices, entrepreneurs and small to medium sized domestic companies. Average gross rent was US$19/sq m/mth, up 2% YoY. Grade average rent being 32% below the average reflects the pricing gap with the two upscale Grades. Figure 4. 9: Five year Grade C 20 US$/sq m/mth % 100 16 80 12 60 8 40 4 20 0 2013 2014 2015 2016 2017 Rent 18 18 18 18 19 Occupancy 86 89 92 96 96 Source: Savills Research & Consultancy 0 NO VA LAND D20180328 166 A-167
2.3. BY DISTRICT Figure 4. 10: CBD performance 2013-2017 40 US$/sq m/mth % 100 32 80 24 60 16 40 8 20-2013 2014 2015 2016 2017 Rent 29 30 31 31 34 Occupancy 89 91 97 97 96 - Source: Savills Research & Consultancy In 2017, average gross rent in the CBD was US$34/sq m/mth, 9% up YoY. CBD rent is the highest in the City and is mainly derived from District 1. Average gross rent has been maintained at approximately US$37/sq m/mth with occupancy up to 96%. Most projects had high occupancy and 60% were full. District 3 rent was stable this quarter but up 3% YoY. The improvement was mostly from Grade C rent increases in projects such as Agrex Saigon, Nam A Bank, GB Building, etc. Despite stock growth, non-cbd occupancy in 2017 was steady at 96% and stable YoY. All new office space was quickly absorbed within a year of entry. Non-CBD average rent was US$19/sq m/mth, up 2% YoY. By end of Q4/2017, District 10 led in QoQ improvement, up 18% to virtually 100% occupancy. Rents are more competitive and the CBD is relatively accessible. Except two projects with 98% occupancy, all other projects were fully occupied. Notably, Viettel A occupancy increased 30ppts in one quarter. NO VA LAND D20180328 167 A-168
Projects in 7 of the 12 non-cbd Districts were almost 100% occupied. Those in districts 2 and 4, Phu Nhuan and Tan Binh benefiting from CBD location adjacencies and rents -40% lower than the CBD took 3 quarters to achieve full occupancy. Figure 4. 11: Non-CBD performance 2013-2017 20 US$/sq m/mth % 100 16 80 12 60 8 40 4 20 0 2013 2014 2015 2016 2017 Rent 18 17 18 19 19 Occupancy 86 88 96 96 96 - Source: Savills Research & Consultancy NO VA LAND D20180328 168 A-169
3. DEMAND ANALYSIS Take-Up Before 2017, Grades B and C accounted for over 80% of total take-up pa, except in 2015 due to the entry of Vietcombank Tower. Most new supplies were quickly absorbed within two to three quarters after launch, especially those with good CBD location or competitive rent such as Vietcombank and Lim 2 (2015), Sai Gon Giai Phong (2016), Saigon Centre 2, Thanh Cong and Viettel Complex A (2017). Limited new Grade A stock was a barrier and significant take-up in 2015 confirmed growing demand. In 2017, total Grade take-up was approximately 50,000 sq m. The majority was from new entries, Saigon Centre 2 and Deutsches Haus. 60% of take-up, or 19,000 sq m, was in the CBD, up 135% YoY and mostly Grade A. Figure 4. 12: Grade take-up 2013-2017 sq m 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - (20,000) 2013 2014 2015 2016 2017 Grade A 13,872 4,663 55,964 6,305 49,906 Grade B 29,328 16,802 65,507 28,472 41,900 Grade C 47,228 65,908 36,757 41,367 (4,132) Source: Savills Research & Consultancy Tenant Mix by Industry Savills surveyed a cross section of Grade A tenants to estimate leased area by industry and country. The Finance industry had the greatest Grade A demand and accounted for 29% of total leased area. Foreign companies are the largest occupier group, accounting for 67% of total leased area. NO VA LAND D20180328 169 A-170
Companies from the US, Hong Kong, Japan, Korea and the UK are the main overseas tenants of Grade A buildings in HCMC. These countries together account for over 30% of all effective FDI in HCMC. Figure 4. 13: Grade A demand by Sector Finance, Baking & Insurance 12% Wholesale, Retail & Repair 7% 29% Manufacturing 8% Real Estate 11% 14% 19% Professional, Scientific & Technical Electricity, Gas, Steam & AC Supply Others Source: Savills Research & Consultancy Figure 4. 14: Grade A demand by nationality 2% 13% Vietnam Nam 4% 33% The US Hong Kong 5% Japan 7% Korea The UK 8% 10% 18% The Netherlands Germany Others Source: Savills Research & Consultancy NO VA LAND D20180328 170 A-171
CBD Tenants: Savills surveyed a sample group of Grade A and B tenants to better estimate demand. Small occupiers of less than 500sq m account for 80% of tenants but just 40% of leased areas. Areas leased by medium and large occupiers represent the remaining 20%. The greatest area demand was from F.I.R.E tenants, accounting for 42% of larger leased areas over 1,000 sq m. Figure 4. 15: CBD tenants by leased area 2017 100% <500 sq m 500-1,000 sq m >1,000 sq m 80% 60% 40% 20% 0% Tenants Source: Savills Research & Consultancy Leased area Figure 4. 16: CBD tenants leasing over 1,000sq m 18% 6% 7% 9% 42% F.I.R.E Manufacturing ICT Consultancy Utilities Others 18% Source: Savills Research & Consultancy NO VA LAND D20180328 171 A-172
Non-CBD demand came from back office requirements of CBD tenants, call centres of service companies or enterprises working in Logistic, Information Technology, and Import-Export field. Notable deals were DKSH with 8,000 sq m in Viettel A; VNG taking 3,200 sq m in Saigon Giai Phong or Home Credit with 4 whole floors in Phu Nu Newspaper. Demand Drivers: Economic Factors Jobs: in 2018, HCMC is estimated to have 300,000 vacancies, up 6% YoY. 70% of demand will be from service industries. Filling these vacancies will require office space over the short- and longterm. FDI: demand from foreign invested industries requiring significant space has been strong. In 2017, newly registered FDI of US$2.3 billion into HCMC was from 802 projects, up 77% YoY. Service sector businesses accounted for 74%, double that of last year. The growing numbers of industries will sustain coming quarter demand. GDP: over the last five years, manufacturing has on average accounted for 30% of total city GDP. Distribution, including wholesale and retail, accounted for 15% and finance, banking and insurance accounted for 10%. Figure 4. 17: GDP & GDP growth 50 US$ Billion % 15 40 12 30 9 20 6 10 3 0 2012 2013 2014 2015 2016 2017 GDP, current price (LHS) 31.5 34.6 38.2 40.2 42.6 46.5 GDP real growth (RHS) 9.2 11.5 7.5 7.7 8.1 8.3 Source: HCMC Statistical Office 0 NO VA LAND D20180328 172 A-173
Figure 4. 18: HCMC new registered FDI 1,000 Projects Billion US$ 4 800 600 400 200 3 2 1 0 2012 2013 2014 2015 2016 2017 Newly registered FDI 0.6 1.0 2.8 3.0 1.3 2.3 Number of projects 436 477 457 595 852 802 0 Source: HCMC Statistical Office NO VA LAND D20180328 173 A-174
4. OUTLOOK 4.1. SUPPLY To year-end 2020, space totaling 465,500 sq m from 18 projects is scheduled to enter. In 2018, 8 projects with more than 83,000 sq m are expected, namely two Grade B and six Grade C that will increase stock 5% YoY. With developers leasing policies not yet finalized, totals may vary. Overall, proposed new stock is relatively small and expected to be easily absorbed. Figure 4. 19: Supply by year 800,000 sq m projects 36 600,000 30 24 400,000 18 200,000 12 6 0 2018 E 2019 E 2020 E 2021 Onward Total new supply 83,776 120,542 260,259 645,366 Project 8 3 7 32 0 Source: Savills Research & Consultancy By 2020 the CBD will remain largest supplier with 11 projects supplying approximately 250,000sq m, equivalent to 53% of supply. District 1 will remain the largest supplier with 48% of future stock. Large-scale office development in Districts 2, 4 and 1 will become more prevalent as infrastructure is improved. Future key projects there include the Thaco Complex building in Thu Thiem NUA, E.town Central in District 4 and Crescent 2 in Phu My Hung NUA. A decentralizing trend is emerging with significant supply coming online in non-cbd districts. 58% of projects under-construction within 3 years will be outside the CBD, supplying approximately 210,000 sq m. Notable developments include Viettel Complex-Tower B in district 10, Thaco Complex in district 2 and E.Town Central in District 4. NO VA LAND D20180328 174 A-175
Figure 4. 20: Main districts supply to 2020 1,200,000 sq m 900,000 600,000 300,000 0 Dist. 1 Tan Binh Dist. 3 Dist. 7 Dist. 2 Dist. 10 Dist. 4 Future supply 224,759 15,000 22,700 50,000 78,542 21,000 22,576 Current supply 887,685 197,660 173,345 108,872 11,747 49,430 44,640 Source: Savills Research & Consultancy NO VA LAND D20180328 175 A-176
4.2. DEMAND Regional Comparison: HCMC is a regional office market with strong potential. Savills recent regional cities prime office survey covering Bangkok, HCMC, Hanoi, Jakarta, Manila and Kuala Lumpur showed HCMC had the highest gross rent and average office occupancy, second only to Manila. Higher Upscale Rents: our office forecasting model takes into account current and historical data of demand and structure, GDP structure and FDI structure to anticipate the market over 2018-2020. All factors suggest city demand will continue to outpace supply. By 2020, demand for Grade A & B office space of around 256,000 sq m will see increasingly limited vacancies and higher rent. Upscale rent is forecast to increase by circa 8% pa until 2020. Key Sectors: Economic Development and Planning Vision of HCMC Until 2020 and Beyond 2025 focuses more providing additional resources to the following industries: FIRE; transportation and logistics; real estate; IT; research and development; travel; medical and education. Demand until 2020 for office space across these industries is expected to grow. Investor Confidence: a recent AmCham ASEAN Business Outlook 2018 Survey had 72% of American companies operating here planning to expand investment activities. Around 84% believe profits will increase in 2018. Vietnam was voted the most attractive investment destination by 34% of the American companies. Multinationals entry and expansion will spur greater activity in the office market. NO VA LAND D20180328 176 A-177
Figure 4. 21: Business expansion in ASEAN Figure 4. 22: Office A&B forecast to 2020, CBD 1.5 million sq m US$/sq m/mth 50 1.2 40 0.9 30 0.6 20 0.3 10 0.0 2012 2013 2014 2015 2016 2017 2018f 2019f 2020f Vacant area 0.1 0.1 0.1 0.1 0.0 0.1 0.0 0.0 0.0 Leased area 0.6 0.7 0.7 0.8 0.9 0.9 1.0 1.1 1.2 Avg. Rent 30 31 31 32 33 34 37 40 43 Source: Savills Research & Consultancy, Q3/2017 0 NO VA LAND D20180328 177 A-178
5. REGIONAL COMPARISON In 2017, Vietnam offered prime office space at a relatively modest rent in a regional context. Savills Asia Pacific Prime Benchmark 2017 shows that the prime gross rental rate in Hanoi and HCMC was US$40 and US$51/sq m/mth respectively. Being considerably lower than Sydney, Singapore, Seoul, Shanghai and Hong Kong certainly helps confirm competitive advantage in the eyes of global occupiers. However, with low vacancy rates in many grade-a buildings and limited new supply of prime office space, rents are likely to increase over the next 2-3 years. Figure 4. 23: Prime benchmark 2017 300 US$/sq m/mth 250 200 150 100 50 0 Source: Savills Research & Consultancy Current market scale of HCMC and Hanoi remained small compared to regional markets. Total market supply of both two cities was less than 20% of comparable cities, indicating large development potential. NO VA LAND D20180328 178 A-179
Figure 4. 24: Office benchmarks 2017 12 million sq m % 100 10 80 8 6 4 60 40 2 20 0 Kuala Lumpur Jakarta Bangkok Manila HCMC Ha Noi Total supply 10.2 9.7 8.6 5.5 1.704 1.62 Occupancy 79 80 92 97 96 94 Source: Savills Research & Consultancy 0 Figure 4. 25: CBD Grade A net effective yields (%) 2017 9 8 7 6 8.29 7.53 7.2 5.96 5 4 3.57 3 2 1 0 Hanoi HCMC Manila Jakarta Singapore Source: Savills Research & Consultancy The table above demonstrates hypothetical grade A yields, however the opportunity to find properties that have clear legal title, robust capital levels and high quality profiles, remain very limited. Net yields remain relatively high, with further capacity for compression. Vietnam lacks institutional grade investment stock and so that which exists, remains relatively illiquid. There is strong demand across the board for good quality assets, driven both by domestic NO VA LAND D20180328 179 A-180
and international investors. Much of the demand is driven by investors seeking passive returns who prefer to purchase completed assets without taking on development risk With limited transactions in a relatively illiquid market then yield trends over recent periods are difficult to define. However with a strongly performing domestic economy and burgeoning foreign interest then it could be expected that further compression will result. The tables below indicate a cross section of recent market yields. Table 4. 1: Office transactions, HCMC Description Evidence 1 Evidence 2 Evidence 3 Type Grade B office Grade B office Grade A office Transaction Q1/2017 Q1/2017 Q2/2016 Trans. price (US$) 72,000,000 42,000,000 128,500,000 NLA (approx.) (sq m) 20,987 9,950 25,764 Yield 7.10% 6.70% 8.7% $/sq m NLA 3,431 4,221 4,989 NO VA LAND D20180328 180 A-181
6. SWOT The SWOT analysis will consider strengths, weaknesses, opportunities and threats to this market segment and is a brief overview of factors apparent from Savills research. The details of the report cover many other aspects and the SWOT analysis should not be read in isolation. Maintaining good economic growth. Strengths Demand growing across all locations and grades. Performance improving for last five years, notably in Grades A & B. Demand focused to key business and administrative centres leads to Weaknesses high project density in increasingly expensive district 1. Strong supply growth may pressure mid-term performance. Strong increases in FDI projects and registered capital; notably in commerce and technology sectors. Important infrastructure projects being developed in the city and Opportunities surrounding provinces. Regional free trade agreements being finalised. National and local economies growth expected to continue. Grade A and B rents forecast to increase. Economic development and planning in HCMC will focus on nine industry sectors: finance, banking and insurance, transportation and logistics, real estate, IT, research and development, travel, medical and education. Increased competition from future supply, particularly in the Thu Thiem Threats area. Pressure from unconventional competitors in non-cbd areas. Lack of financial capability has seen many projects put on hold. NO VA LAND D20180328 181 A-182
DISCLAIMER The property market research contained is verified to the best of Savills Vietnam s abilities. Savills reports reflect an overview of the current property market and are indicative research only. Savills Vietnam does not guarantee the accuracy of research and forecasts contained herein. Savills Vietnam does not accept any responsibility for losses arising from reliance on the research and forecasting. Savills recommends that the reader obtain a detailed market study of the specific sector of interest should a deeper understanding of the market be required. Reproduction of this report, in any manner whatsoever, in whole or in part, without written prior consent from Savills Vietnam is prohibited. Approval should be obtained from Savills Vietnam before any reference to this report can be made in any statement, published document, or circular. Where information is given without reference to another party, it shall be taken that this information has been obtained or gathered through Savills best efforts and to Savills best knowledge. Processed data references there from shall be taken as Savills opinion and shall not be freely quoted without acknowledgement. NO VA LAND D20180328 182 A-183
NO VA LAND D20180328 183 A-184
APPENDIX B REPORT ON THE VIETNAMESE HOSPITALITY MARKET B-1
Vietnam Hospitality Market March 2018 Market study For NO VA LAND INVESTMENT GROUP CORPORATION Savills Vietnam Co., Ltd. 18th Floor, Ruby Tower 81-85 Ham Nghi Street, District 1 HCMC, Vietnam B-2
Contents 1 OVERVIEW... 3 2 NHA TRANG... 16 2.1 SUPPLY... 16 2.2 PERFORMANCE... 18 2.3 DEMAND ANALYSIS... 22 2.4 FUTURE OUTLOOK... 26 3 PHAN THIET... 31 3.1 SUPPLY... 31 3.2 PERFORMANCE... 35 3.3 DEMAND ANALYSIS... 37 3.4 FUTURE OUTLOOK... 40 4 DA NANG... 42 4.1 SUPPLY... 42 4.2 PERFORMANCE... 44 4.3 DEMAND ANALYSIS... 45 4.4 FUTURE OUTLOOK... 49 5 VUNG TAU... 51 5.1 SUPPLY... 51 5.2 PERFORMANCE... 53 5.3 DEMAND ANALYSIS... 54 5.4 FUTURE OUTLOOK... 57 6 DA LAT... 59 6.1 SUPPLY... 59 6.2 PERFORMANCE... 61 6.3 DEMAND ANALYSIS... 62 6.4 FUTURE OUTLOOK... 66 7 PHU QUOC... 68 7.1 SUPPLY... 68 7.2 PERFORMANCE... 69 7.3 DEMAND ANALYSIS... 70 7.4 FUTURE OUTLOOK... 75 Novaland D20180309 B-3
8 CAN THO... 78 8.1 SUPPLY... 78 8.2 PERFORMANCE... 81 8.3 DEMAND ANALYSIS... 82 8.4 FUTURE OUTLOOK... 86 9 SWOT ANALYSIS... 87 DISCLAIMER... 89 Novaland D20180309 B-4
1 OVERVIEW Vietnam has strong potential for tourism due to its long and beautiful coastline, islands, warm weather and near proximity to source markets. As a result of airport upgrades throughout the country from 2013-2017, international arrivals increased on average 14% pa. According to the Ministry of Culture, Sports and Tourism in 2017, there were approximately 13 million international arrivals to Vietnam. This growth is expected to continue, with approximately 18 million annual visitors anticipated by 2030. Figure 1.1: International arrivals, 2013-2017 14,000 12,000 10,000 8,000 6,000 4,000 Thousand visitors Total arrivals Growth rate 35% 30% 25% 20% 15% 10% 5% 2,000 Source: VNAT 2013 2014 2015 2016 2017 0% Hanoi and HCMC (HCMC) receive the most international tourists, cumulatively over 80% of all international visitors travelling to Vietnam. However, over the last three years, coastal destinations such as Da Nang, Nha Trang and Phu Quoc have achieved significant tourist growth of up to 50% pa. Previously the only international points of entry by air, HCMC and Hanoi are now being undercut by growth in capacity and number of direct flights to other key cities. Emerging coastal destinations such as Da Nang, Nha Trang and Phu Quoc are becoming more competitive. Hanoi remains the gateway to the Northern provinces, and HCMC remains the gateway to the Mekong provinces. The central region is becoming increasingly self-reliant, a trend that is expected to continue. Novaland D20180309 3 B-5
Figure 1. 2: International Tourists by city, 2017 7000 thousand visitors % pa 60 6000 50 5000 40 4000 30 20 3000 10 2000 0 1000-10 0 HCMC Ha Noi Da Nang Nha Trang Binh Thuan Da Lat BRVT Phu Quoc Can Tho International arrivals 6400 4950 2,300 2,030 591 384 363 362 305 2015-2017 CAGR) 18 21 32 44 14 43 (10) 54 23 Source: Savills Research & Consultancy -20 China and Russia are Vietnam s fastest growing inbound source markets. Russia has a tourist visa exemption and Vietnam is popular holidays due to its relatively lower costs. Even in the wake of sanctions and a depressed ruble, Russian arrivals to Vietnam have steadily increased over the past few years. The growing middle class in China is creating greater outbound travel demand, especially for the more affordable ASEAN destinations. In 2017, Vietnam had four million business travellers and tourists from China, a 49% increase on 2016. China-based ASEAN inbound visitors are forecast to double over the next 10 years (Goldman Sachs, 2015). Vietnam s rich geographic and topographic diversity and local micro-climates appeal to a wide variety of tourists. Fast-growing increases in household and personal income over the past five years have contributed to a 20% pa expansion in Vietnam s domestic tourism since 2013. Novaland D20180309 4 B-6
Figure 1.3: Total hotel stock in Vietnam, 2013-2016 100,000 rooms 3 star 4 star 5 star 80,000 60,000 40,000 20,000-2013 2014 2015 2016 Source: Savills Research & Consultancy By 2016, the total rated travel accommodation supply in Vietnam was up 18% YoY, to 420,000 hotel rooms, in line with the development of the tourism industry. More tourists are creating greater opportunities especially in the upper end segments. From 2013 to 2016, the supply of four- and five star hotels increased 20% pa on average. Prior to 2006, well-known international operators such as Accor, Marriott, Starwood and Hilton had a limited presence. Underdevelopment of the hospitality market at this stage can be attributed to poor tourism infrastructure. At that point, only Noi Bai in Hanoi and Tan Son Nhat in HCMC had international flights. However, after joining the WTO in 2007, Vietnam committed to the improvement of the business environment and infrastructure. Foreign and domestic investors are entitled to many incentives including corporate income tax deductions, simpler administrative procedures and more favourable conditions for land use. By 2020, over 2,500 kilometers of newly-built highways and extensions will be inaugurated and numerous airports throughout the country will complete expansions and upgrades. Novaland D20180309 5 B-7
Figure 1.4: Supply by location, 2016 HCMC 17% Others 36% Nha Trang 13% Phan Thiet 2% Can Tho 2% Da Lat 3% Phu Quoc 3% Source: Savills Research & Consultancy Da Nang 10% BRVT 4% Ha Noi 10% Hanoi and HCMC have the most three to five-star stock, accounting for 27% nationwide. Recent investment was concentrated in coastal destinations such as Nha Trang, Da Nang and Phu Quoc, cumulatively providing 26% of domestic stock. International hoteliers have become increasingly prevalent, with many of their newer projects located along the coast. The expected future supply over the next two years is high. Figure 1.5: Performance by location, 2017 120 US$/room/night % 80 100 70 60 80 50 60 40 40 30 20 20 10 0 Da Nang Phu Quoc BRVT Nha Trang Phan Thiet Da Lat Can Tho ARR 99 86 65 62 54 41 38 Occupancy 72 50 62 74 65 56 66 0 Source: Savills Research & Consultancy Novaland D20180309 6 B-8
While HCMC and Hanoi are traditional tourism hubs for business and tourists, Da Nang is the most mature coastal market, catering to a broad range of visitors. Whilst it has stunning beaches, Da Nang is also the economic hub of central Vietnam. The majority of upscale accommodation is along the beaches of Ngu Hanh Son district. In 2017, the three to five-star occupancy was 72% and the ARR was US$99/room/night, the highest among the studied cities. Phu Quoc is an ideal destination for high-end hospitality, and as of 2017, the five-star segment accounted for 56% of three to five-star stock. However, as an early-developed market, a large future supply may challenge developers to improve performance. Among the studied cities, the island had the second highest ARR at US$86/room/night; however the lowest occupancy of only 50%. While most five-star accommodation in Da Nang and Phu Quoc are resorts, accommodation in Khanh Hoa (Nha Trang) typically follows a hotel concept and therefore has a lower ARR, equivalent to 70% of Phu Quoc and 60% of Da Nang. The strong growth of five-star hotels in Nha Trang has affected room rates. Since 2013, five-star ARR decreased -15% pa. Nha Trang was currently the largest supplier of coastal stock with 13% share. Phan Thiet, Can Tho and Da Lat are the traditional destinations of domestic tourists with a midrange accommodation budget. Table 1. 1: Transactions Description Evidence 1 Evidence 2 Evidence 3 Evidence 4 Location HCMC HCMC HCMC Da Nang Type 4-star 5-star 5-star 5-star Transaction date Q1/2016 Q1/2014 Q1/2013 Q1/2016 Trans. price (US$) 49,000,000 28,000,000 150,000,000 29,600,000 Management Duxton Movenpick N/A Hyatt Keys 191 278 300 193 Yield 3.0% 10.5% 8.9% 9.6% Value per room (US$) 256,545 100,719 500,000 153,368 Description Evidence 1 (Offering) Evidence 2 Evidence 3 Location Hanoi Hanoi Hanoi Type 4-star 5-star 5-star Transaction date Q4/2017 Q4/2016 Q2/2016 Trans. price (US$) 35,000,000 99,800,000 31,500,000 Management Accor Accor Keppel Keys 151 365 175 Yield 7.0% 9.8% 13.6% Value per room (US$) 230,000 270,000 180,000 Novaland D20180309 7 B-9
Low-Cost Carriers In the last ten years, the Asia-Pacific Region has experienced strong growth in low-cost carriers (LLC). According to the Centre for Asia Pacific Aviation (CAPA), as of 2016, low-cost carriers accounted for 20% total air capacity in Asia-Pacific, up 20 ppts compared to ten years ago. Currently, there are 47 LCCs operating with an in-service fleet of over 1,000 aircrafts, accounting for 15% of the total in-service commercial aircrafts in Asia-Pacific. LLCs in Vietnam also have room to develop due to a dynamic and rapidly growing domestic aviation market. Jetstar Pacific, Air Asia and VietJet Air are the three biggest LLCs operating in Vietnam. LLC passenger growth has been 37% pa since 2011, making the budget segment the leader in the domestic flight market with a 56% share in 2017, according to CAPA. With LLC expansion, domestic tourism has surged with 73 million flights taken this year, up 18% YoY. Table 1.2: Low-cost flights No. Airline name Departure Key international destinations 1 Jetstar Pacific HCMC Australia, Cambodia, China, Hong Kong, Indonesia, Malaysia, Myanmar, New Zealand, Philippines, Singapore, Taiwan and Thailand 2 Air Asia HCMC Australia, China, India, Indonesia, Japan, Macau, Malaysia, Myanmar, Nepal, Philippines, Saudi Arabia, Singapore, South Korea, Sri Lanka, Taiwan, Thailand 3 VietJet Air HCMC Bangkok, Singapore, Taipei Novaland D20180309 8 B-10
Figure 1. 6: Domestic flights share in Vietnam 2011 v 2017 Vietnam Airlines LLCs 23%, 2.7 mil 56%, 18 mil 2011: Inner circle Note: Number of passengers in Vietnam Source: CAPA - Centre for Aviation Tourism Competitiveness According to the World Economic Forum (WEF), Travel & Tourism Competitiveness Report 2017, Vietnam is now 67th of 136 economies and has moved up eight places since 2015. Vietnam has made significant progress (up 18 places to 37th) in the WEF human resource and labour market metrics thanks to better-qualified domestic labour population and partially simplified regulations in hiring foreign workers. Today, over 94% of the country can access a 3G signal and internet is now used by 53% of the total population. With an improving online presence, searches related to natural tourism destinations are increasing. To continue enhancing tourism competitiveness, Vietnam will bring a greater focus to environmental sustainability. Lax regulations, high levels of emissions, deforestation and limited water treatment are depleting the environment and need to be urgently addressed. Currently weak and overloaded tourism infrastructure needs a lot more attention if the increasing number of visitors are to stay longer and recommend Vietnam as a destination. Novaland D20180309 9 B-11
Figure 1. 7: Competitive Evaluation, 2017 Singapore Malaysia Thailand Indonesia Vietnam Business environment Natural Resources Safety & security Tourism Infrastructure ICT readiness Transport Infrastructure International Openness Price Competitiveness Source: World Economic Forum Online tourism revenues: Online search and bookings have recently had strong growth in Vietnam, according to a Google report of Online Tourism Day 2017 held in HCMC by the Vietnam National Administration of Tourism (VNAT). Online tourism related turnover in Southeast Asia is forecast to increase approximately four times from US$22 billion in 2015 to US$90 billion by 2025. Digital technology growth and increasing internet and smartphone users support the trend. 42% of domestic smartphone users in 2016 looked for hotels and tours information online, 17ppts higher than US users. Grant Thornton reported recently that seeking accommodation using digital methods has increased from 49% in 2015 to 67% in 2016. Novaland D20180309 10 B-12
Figure 1. 8: Hotel digital technology Already applied Yes, this year Not yet, next year Not decided yet 15% 6% 24% 49% 13% 12% 15% 67% Source: Grant Thornton Hotel Survey 2017 Inner circle: 2015 Outter circle: 2016 Locals Liking Luxury Figure 1. 9: Local upscale demand 100% 80% 60% 40% 20% 0% 2014 2015 2016 International Guests 83% 81% 80% Domestic Guests 17% 19% 20% Source: Grant Thornton Hotel Survey 2017 According to a Grant Thornton Hotel Survey, from 2014-2016 an average 80% of upscale hotel guests are international travelers. During this period, domestic guests staying at 4 and 5-star hotels increased approximately 1.7% pa. This trend has been greater in southern regions with domestic guest rates increasing at around 3% pa. Novaland D20180309 11 B-13
Reservation channels Figure 1. 10: Turnover by reservation channels Others 14% Online booking 22% Travel agents & tour operators 40% Direct booking 24% Source: Grant Thornton Hotel Survey 2016 According to Grant Thornton s Hotel Survey 2016, travel agencies (both traditional and online) have a 62% share of Vietnam reservations. Traditional booking agencies account for 40% of those room sales. Direct bookings accounted for 25% of total room sales as this reservation channel was considered less economic by most travelers. Online reservations will become increasingly important to hotels, travel agencies and customers. Though online reservation is expected to rise in the coming years it will not fully replace traditional operators. Casino Casino projects in Vietnam are limited due to strict gambling laws and low international visitor demand. As of the studied period, only seven casino projects in Vietnam are licensed. Six of seven projects are concentrated in the Northern provinces to attract Chinese middle-class customers. These casinos are only for foreigners and overseas Vietnamese but help support good hotel performance. Aristo International project in Lao Cai occupancy rates arrange from 80-90%, whilst the casino is only open to foreigners and overseas Vietnamese. In December 2015, Aristo attracted 61,617 casino visitors, with Chinese accounting for over 95%. Novaland D20180309 12 B-14
Crowne Plaza in Da Nang is also operating well with 99% of visitors from China. Located in the southern area, Ho Tram Strip is presently the largest casino complex in Vietnam, attracting players from Europe and some Southeast Asian countries. On average, the number of casino guests accounts for 10-15% of hotel guests staying at the 541 room Grand Ho Tram Strip. Particularly, 8 of 10 gamblers stay in hotel. However, as casino gambling is forbidden to local people many from the southern provinces go to Cambodia. According to records, about 1,500 Vietnamese travel to this area every day to gamble. With a pilot scheme allowing Vietnamese people to enter casinos in accordance with Decree 03/2017 / ND-CP on casino business, from January 2017, Vietnam will become a casino development destination for investors. According to a survey conducted by the Institute of Sustainable Development Research of the Vietnam Academy of Social Sciences on prize games in Vietnam in September 2015, 70.7% of respondents said they will go to casinos if permitted. Visa Policies Visitors to Vietnam must typically obtain a visa prior to travel from a Vietnamese diplomatic missions or via an agency if not from a visa exempt country or are eligible for an e-visa. All visitors must hold a passport valid for six months. Decree No. 92/2007/ND-CP details the implementation of a number of the Articles of the Laws on Tourism, including regulations regarding the rights and obligations of international travel agencies. International travel agencies have the right to request that a competent state agency (the Vietnam Immigration Department) approve the entry, exit, or transit of tourists as stated in Article 13 of this Decree. An international travel enterprise has the rights to enjoy business autonomy and take responsibility for tourism business activities; request a competent state agency approve the entry, exit or transit of tourists; have their lawful tourism business activities protected by the State; participate in tourism promotion activities and join professional associations. Vietnam visa exemption is granted to: Citizens of Cambodia, Thailand, Malaysia, Singapore, Indonesia and Laos for visits of up to 30 days. Citizens of the Philippines for visits up to 21 days. Citizens of Japan, South Korea, Sweden, Norway, Denmark, Russia and Finland for visits up to 15 days. Novaland D20180309 13 B-15
Citizens of Brunei for visits up to 14 days. Citizens of France holding valid diplomatic or official passports for visits up to 90 days or several visits of 6 months at the maximum. Citizens of Chile holding valid diplomatic or official passports for visits up to 90 days. APEC Business Travel Card (ABTC) Holders from Asia-Pacific Economic Cooperation (APEC) member economies for visits up to 60 days. For those who travel to Phu Quoc Island: foreigners and Vietnamese nationals bearing foreign passports who enter Vietnam through an international border gate and then travel to Phu Quoc Island and stay in Phu Quoc less than 15 days are also granted visa exemption. Passports must be valid for at least 45 days. The Vietnamese Government decided to extend visa exemptions for tourists from five countries, including the United Kingdom, France, Germany, Italy and Spain by an additional year from 1 July 2016. The visa exemption for the five Western European countries has contributed greatly to Vietnamese tourism development over the past year. evisa Launched in Q1/2017, the evisa policy for 46 participating countries has been a success with applications increasing month on month. According to the Department of Immigration, approximately 100,000 foreign visitors have been granted evisas over the last 10 months, 97% were self-applied, the others used third-party services. Issuance is simple, transparency is guaranteed and take less than three days to issue over the previous process minimum required one week. In December 2017, Australia, the United Arab Emirates, Canada, India, the Netherlands and New Zealand joined the program. New Tourism Law On June 19, 2017, the revised Tourism Law 2017 was officially ratified to come into effect January 1, 2018. Replacing the 2005 Tourism Law, the amendment aims are to provide better oversight for accommodation services, promote sector development and transformation, and boost benefits to the economy. Novaland D20180309 14 B-16
Table 1. 3: 2017 Tourism Law key revisions Adjustment Tourism Law 2005 Tourism Law 2017 Positive impact 1 2 3 4 5 Star-rating registration Tourism licenses Tour guide license Tourism Development Fund Tourism Insurance Compulsory to submit registration within 3 months from commencement date for authority assessment. Domestic agents: required to submit basic business registration. International agents: required to submit confirmation of deposit, business registration certificates, certified copies of touristguide cards of minimum three international tour guides. Qualifications: bachelor degree or equivalent. Not applicable due to lack of capital supply and poor management. Not compulsory: many accidents. Self-assessed. Hotels register for star-rating classification with competent authority and adhere to national standards. Domestic agents: more restricted requirements such as inbound tourism licenses and deposit confirmations. International agents: tourism licensing managed by VNAT now exclude three tour-guide cards requirement. All managers required to be qualified and participate in training courses. College degree or equivalent due to quality increases in college training. Obligatory labour/ guiding contract with legal agent. Fund capital supply from state provided charter capital, visa fees, international visitors fees and individual contributions. Obligatory: travel insurance. Encourage selfassessment and quality management. Simplify administrative procedures. Ensure transparency with international travel agents. Narrow gaps in managing domestic travel agents to reduce illegal operators. Enhance and simplify international business procedures and easier registration processes. Improve tour guides quality and quantity management to meet occupational skill standards. Adhere to ASEAN Tourism Professionals Mutual Recognition Arrangements. Provide more tourism promotion and training activities. Protect the environment and ensure tourist security and safety. Eliminate/reduce accidents and enable travellers trust. Novaland D20180309 15 B-17
2 NHA TRANG 2.1 SUPPLY Over the last five years there has been strong demand for accommodation due to an upsurge in international arrivals. From 2013-2017, total stock of three to five-star hotels increased with average growth of 21% pa. By end of 2017, total supply is approximately 12,700 units from 101 3- to 5-star hotels, increasing 5% YoY. The low growth in 2017 was down to very few official grades being confirmed. Many hotels hurriedly opened to capture growing tourist demand despite not yet being officially graded. Six hotels had not completed fire safety appraisals and 14 unqualified hotels were suspended. The market is fairly balanced with the 3-star segment having a 39% market share, with 4- and 5-star segments each having 31%. Figure 2. 1: Total supply, 2010-2017 16,000 rooms 12,000 8,000 4,000 0 2010 2011 2012 2013 2014 2015 2016 2017 5-star 968 968 1,052 1,214 1,951 3,284 3,958 3,958 4-star 867 1,066 1,066 1,757 2,113 3,112 3,399 3,774 3-star 979 1,820 2,575 2,902 3,234 4,213 4,736 4,959 Source: Savills Research & Consultancy Nha Trang has attracted many reputable international hoteliers such as Accor, Best Western Premier, Evason Ana Mandara, Sheraton and InterContinental. Other well-known brands such as Marriott and Movenpick will join in the near future. Excluding the 4-star Novotel, international brands are mainly 5-star and account for around 42% of segment supply. In the last five years, there have been limited new international hotel Novaland D20180309 16 B-18
entries in the city. High development standards and city center location alongside the lofty room rates and standard rental policies limit potential investors. The Accor Ibis hotel on Hung Vuong Street was the newest international hotel to enter the market, but is not yet recorded due to the incomplete grading procedure. Table 2. 1: Nha Trang international operators, 2017 Details # Brand Sites Rooms Launch Operator Location Grade Rooms East of Tran Evason Ana 1 1 78 1997 Ana Mandara Phu St., Loc 5-star 78 Mandara Tho Ward 2 3 Best Western Premier Intercontinent al Hotel Group 2 912 2013 1 279 2014 4 Sheraton 1 284 2013 5 Accor 1 154 2009 6 World Hotels 1 113 2013 Amiana By Location Best Western Premier Havana MerPerle Hontam Intercontinental Nha Trang Sheraton Nha Trang Hotel & Resort Novotel Nha Trang 38 Tran Phu St., Loc Tho Ward Hon Tam, Vinh Nguyen 32-34 Tran Phu St., Loc Tho Ward 26-28 Tran Phu St., Loc Tho Ward 50 Tran Phu St., Loc Tho Ward Pham Van Dong, Vinh Hoa 5-star 850 5-star 62 5-star 279 5-star 284 4-star 154 5-star 113 Hotels typically have prime locations along the coastline with beautiful sea views. Loc Tho Ward accounted for 68% of rooms within the city. As the central and beachfront district of Nha Trang, it has the longest coastline and is the most developed tourist center. Public amenities and tourist landmarks are convenient and accessible. Vinh Nguyen Ward has the second largest room share at 13%, coming mainly from the Vingroup Resort on Hon Tre Island. There were more projects developed in non-cbd wards. In 2017, four of the eight new projects were located in Vinh Hoa and Xuong Huan wards, including two 3-star and two 4-star projects, providing 340 rooms in total. Pham Van Dong Street, which also has a long coastline and direct sea views, is an emerging destination for new hotels. Many new hotels such as VDB Nha Trang, Calm Seas and Nha Trang Wonderland are along this street. Novaland D20180309 17 B-19
Figure 2. 2: Supply by grade & location, 2017 10,000 Room 8,000 6,000 4,000 2,000 0 Loc Tho Vinh Nguyen Vinh Hoa Xuong Huan Phuoc Dong Vinh Hai Tan Lap Ngoc Hiep Van Thanh 5- star 2,070 1,433 113-342 - - - - 4- star 2,783-510 313 - - - 168-3- star 3,792 218 125 197-346 166-115 Source: Savills Research & Consultancy 2.2 PERFORMANCE Overall Performance is seasonally affected in Nha Trang. In 2012-2016, the high season occurred in Q1 and Q4 with international tourists on winter break and domestic tourists on holidays. However in 2017, demand from domestic tourists on summer holidays and significant increases in international tourists, especially Chinese, saw the high season extended. Typically, November to February is the high season for tourists from temperate-zone countries, including Russia. Figure 2. 3 : Average grade occupancy 90% 5-star 4-star 3-star 80% 70% 60% 50% 40% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 Source: Savills Research & Consultancy Novaland D20180309 18 B-20
Average 3- to 5-star occupancy was over 80% in the high season and less than 70% in the low. The ARR difference between high and low season was 10-20% for the 4- and 5-star segments and around 10% for 3-star. In 2017, average occupancy was at 74%. Many high-end city-center projects experienced occupancy at over 80%. Figure 2. 4: Grade ARR 220 US$/room/night 5-star 4-star 3-star 180 140 100 60 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 Source: Savills Research & Consultancy Grade Performance Five-Star Occupancy was 73% in 2017, increasing 3ppts YoY, the highest for three years. International tourist growth was the major contributor to this rise. Hotels like Best Western Havana, Merperle Hon Tam and the Muong Thanh Centre have long-term contracts which helped maintain occupancy at over 90% throughout the year. These hotels have key contracts and keep a limited number of rooms available for walk-ins and small groups. In March 2018, only small bookings of less than five rooms were on offer. Sheraton (under Starwood) and InterContinental (International Hotel Group: IHG) had softer high season performances of less than 60%. Guests were mainly from Europe and America. Both companies have global business and brand policies that do not prioritize long-term contracts. Five-star ARR still showed no signs of recovery after experiencing a continual downtown since 2014. With Vinpearl hotels continuously reducing rates to attract local tourists, the decrease in Novaland D20180309 19 B-21
5-star ARR to approximately US$102/room/night bears harsh comparison with the over US$200 in 2013-2014. Figure 2. 5: Performance US$/room/night ARR Occupancy 240 100% 200 160 80% 120 60% 80 40 40% 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 20% Source: Savills Research & Consultancy Four-Star Figure 2. 6 : Performance 90 US$/room/night ARR Occupancy 100% 75 60 80% 45 60% 30 15 40% 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 20% Source: Savills Research & Consultancy Four-star occupancy remained high at 73% in 2017, down -6 ppts YoY after strong stock growth. ARR was US$54/room/night. Four-star ARR in Loc Tho District (Nha Trang CBD) was US$50-70/room/night, 10-20% higher than other areas. In Ngoc Hiep, Xuong Huan and Vinh Hoa districts ARR ranged from US$40-50/room/night. Novaland D20180309 20 B-22
Diamond Bay Hotel and Novotel Resort have the highest ARR of US$80-90/room/night due to a location close to the city center and the large public beaches. Three-Star Average occupancy for this segment was 74%. This segment does not attract as many international tourists as 4- or 5-star and has extensive competition from unrated or lower rated hotels, homestays and AirBnB, etc. Three-star ARR in 2017 was US$30/room/night. Figure 2. 7: Three-star performance 45 US$/room/night ARR Occupancy 100% 30 80% 60% 15 40% 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017 20% Source: Savills Research & Consultancy By Location Due to the presence of the Vingroup s 5-star hotel, Vinh Nguyen had the highest ARR at US$105/room/night and quarterly average occupancy of 72%. Loc Tho maintained a stronger performance than Xuong Huan and Ngoc Hiep with an ARR of US$55 and 75% occupancy. Novaland D20180309 21 B-23
Figure 2. 8: Area performance, 2017 120 US$/room/night % 100 100 80 80 60 40 60 40 20 20 0 Vinh Nguyen Phuoc Dong Loc Tho Vinh Hoa Xuong Huan Ngoc Hiep ARR 105 100 55 52 44 44 Occupancy 72 63 75 81 72 60 0 Source: Savills Research & Consultancy 2.3 DEMAND ANALYSIS Tourism Figure 2. 9: International & domestic arrivals 6,000 thousand visitors Domestic visitors International visitors Growth rate % 40 5,000 35 30 4,000 25 3,000 20 2,000 15 10 1,000 5 0 2011 2012 2013 2014 2015 2016 2017 Source: Khanh Hoa's Culture, Sport and Tourism Deparment - From 2011-2016, visitors to Khanh Hoa have increased 14% pa. In 2017, they reached 5.4 million, increasing 20% YoY. There was significant increase in international arrivals to over 2 million, up 63% YoY. Overseas inbounds are expected to increase in coming quarters due to the expanding global network of travel agents and additional international direct flights. Novaland D20180309 22 B-24
China and Russia continued to be the two largest sources in 2017. In the first 11 months of 2017, China became the largest source market with more than 1.1 million arrivals, accounting for 55% of international visitors. Direct flights from China to Cam Ranh increased to over 20 flights/week and are mostly charter flights. Cam Ranh airport could not cope with such increased demand and many flights were diverted to Lien Khuong airport (Lam Dong) before road transfer to Nha Trang. According to local travel agents, the visitors were mostly from Eastern and Southern China. Chinese tourists often buy tours and prefer group travel that require exclusive transportation and tour guides. By November 2017, Russian tourists reached over 401,100, accounting for a 20% market share. According to a survey of 150 Russian visitors called Research of Russian Tourist Tastes in Khanh Hoa, 2013 (by the Khanh Hoa Dept. of Culture, Sports and Tourism), most are interested in leisure (53% surveyed) rather than cultural exploration. Generally, they tend to choose Khanh Hoa for leisure, winter breaks, holidays, sightseeing and shopping. They do appear to care much for local tourism destinations. They tend to be interested in resorts with easy beach access. Figure 2. 10: Russian and Chinese visitors by year 1,200,000 visitors Russia China 1,000,000 800,000 600,000 400,000 200,000 0 2012 2013 2014 2015 2016 11M/2017 Source: Khanh Hoa Tourism Department Due to the growth and dominating presence of Chinese and Russian tourists, arrivals from other markets have encountered problems. There has been a decrease of between 10%-30% YoY from other international tourist markets. The airport is over capacity and there are difficulties in Novaland D20180309 23 B-25
finding accommodation; shortages and imbalances in supporting human resources caused problems. Managing different cultural tastes and expectations are obstacles to overcome if accommodating a fully diverse balance of international tourists and gaining regular returns is to be achieved. Figure 2. 11: International visitors by continent 2,000,000 Visitor Europe Asia Americans Oceania South Africa 1,600,000 1,200,000 800,000 400,000 0 2011 2012 2013 2014 2015 2016 11M/2017 Source: Khanh Hoa Culture, Sport,& Tourism Department The top 10 international visitors to Khanh Hoa in recent years and growth trends forecasts for 2018-2019 are: The strong growth of Chinese visitors is expected to become a steady and substantial source to Vietnam and Khanh Hoa. The growing Chinese middle class has matching demand for international travel, especially to ASEAN countries with more reasonable costs. The many international flights to Cam Ranh and an increase in travel agent reach has helped convert interest into experience. However, rapidly increasing volumes caused management inadequacies and in response, the Nha Trang Tourism Association is expected to establish a Chinese Tourist Welcome Club with aims of developing more sustainable tourism by promoting the destination; attracting and informing tourists; and better management of human resources. Visitors from Russia have been a large and steady source since 2011. Strong growth is estimated for 2018-2019 to align with the recovery of their economy. According to the Khanh Hoa Dept. of Culture, Sports and Tourism, Russian tourists usually have the longest Average Length of Stay (ALoS) of 12 days. South Koreans are the third largest source of visitors; although after the average 25% pa growth over 2011-2015, a decrease was experienced from 2016 to 2017. Compared to Da Novaland D20180309 24 B-26
Nang, Nha Trang - Khanh Hoa is perceived as a new destination. In 2017, the provincial tourism office held Farmtrip with Korean agencies to better develop Nha Trang tourism. Jeju Air Airlines announced a new direct flight from Cam Ranh to Seoul at year end 2017. Length of Stay Figure 2. 12: ALoS 5.0 days Domestic visitor International visitor Average 4.0 3.0 2.0 1.0-2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Khanh Hoa's Culture, Sport and Tourism Deparment In 2017, all tourists ALoS was 2.5 days, an increase of 0.2 days YoY. International tourists ALoS was four days. Chinese tourists stayed for about six days, whilst Russians stayed for about ten. Domestic tourists ALoS was 1.7 days. Flights Cam Ranh International Airport has approximately 18 daily domestic flights and 45 weekly direct international flights, mainly from Russia, South Korea and China. Many schedules were added to meet increasing demand. Starting in September 2017, Air Asia opened a direct daily flight from Cam Ranh to Kuala Lumpur. The new Jeju Airline will provide a daily flight from Seoul to Cam Ranh. Novaland D20180309 25 B-27
Table 2. 2: Cam Ranh IA scheduled flights No. Departure Airline Frequency Flights 1 HCMC Vietnam Airlines Daily 3-5 2 HCMC VietJet Air Daily 3-6 3 HCMC Jetstar Pacific Daily 1-3 4 Hanoi Vietnam Airlines Daily 2-4 5 Hanoi VietJet Air Daily 2-5 6 Hanoi Jetstar Pacific Weekly 2 7 Hue Jetstar Pacific Weekly 2 8 Da Nang Vietnam Airlines Weekly 5 9 Da Nang Jetstar Monthly 7 10 Hai Phong Vietnam Airlines Weekly 4 11 Hai Phong VietJet Air Weekly 3-5 12 Vinh Jetstar Pacific Weekly 3 13 Seoul Korean Air Weekly 4 14 Guangzhou China Southern Airlines Weekly 3 15 Guangzhou Hainan Airlines Weekly 5 16 Guangzhou Vietnam Airlines Weekly 3 17 Hong Kong HK Express Weekly 2 18 Shenzhen Hainan Airlines Weekly 3 19 Sanya Beijing Capital Airlines Weekly 2 20 Kuala Lumpur Air Asia Daily 1 21 Seoul Jeju Air Daily 1 2.4 FUTURE OUTLOOK Outlook for Supply Fourteen future projects include five 3-star projects, three 4-star and six 5-star. Other planned projects have yet to release their grades. By 2019, an additional 3,500 rooms are estimated to enter the market. Table 2. 3: Awaiting grade No. Project Ward Supply (rooms) Status 1 Ibis Styles Loc Tho 314 Active, awaiting grading 2 Queen Ann Loc Tho 273 Active, awaiting grading 3 Gossia Loc Tho 155 Active, awaiting grading Novaland D20180309 26 B-28
Figure 2. 13: Future supply by location 1,400 rooms Number of rooms Number of hotels hotels 6 1,200 5 1,000 4 800 600 3 400 2 200 1 - Loc Tho Vinh Hoa Vinh Nguyen Xuong Huan Vinh Hai - Source: Savills Research & Consultancy Loc Tho dominates future supply with 47% market share, followed by Vinh Hoa with 35%. However, due to limited available land, the majority of future projects will be along Hung Vuong Street, parallel to Tran Phu in Loc Tho, or along Duong Hien Quyen Street in Vinh Hoa. Over next three years Nha Trang will see the introduction of international operators such as Ibis, Marriot, Swisstouches and Wyndham. This is evidence of the growing appeal Nha Trang and Vietnam have to international hoteliers and operators. Demand Positive economic indicators, tourism facilities and infrastructure development will help develop industry potential and in attracting higher investment capital. In recent years, stable economic growth, FDI and tourism revenue showed Khanh Hoa is expected to develop further. Upgrades to new infrastructure connecting Nha Trang with other provinces will stimulate industry growth, increase ALoS and support the development of more sustainable tourism. Table 2. 4: Nha Trang Infrastructure No. Infrastructure Detail Progress 1 Phong Chau street Cao Ba Quat - Cau Lung Street Nearly 90% completed, expected and Cao Ba Quat- Cau Lung street nearly 10 km, Investment VND officially complete in 2017. 1,418 billion and Phong Chau Street 2.6 km, an investment of VND 532 billion. These two important main roads, connect Novaland D20180309 27 B-29
No. Infrastructure Detail Progress Nha Trang to Dien Khanh District and Da Lat. 2 Nha Trang Phan Thiet Highway Intersecting with Provincial Road 2 in Dien Tho commune, Dien Khanh District. End point at Km 235, intersecting with National Road 1A to Ba Bau, the end of the Phan Thiet - Dau Giay highway, in Ham Kiem commune, Ham Thuan Nam District, Binh Thuan province. 234 Km, total estimated investment of VND 25.4 trillion. Project management board has submitted project proposals to Ministry of Transport (MOT) for approval. According to proposal, the project is to gradually complete network of highways in Vietnam, especially the North - South axial expressway from east Hanoi to Can Tho: the plan was approved by the Prime Minister. 3 Relocation of Nha Trang railway station in the central of city To reduce traffic jams caused by the city center station and affecting tourism development. The proposed new location of Nha Trang station and related works is the 27 ha land area denoted M2 (Vinh Trung, Nha Trang city), under the adjusted general plan for Nha Trang City in 2025. Khanh Hoa Peoples Committee has proposed to Prime Minister and the Prime Minister has asked the Department of Transport to review. 4 Construction of international tourism port Nha Trang Port is planned to be an international tourism port by 2020. It will accommodate cruise ships and have an internationalstandard marina. In 2015, the Prime Minister agreed to let Vinalines transfer 8.5 million shares in a direct agreement with Vinpearl Nha Trang JSC. Located along Tran Phu Street, it has convenient connections and will create a focal point for future development. Khanh Hoa Province granted national capital at Nha Trang JSC from Vietnam Maritime Vinalines with over 15 million shares equivalent to approximately 150.7 billion VND to build international tourism port. Novaland D20180309 28 B-30
No. Infrastructure Detail Progress 5 Cam Ranh airport The approved plan to 2030, In September 2016, Cam Ranh IA upgrades includes 32 plane apron sites and capacity increases to 27 planes at peak times. started construction of a 2-level international terminal. The first phase is expected to complete within 2018, with annual capacity increased to 2.5 million, 40 checkin counters and 10 boarding gates. Capacity is expected to be 4 million for the second phase and 8 million for the third phase completing in 2030. Tourism Orientation Khanh Hoa has great potential for marine tourism with a stunning coast line and around 200 various sized islands. Beautiful beaches and sunny weather make Nha Trang an ideal holiday destination. It has also been selected as venue for major events including the Sea Festival and beauty contests such as Miss Vietnam, Vietnamese Miss World 2007, Miss Universe 2008, Miss Earth 2010 and recently, Miss Universe 2017. Khanh Hoa has invested VND 10 trillion to build tourism centers and commercial areas at the 186 ha ex-airport site in the city center. After completion, this project will stimulate local trade, services and tourism development. Trends & Products From 2017-2020, Khanh Hoa will improve and expand upon general marine and island tourism to include luxury marine, sea sports, exploration, sightseeing, islands and products associated with urban and MICE tourism. Local attractions include: Nha Phu lagoon - Hon Lao - Hon Thi tourist area Doc Let tourist area Orchid Spring ecotourism area Binh Ba island Ninh Van bay Van Phong bay Novaland D20180309 29 B-31
Development & Future Investment Orientation Three key economic zones will be promoted. Nha Trang city: this area will become the key tourism economic development area of Khanh Hoa. Van Phong bay: in 2006, the government confirmed the establishment of a diversified economic zone. According to the Khanh Hoa Peoples Committee, by September 2017, the Van Phong economic zone has attracted 154 projects (with 26 FDI projects) and total capital of US$3.48 billion. Cam Ranh Bay: a key economic zone with the development of an international airport and Ba Ngoi seaport, a container terminal for the South Central region and the Central Highlands. The Bai Dai tourism area (North Cam Ranh peninsula) was formed to become a new provincial tourism center. Increased MICE Tourism Demand Khanh Hoa has great potential in developing MICE as a key source for tourism. After the successful Asia Pacific Economic Cooperation Forum (APEC), Vietnam and Khanh Hoa MICE tourism looks set to continue growing. Major travel agencies like Vietravel, Saigontourist and Benthanh Tourist have provided services for a large volume of MICE tourists, with this number expected to rapidly expand. Some projects under development will help promote and generate MICE demand: Nha Trang Port will become an international cruise/tourism port by 2020 and an international-standard marina. The port is located along Tran Phu Street has local transport connections. The government recently advocated the re-establishment of the North Van Phong administrative/special economic unit, with it now being planned to become the 3rd special economic zone after Van Don and Phu Quoc. Upgrades to Cam Ranh airport construction of the North Cam Ranh national tourism area and the Bai Dai tourism area with villas/resorts for MICE tourists. The continual updating of the Nha Trang Phan Thiet highway. Nha Trang Khanh Hoa Tourism Association partnered with the rail industry to offer tour operators a rail travel stimulus package. This package will discount fares by 10-40% compared to regular levels. Since 2017, Saigon Railway Transport JSC has a five-star quality train SNT1/2 running between Nha Trang HCMC, with demand only expected to increase. Novaland D20180309 30 B-32
3 PHAN THIET 3.1 SUPPLY Overall As of 2017, according to Binh Thuan s Department of Culture, Sports and Tourism, 473 projects supplied approximately 14,218 rooms to the province. However, most of them are small, uncertified hotels and local guesthouses. This market study covers those projects rated by the VNAT from three to five-star or those managed under standards and trademarks of recognized international hoteliers. Based on the above criteria 3- to 5-star hotels in Binh Thuan had over 5,200 rooms from 52 hotels. The largest share (68%) was 4-star with 30 hotels, 3-star accounted for a 26% share from 19 hotels and 5-star supplied 6% from three hotels. Figure 3. 1: Hotel supply, 2013-2017 6,000 Rooms 5-star 4-star 3-star 5,000 4,000 3,000 2,000 1,000 0 2013 2014 2015 2016 2017 Source: Savills Research & Consultancy Compared with developed tourism markets such as Da Nang and Nha Trang, Binh Thuan is a smaller and underdeveloped market, regardless of recent supply growth. In 2017, total 3- to 5- star supply in Binh Thuan remains relatively small, equal to 55% of Da Nang s stock and 41% of that in Nha Trang. The main reason for lower supply was underdevelopment of infrastructure such as highways and/or an airport. As such, tourism products and leisure services are limited in terms of quantity and diversity. Novaland D20180309 31 B-33
Figure 3. 2: Coastal cities supply 2017 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Rooms 5-star 4-star 3-star Nha Trang Da Nang Binh Thuan Source: Savills Research & Consultancy Figure 3. 3: Supply structure, 2017 5-star 4-star 3-star 6% 26% 68% Source: Savills Research & Consultancy By Grade Four-star dominates supply with a 68% market share. With lower land costs and increasing demand, this is becoming a preferred area for resort development. The 4-star segment has upscale services yet affordable room rates; and as such, developers generally prefer this standard. Additionally, the segment appeals to domestic and international visitors. Novaland D20180309 32 B-34
Four-star has the largest average scale with 117 rooms/ hotel, relatively equivalent to 5-star with an average 111 rooms and larger than 3-star at 71 rooms/ hotel. Tourism development of infrastructure and activities in Binh Thuan has been sluggish. A lack of effective policies has minimized area appeal to international operators. To date, two hotels have international operators: the five-star hotel Anantara Mui Ne operated by Minor Hotels Group and Dessole Beach Resort by Swandor Group. Figure 3. 4: Stock by grade, 2017 4,000 Rooms Hotels 40 3,000 30 2,000 20 1,000 10 0 5-star 4-star 3-star Total rooms 334 3,524 1,349 Total hotels 3 30 19 0 Source: Savills Research & Consultancy By Location Three to 5-star hotels are found in three areas; Phan Thiet city, Ham Thuạn Nam and Lagi. With a prime tourism location, Phan Thiet city has the highest market share of 91% from 47 hotels across all three grades. Ham Tien and Phu Hai in Phan Thiet have the largest supply with 75% of total supply. These two central wards have a variety of hotels and resorts supported by a tourism services as well as eating and entertainment options. The remaining wards, Mui Ne, Hung Long and Tien Thanh, have on average 5% of total supply; coming from 3- and 4-star hotels with less than 120 rooms per project. Ham Thuan Nam provides 7% of total supply. This district has three 3-star hotels and one 5- star, together supplying less than 400 rooms. Located away from Phan Thiet city, this area has a shortage of catering and entertainment services. Novaland D20180309 33 B-35
Lagi has one 4-star project representing 2% of supply. Figure 3. 5: Stock by location, 2017 100% 80% 89 5-star 4-star 3-star 188 57 60% 40% 2,206 76 456 462 303 333 97 20% 0% 878 Ham Tien Hung Long Mui Ne Phu Hai Tien Thanh Ham Thuan Nam 62 Tan Tien Source: Savills Research & Consultancy Phan Thiet City Ham Thuan Nam La Gi Figure 3. 6: Phan Thiet city supply, 2017 Mui Ne 10% Hung Long 2% Tien Thanh 6% Phu Hai 15% Ham Tien 67% Source: Savills Research & Consultancy Novaland D20180309 34 B-36
3.2 PERFORMANCE Overall As with coastal cities such as Nha Trang and Da Nang, Binh Thuan is seasonally affected. The high season from November to March has the best weather: low rainfall and stable temperatures around 30 0 C. Demand is mainly from MICE and business travellers as well tourists from Russia, China and domestic tourists. The remaining months are considered low season. During June to August, the number of domestic visitors strongly increases, but most prefer staying in low-priced or unrated accommodation. Average occupancy of 3 to 5-star segments is from 65% to 75% in high season and 40% to 55% in the low. The difference in ARR from low to high seasons averages around 20%. In 2017, the average occupancy was 65% with US$54/room/night average room rate (ARR). By Grade In 2017, the 4-star segment had the best occupancy rate among all studied grades at 68%. Fivestar had the lowest occupancy of 52%, mainly due to the lower demand for luxury accommodation and heavier competition with lower-priced grades. Figure 3. 7: Occupancy & quoted room rate 2017 100 % US$/room/night 100 80 80 60 60 40 40 20 20 0 5-star 4-star 3-star Occupancy (%) 52 68 60 ARR 91 57 37 Source: Savills Research & Consultancy 0 Novaland D20180309 35 B-37
Three-Star Over 2012-2016, segment supply increased 20% pa, but during 2016 to 2017, there was no new growth. This segment primarily targets budget travelers or domestic tourists. In 2017, average occupancy was 60% with US$37$/room/night ARR. Segment ARR fluctuates between US$32/room/night in the low season and US$41/room/night in the high. Pressure from lowpriced and unrated guest houses resulted in an average occupancy around 75% in the peak season and 46% during the low. Four-star Over 2012-2016, segment supply growth was 33% pa; since this point no significant increases have occurred. The 4-star segment has the highest market share in Binh Thuan, with an ARR of US$49 in the low season rising to US$64/room/night during the peak. In 2017, this segment had the best performance of the three studied, 16ppts higher than 5-star and 8ppts over 3-star. International and domestic tourists tend to prefer this grade and have jumped on this trend with many domestic operators opting to invest in the segment. Four-star hotels such as Aroma, The Cliff, Terracotta and The Sailing Bay have achieved occupancy over 80% in 2017 due to prime locations in Ham Tien, Phu Hai and Mui Ne wards. Five-star In 2013, the first five-star hotel to open in the province was the 57-room Princess D An Nam Resort. Two years later, the Sea Links Beach Hotel and Anantara Mui Ne Resort launched, boosting supply growth 142% pa from 2013 to 2015. Since then, segment supply has remained stable with 334 rooms. Five-star ARR is from US$81 in low season to US$100/room/night during the high season. This segment has the lowest occupancy compared to other grades at 66% in the high season and 38% during the low season. The majority of international tourists usually spend more than three weeks in Binh Thuan from November to March and prefer more affordable accommodation with acceptable services. This segment is not the first option for foreign arrivals. In 2017, a great location and international management supported Anantara Mui Ne Resort in achieving the best performance with ARR of US$159/room/night and 70% occupancy. Novaland D20180309 36 B-38
3.3 DEMAND ANALYSIS Since 2012, visitors have increased 10% pa to 4.5 million in 2016. Only 11% were international tourists, this proportion has remained constant over the last five years. The reasons are mainly under-developed infrastructure, poor facilities and no international airport. Figure 3. 8: Tourist volume and revenue, Binh Thuan 6,000 Domestic visitors International visitors Tourism revenue Thousands US$ Million 500 5,000 4,000 3,000 2,000 1,000 400 300 200 100-2013 2014 2015 2016 2017 Source: Binh Thuan Statistics Office - Domestic tourists In 2017, Binh Thuan welcomed over 4.5 million domestic visitors, up 13% YoY. Most visitors come by road and largely visit over the weekend, especially from May to August. Over the last five years, domestic tourism growth was 10% pa compared to Da Nang at 15% pa and Khanh Hoa at 17% pa. Two upcoming major infrastructure projects include Nha Trang - Phan Thiet Highway and Dau Giay Phan Thiet highway. Both are under construction and will open by 2020. These projects are expected to play an important contributing role to local tourism by reducing travel time from Khanh Hoa, Ninh Thuan, Dong Nai and HCMC. Novaland D20180309 37 B-39
International Arrivals In 2017, Binh Thuan had approximately 600,000 international visitors, up 17% YoY. According to the provincial Culture, Sports and Tourism Department, foreigners from 110 nationalities visit on a monthly basis. Russia, China and Korea are the major source markets. Tourism Revenue From 2012 revenue has increased 40% pa to approximately US$400 million in 2016. By 2017 this amount was nearly US$350 million, an increase of 20% YoY. Tourism events and festivals helped to attract tourists. The Lunar New Year Festival saw 180,000 arrivals. Other interesting festivals include Ramuwan Festival - the biggest festival for the Islamic community in Vietnam; traditional Boat Racing Festival and the Mid-Autumn Festival. By year end, Binh Thuan expects five million arrivals, increasing 11% YoY and attracted revenues of around US$470 million. Average Length of Stay (ALoS) Figure 3. 9: Binh Thuan ALoS 4 days Average Domestic International 3 2 1 0 2013 2014 2015 2016 2017 Source: Binh Thuan s Culture, Sports and Tourism Department Binh Thuan visitor ALoS is shorter than other coastal cities and has had no significant change over the last five years. According to Binh Thuan s Culture, Sports and Tourism Department, in 2017, the ALoS was 1.7 days, Da Nang ALoS was 3 days and Khanh Hoa was 2.5 days. Besides having international airports, Khanh Hoa and Da Nang have established tourism services such Novaland D20180309 38 B-40
as entertainment parks, hot mineral springs and historical attractions; sadly, Binh Thuan has none of these. Average Spend by Arrival In 2012-2016, average expenditure growth was slightly up 8% pa. Local per day spend increased 10% pa, double that of foreign travelers. According to Binh Thuan Culture, Sports and Tourism Department, in 2016, domestic visitors spent approximately US$40/day and international travelers US$107/day. Tourist spend in Binh Thuan is mostly on accommodation, travel, food and shopping. Figure 3. 10: Average tourist expenditure 2012 2016 120 Average expenditure Domestic International US$/day 100 80 60 40 20 2012 2013 2014 2015 2016 Source: Binh Thuan s Culture, Sports and Tourism Department Novaland D20180309 39 B-41
3.4 FUTURE OUTLOOK There are many investment projects in Binh Thuan; however many remain inactive or are progressing very slowly after approval. Many have faced eviction or received last extension warnings (to delay implementation). The hotel/resort market faces many challenges in deploying new projects or gaining interest from international operators. One key aspect is infrastructure not yet being properly managed to support this type of investment. Table 3. 1: Future projects No Name Developer Location Status Thuan Quy, Aloha Beach Viet Uc Intra Corp - 1 Ham Thuan Under-construction Village Thanh Loi Real Estate Nam Tan Thanh, Ham 2 Gold Rock Beach Y Ngoc JSC Under-construction Thuan Nam 3 La Perla Villas Resort New Construction Corporation Tan Thanh, Ham Thuan Nam Site clearance 4 Nostalgia Jin Young Vina Vinh Tan Started in 2015. Very slow progress. 5 Legend Sea Dai Thanh Quang Tien Thanh Started in 2009. Very slow progress 6 Alila Tien Thanh Son Kim Land Tien Thanh Under-planning 7 Yasaka Phan Tan Thanh, Ham Slow progress. Under last Yasaka Thiet Thuan Nam extension 8 Mui Ne Marina Dai Thanh Quang Mui Ne Slow progress. Under last extension 9 Sentosa Resort Hung Thinh JSC Mui Ne Completed internal roads Twenty-five projects have been allowed to extend their construction timeline by 6 months from October 2017. Investors can start compensation, site clearance and finish all land-related procedures. Of the projects getting investment certificate extensions, 11 are in Mui Ne, six are in Tien Thanh, four in Ham Tien and four in Phu Hai. According to the provincial People s Committee, investors must complete all procedures within 6 months to start construction. Failure to meet the deadline will see project scale reduction or investment certificates revoked. Novaland D20180309 40 B-42
Future Infrastructure The province has continued to invest and upgrade infrastructure to expand and better capitalize tourism potential. Three key future projects under construction are: Phan Thiet Airport Located close to the city on 534 ha, this new airport will provide domestic flights. The budget is approximately US$251 million and is the first national infrastructure project to receive nonstate funding, obtaining support from the 319 Corporation and Thanh Dong Real Estate Investment. First phase capacity is expected to reach 0.5 million passengers/year by 2020 while the second phase will reach one million capacity by 2030. Nha Trang - Phan Thiet Highway A 235km stretch is to be built under a public private partnership funding arrangement. Scheduled to be completed in 2020, the expectation is for dramatically reduced travel time between the three central provinces of Khanh Hoa, Ninh Thuan and Binh Thuan. This will become of the most significant highways built in Vietnam by length and investment. More than US$1.24 billion has been allocated. Approximately US$416 million comes from the Official Development Assistance (ODA) and the balance from investors under a build-operatetransfer contract. Dau Giay Phan Thiet Highway A total investment of US$776 million into this highway will reduce travel time from HCMC to Phan Thiet from the present four hours to just two. Scheduled to be completed in 2020, it will be a total length of 98.7km with four to six lanes. Novaland D20180309 41 B-43
4 DA NANG 4.1 SUPPLY Total stock from 92 hotels accounted for 10,000 rooms, increasing 11% YoY. 3- to 5-star Da Nang stock by volume is now ranked third nationwide after HCMC and Nha Trang. From 2013-2017, stock has grown at approximately 20% pa. The five-star segment had the lowest growth rate of 11% pa; four-star the highest at 46% pa; and three-star hotels growth was 17% pa. Figure 4. 1: Da Nang hotel stock 2013-2017 12,000 Rooms % 100 10,000 80 8,000 6,000 4,000 60 40 2,000 20 0 2013 2014 2015 2016 2017 5-star 2021 2405 2672 2914 3042 4-star 717 1179 1902 2913 3216 3-star 2006 2440 2999 3203 3744 No of hotel 44 53 78 83 92 Source: Savills Research & Consultancy 0 Supply by Grade There are now 13 five-star, 23 four-star and 56 three-star hotels in Da Nang. Five-star stock was lowest at 3,042 rooms; average five-star supply was 234 rooms. Three hotels averaged over 300 rooms: the Crowne Plaza Hotel Da Nang with 535; the Hyatt Regency Da Nang with 409 and the Novotel Da Nang Premier Han River with 323 rooms. The supply of the 4-star segment comprised of 3,216 rooms with average project supply of 140 rooms. Muong Thanh Da Nang with 378 rooms held the largest market share. Novaland D20180309 42 B-44
Three-star hotels have 3,744 rooms and the average is 67 rooms per hotel. Six international hotel operators: Accor, Centara, Furama, Hyatt, IHG and Melia manage 2,700 rooms across 11 four and five-star hotels, equivalent to 43% of Da Nang s total four to five-star supply. Accor is the largest international operator, managing 1,055 four to five-star rooms of Pullman, Novotel, Grand Mercure, Premier Village, and Mercure Da Nang French Village Bana Hills. IHG manages two five-star hotels, the Crowne Plaza Da Nang and the InterContinental Da Nang Sun Peninsula Resort. Centara, Furama, Hyatt and Melia each operate one hotel. Figure 4. 2: Supply by operators, 2017 Accor IHG Hyatt Centara Furama Melia 11% Self-managed & domestic operators 73% International operators 27% 7% 4% 2% 2% 1% Source: Savills Research & Consultancy Novaland D20180309 43 B-45
4.2 PERFORMANCE Figure 4. 3: Da Nang hotel performance 2013-2017 ARR RevPAR Occupancy 125 US$/room/night % 100 100 80 75 60 50 40 25 20 0 2013 2014 2015 2016 2017 Source: Savills Research & Consultancy 0 In 2017, Da Nang held the APEC Summit and the International Fireworks Festival. These events helped promote Da Nang s image and tourism, especially to the high-end MICE segment. 3 to 5-star average occupancy was 72%, increasing 7 ppts YoY; ARR was around US$99/room/night, up 21% YoY, the highest in the last five years. Average room revenue was US$71/room/night, up 33% YoY. The 5-star segment achieved the best performance. Figure 4. 4: Performance by grade 200 US$/room/night ARR RevPAR Occupancy % 100 160 80 120 60 80 40 40 20 0 Source: Savills Research & Consultancy 5-star 4-star 3-star 0 Novaland D20180309 44 B-46
4.3 DEMAND ANALYSIS Overall Demand Figure 4. 5: Occupied rooms by grade 2013-2017 12,000 10,000 Rooms Vacant rooms 5-star 4-star 3-star 8,000 6,000 4,000 2,000 0 2013 2014 2015 2016 2017 Source: Savills Research & Consultancy In 2017, there were approximately 7,166 occupied rooms, up 22% YoY. Each segment had around a third of supply. Five-star had 2,514 occupied rooms, up 23% YoY; four-star had about 2,379 rooms occupied, up 21% YoY. Three-star segment had a total of 2,273 occupied rooms, up 21% YoY. Overall, occupancy during 2017 was the highest in five years. Visitors By the end of 2017, Da Nang had a total of 6.6 million arrivals, growing 20% YoY. Approximately 2.3 million were international visitors, up 39% YoY. From 2013 to 2017, the average international visitor growth rate was 32% pa, higher than average domestic visitor growth rate (16%). Domestic visitors were estimated at 4.3 million, up 12%. Novaland D20180309 45 B-47
Figure 4. 6: Da Nang domestic & international arrivals 2013-2017 Domestic visitors International visitors Domestic visitor growth rate International visitor growth rate 5 Million arrivals % 35 4 28 3 21 2 14 1 7 0 2013 2014 2015 2016 2017 0 Source: Da Nang Department of Tourism In 2017, there were 3.5 million overnight visitors, increasing 37% YoY. Approximately 73% of total international arrivals were overnight visitors. Domestic overnight visitors accounted for 43% of total domestic visitors. Visitor Profiles Top source markets to Da Nang include Korea, China and Japan. From 2012 to 2016, Korean overnight visitors grew at the highest rate of 58% pa, followed by Chinese visitors (48%) and Japanese visitors (47%). Figure 4. 7: Visitor profiles, 2016 2% 3% 7% 14% 48% Korea China Japan US Australia 26% Others Source: Da Nang Department of Tourism Novaland D20180309 46 B-48
Average Length of Stay (ALoS) In 2017, the average international visitor stay length was 3.1 days and 2.4 days for domestic visitors; which was higher than ALoS of visitors to Hue (1.8 days) and Hanoi (1.4 days). Tourism Revenue In 2017, Da Nang gained an estimated VND19 trillion in tourism revenue, up 21% YoY. Tourism revenue is broken down categorically as follows: accommodation: 69%; food and beverage: 20%; and others: 11%. Figure 4. 8: Tourism revenue by categories, 2017 11% 20% Accomodation Food & Beverage 69% Others Source: Da Nang Department of Tourism Product trend According to Da Nang master plan on tourism development 2016-2020, the city will focus on developing three main types of tourism products including: Coastal and marine tourism; Shopping tourism and MICE tourism; Cultural, heritage and historical tourism. A survey conducted by Da Nang Department of Tourism in 2017 with a sample size of approximately 1,800 international stay visitors showed that: Chinese visitors: The majority of these visitors come to Da Nang for sightseeing, vacation, followed by shopping purposes. Western European visitors: Nearly 80% of respondents visited Da Nang for leisure purposes, 14% visited friends or relatives, whilst 5% of respondents were MICE travelers. Novaland D20180309 47 B-49
Australian visitors: 90% visit Da Nang for leisure purposes, the rest are for business. Airport Da Nang airport is an international airport and the main hub in the central region of Vietnam. The airport has two separate terminals for international and domestic passengers. The international terminal was officially put into operation at the end of May 2017. With six million passenger pa and a 1,600 passengers/peak hour capacity, the airport has greatly contributed to Da Nang s tourism development. According to the city s master plan, by 2020 the airport will be upgraded to six million passenger pa and a capacity of 3,000 passengers per hour. In 2017, the airport handled 11 million passengers, an increase of 24% YoY. Since those targets have already been met, Da Nang city has proposed further capacity increase. Tourism Expenditure According to Da Nang Department of Tourism, average international visitor expenditure was US$230 per trip while domestic visitors spent approximately US$120 per trip. Daily expenditure of international visitors was US$70 and that of domestic visitors was US$45 daily. Among international visitors, Singaporean and Korean spent the most while Chinese visitors spent the least. Accommodation Figure 4. 9: Accommodation preference by domestic visitors, 2017 4% 24% 39% 4- to 5-star 3-star 1- to 2-star Homestay 33% Source: Savills Research & Consultancy According to the survey carried out Savills in 2017 comprising of 100 samples, the majority of local respondents (39%) were interested in four- to five-star hotels, while 33% chose three-star accommodation. Novaland D20180309 48 B-50
4.4 FUTURE OUTLOOK Outlook for Supply Figure 4. 10: Future Da Nang four- to five-star supply 6,000 Rooms No. of rooms No. of hotels Hotels 20 4,500 15 3,000 10 1,500 5 0 5-star Source: Savills Research & Consultancy 4-star 0 In 2018, 13 projects with approximately 2,547 rooms will come online. From 2019 on, 42 projects will come into operation: 18 will provide 5,859 rooms; 24 are yet to release room counts. So far, 19 projects will be five-star, 15 four-star, three three-star and 18 are currently unrated. Ngu Hanh Son district will have 21 projects; Son Tra will account for 20; Hai Chau will have 11; Lien Chieu will see 2 come online and Thanh Khe will supply 1 project. International management brands will continue to increase their presence in Da Nang. In May 2018, Four Points by Sheraton (390 rooms) will come into operation. The Marriott brand will introduce two properties: JW Marriott Da Nang Resort (Vo Nguyen Giap Street) and Courtyard by Marriott (58 Bach Dang). Hilton Da Nang Hotel will provide 223 rooms (50 Bach Dang) and is expected to open this year. In 2019, Accor will introduce the Ibis brand in the form of Ibis Styles Da Nang (84-88 Bach Dang). Other international operators to enter the market include Movenpick, Eastin Grand Hotels & Resorts and Dusit International. Novaland D20180309 49 B-51
Outlook for Demand In 2018, Da Nang will target 7.5 million tourists, an increase of 16% YoY. Of this amount, 2.7 million will be international visitors, up 24% YoY. Targeted tourism revenue is 22.5 trillion VND, up 19% YoY. A greater focus will be placed on domestic and international markets with direct flights to the city from Japan, Korea, China and other ASEAN cities. Key markets will have preferential airline policies in order to maintain and increase flight frequency. Marketing efforts are being amplified in France, Germany, UK, Spain, Italy, Australia and America. Newer markets such as India, will receive boosted marketing and advertising efforts. Novaland D20180309 50 B-52
5 VUNG TAU 5.1 SUPPLY Located in the South of Vietnam, 120 km away from HCMC (HCMC), Ba Ria - Vung Tau is now considered the most popular destination for a mini-break by the citizens of HCMC and surrounding cities. The province has two cities, Vung Tau and Ba Ria and six districts. Of these, only Long Dien, Dat Do and Xuyen Moc districts attracted hotel investors due to their spectacular coastlines. Figure 5. 1: Ba Ria - Vung Tau Tourism Areas At the end of 2017, the province had approximately 21,400 rooms from 1,015 hotels. Most accommodation was unrated or 1 to 2-star hotels, representing 98% of overall stock. Within this report, Savills only analyzed the high-end market officially rated by VNAT. The 3-to 5-star Novaland D20180309 51 B-53
market had more than 4,000 rooms from 37 projects. Four-star was the largest supplier with 41% market share, followed by the 3-star with 33%. Figure 5. 2: Total stock by grade, 2013-2017 5,000 Rooms 4,000 3,000 2,000 1,000 0 2013 2014 2015 2016 2017 5-star 685 685 1,041 1,041 1,041 4-star 1,286 1,374 1,466 1,675 1,675 3-star 1,287 1,287 1,234 1,290 1,343 Source: Savills Research & Consultancy Over the last five years, market stock only grew 6% pa compared to double-digit rate of more than 20% in the previous five-year period. This was attributed to emerging beach holiday destinations with vast investment in international airports, international hoteliers and entertainment facilities. Con Dao Island: is an island district belonging to Ba Ria-Vung Tau province. It has an isolated location with 97 nautical miles from the mainland. It takes 12 hours to get access to Con Dao via sea or a one-hour flight from Tan Son Nhat Airport. As of 2017, there were one 5-star (Six Senses) and another 3-star (Sai Gon Con Dao) project operating on the island with 200%-300% higher room rate compared to the mainland. Therefore, in order to have an objective market study in Ba Ria-Vung Tau, Savills considers Con Dao an independent market and has not included the above two projects in this report. Supply by Grade Five-star has the smallest scale in the market with only 26% share from 1,041 rooms in three projects. Two are located in Vung Tau - Imperial and Pullman, while The Grand Ho Tram Strip is in Xuyen Moc. Imperial, launched in 2006 was the first 5-star project in the province, providing 144 rooms with a prime location on Bai Sau Beach. In 2011-2015 period, 5-star stock accelerated Novaland D20180309 52 B-54
with 64% growth pa due to the entrance of Grand Ho Tram Strip in 2013 and Pullman in 2015. Both are managed by international hoteliers (Accor and Asian Coast Development). All 3- and 4-star projects were managed by their developers, i.e. domestic hoteliers. These segments dominated market stock, appealing to cost-conscious domestic visitors. More than 80% tourists in Ba Ria-Vung Tau were domestic visitors with a moderate accommodation budget. Since 2013, 4-star stock grew 7% pa, whilst the 3-star segment only grew by 1% pa during this time period. 5.2 PERFORMANCE The peak season for tourism in Vung Tau is during Tet and from June to August. About 90% of Vung Tau tourists are domestic from neighboring areas who stay only for weekends. The average occupancy rate in Ba Ria - Vung Tau during the peak season is 60-75%. During the low season, the occupancy rate was below 50%. During the weekend, average occupancy rates ranged from 60 to 70%. In 2017, the market achieved an average 62% occupancy rate with ARR at US$64/room/night. Figure 5. 3: Performance by Grade, 2017 US$/room/night 120 100 80 60 40 20 0 5-star 4-star 3-star ARR 107 63 38 Average occupancy 59 61 65 Source: Savills Research & Consultancy % 70 60 50 40 30 20 10 0 Novaland D20180309 53 B-55
5.3 DEMAND ANALYSIS Visitor volume Over the last five years, total visitors grew 8% pa to reach approximately 18 million. However, overnight visitors only accounted for 16% of total visitors, a low compound annual growth rate (CAGR) of 3% pa. Notably, in 2015-2016 there was an -18% decrease in overnight volume from both domestic and international visitors. This was attributed strong competition from emerging beach holiday destinations nationwide. In 2016-2017, due to government efforts to clean up the beach and reallocate hawkers, overnight visitor volume began recover and grew 11% YoY. In 2017, Ba Ria - Vung Tau welcomed 2.79 million overnight visitors, 89% of which were Vietnamese. Figure 5. 4: Overnight visitor, 2013-2017 3,500 Domestic visitor Foreign visitor Growth rate thousand visitors % 20 3,000 2,500 15 10 5 2,000 0 1,500-5 1,000 500-10 -15-20 0 2013 2014 2015 2016 2017-25 Source: Ba Ria Vung Tau's People Commitee Length of Stay The average length of stay increased from one day in 2013 to 1.5 days in 2017. International visitors stayed an average of 2.1 days while domestic visitors remained for an average 1.4 days. Due to the lack of international airport, the province found it difficult to attract international visitors and domestic tourists from the North and Central Vietnam. Novaland D20180309 54 B-56
Figure 5. 5: Length of stay 5,000,000 nights Total night stay Length of stay days 1.6 4,000,000 1.2 3,000,000 0.8 2,000,000 1,000,000 0.4 0 2013 2014 2015 2016 2017 Source: Ba Ria Vung Tau's People Commitee 0.0 Revenue Since 2013, total tourism revenue in Ba Ria - Vung Tau has grown 14% pa. All recent years have an achieved positive growth rate, except for 2013. In 2017, tourism revenue was approximately US$90 million, up 12% YoY. Most of revenue was from accommodation services, accounting for 87% of the total income. Figure 5. 6: Tourism revenue 100 Mil US$ Touridm revenue Growth rate % 30 80 20 60 10 40 0 20-10 0 2013 2014 2015 2016 2017-20 Source: Ba Ria Vung Tau's People Commitee Novaland D20180309 55 B-57
Transportation By road: Coaches from HCMC operate regularly as it takes only 90 minutes. The number of visitors has increased since the Long Thanh- Dau Giay highway became operational. Approximately 28 coach operators transport 7,000 passengers from HCMC to Ba Ria Vung Tau each day. Several large coach operators such as Hoa Mai, Kumho, Thien Phu, Rang Dong, and Phuong Trang provide over 20 trips per day while the other private carriers offer 1-4 trips per day. By water: Another form of alternative transportation from HCMC to Vung Tau city is a 90 minute ferry journey. Two operators provide four trips each weekday and six trips/day on weekend. The number of trips also depends on the demand of tourists. Table 5. 1: Fast ferry from HCMC to Vung Tau Operator No. of trips/day Time Passengers/trip Notes Petro Pacific 4-5 Daily 40 HCMC - Vung Tau (two ways) Express 4 Weekday Greenline DP 50, 96, 136 HCMC Vung Tau (two ways) 6 Weekend Environmental improvement in Vung Tau Vung Tau city has improved water and sand cleanliness, creating a better public beach at Bai Truoc and Bai Sau. In April 2016, the city government removed all businesses as well as banned all camping activities at Bai Sau beach area in order to clean up the site. Vung Tau beach was then recognised as clean and attracted additional visitors. Pollution from fishing activities negatively impacted the number of guests in Bai Truoc area, so boat mooring and related activities were banned in June 2016 to protect the environment. Boats are required to move their anchor point to Ben Da, Ward 5 and Ben Dinh, Thang Nhi ward. Novaland D20180309 56 B-58
5.4 FUTURE OUTLOOK As of the study date, there are six projects recorded in future supply. The Grand Ho Tram Strip developed by Asian Coast Development (Canada) Limited (ACDL) was inaugurated at the end of 2013. A second tower has been under construction since the end of 2012 and is expected to provide 559 rooms. Fusion Suites Vung Tau, developed by HODECO, is a complex building with hotel and resort components. The project has been under construction since May 2015 and is expected to provide 71 hotel rooms. Vung Tau Rivage is expected to meet 3-star standard and provide 78 rooms. The project is developed by Rivage Vung Tau Co. Ltd on Thuy Van Street. The 250-room DoubleTree by Hilton Vung Tau is located in the heart of Vung Tau. The hotel is an 800-metre walk to Bai Truoc Beach and a short drive away from the Dong Xuyen Industrial Park. It will be a complex of offices, luxury apartments, and 5-star international standard hotel. Oceanami hotel project is a part of a complex including hotel and 336 holiday villas developed by BeeGreen JSC. This project is located on Provincial Highway 44, Phuoc Hai town, Dat Do district. Holiday villas are under construction whilst a hotel providing 114 rooms is in planning. The Blue Sapphire belongs to the five-star complex including hotel, resort apartment and holiday villa developed by Cotec Asia. This project is located on Road D5, Vung Tau city. Building A has been completed while the construction of the hotel component is still in planning. Table 5. 2: Expected future supply in Ba Ria Vung Tau # Project Location Grade Supply Status 1 The Grand Ho Tram Strip 2 Fusion Suite (Ala Carte) Phuoc Thuan, Xuyen Moc Underconstruction 5-star 559 commute Truong Cong Dinh, Bai Truoc, Underconstruction 3-star 71 Vung Tau 3 Vung Tau Rivage 3-5 Thuy Van, Ward 2, Vung Tau 3-star 78 Underconstruction 4 Double Tree by Hilton Lam Son area, Truong Vinh Ky, Groundbreaking 5-star 250 Vung Tau Vung Tau 5 Oceanami Provincial Highway 44,Phuoc Hai Town, Dat Do district 5 -star 114 Planning 6 Blue Sapphire Road D5, ward 10, Vung Tau 5-star N/A Planning Novaland D20180309 57 B-59
Prospects As the tourism centre of Ba Ria- Vung Tau province, Vung Tau will remain the preferred location for future hotel development. Upon completion of the next phase, The Grand Ho Tram Strip project will be one of the largest resorts with a casino in Vietnam. In early September 2016, the Ba Ria - Vung Tau People s Committee approved a tourism airport project at Loc An commute, Dat Do district for the purpose of transporting tourists from domestic airports to The Grand Ho Tram Strip for seminars or holidays. After completion, this airport will promote economic development of Ba Ria Vung Tau province and boost tourists coming to this coastal city. Novaland D20180309 58 B-60
6 DA LAT 6.1 SUPPLY Overall The report covers accommodation graded 3- to 5-star by Lam Dong Department of Culture, Sport and Tourism. Non-classified accommodation such as hostels and villas are not included. Da Lat city had 788 accommodation outlets providing over 13,500 rooms, accounting for 83% of Lam Dong s total stock. Of those, 28 are 3- to 5-star hotels and supplied over 2,500 rooms. Figure 6. 1: Three-five star stock 3,000 Rooms 2,000 1,000 0 2013 2014 2015 2016 2017 5- star 155 155 155 155 155 4- star 866 949 1,415 1,415 1,415 3- star 760 916 916 969 969 Source: Savills Research & Consultancy From 2006-2008, Da Lat 3- to 5- star hotel supply experienced high growth of approximately 40% pa and gained over 1,000 rooms in 2008. The first Da Lat Flower Festival in December 2005 attracted 80,000 visitors. The 2nd festival was a prime factor behind many newly built hotels to satisfy high visitor demand. From 2009-2010, the economy contracted and a decrease in demand caused supply growth to decrease by around 9% pa. The economic recovery over the past five years has helped the hotel market. Growth has been 11% pa with 10 new 3 and 4-star hotels inaugurated. New supply during this five year period was over 1,700 rooms. In 2016, city supply increased 2% YoY after the 3-star hotel Iris entered the market, supplying 53 rooms. In 2017, no new stock was granted an official 3- to 5-star ratings. Supply growth was Novaland D20180309 59 B-61
not from a lack of new projects, but due to many new hotels not completing the rating process. LaDalat in ward 8, Bavico Plaza project in ward 1 and Kings in ward 2 targeted the mid and upscale segments. Da Lat s total supply at the time of research was 141% more than Sapa. By segment, these two mountainous cities supply structure were similar in standards. The 5-star segment accounts for two projects in Da Lat and one in Sapa; thus was designated as non-developed. However, this label is relatively appropriate to their international tourist proportions which are insignificant to domestic tourist volumes. Supply by Grade Two 5-star hotels in Da Lat represent 6% of total supply. Three-star hotels have 39% of supply and four-star hotels have 55% of total supply, providing 1,840 rooms. Figure 6. 2: Supply by Grade, 2017 5-star 6% 3-star 38% 4-star 56% Source: Savills Research & Consultancy Da Lat is oriented and developed as a tourism city. With a mountainous topography and cool climate, the city has attracted millions of visitors. In 2016, Lam Dong-Da Lat had a total of 5.4 million visitors; of this amount, only 5% were international visitors. This group has never accounted for more than 10% of total visitors. Currently, there are no travel agencies directly targeting overseas markets. The majority of international visitors come as part of interregional or domestic tours. Although Lien Khuong Novaland D20180309 60 B-62
airport has had an international terminal since 2009, international flights were not frequently operated due to low demand. In 2017, there are two five-star hotel projects: Dalat Palace and Dalat Edensee. One of the first hotels in Da Lat, the Palace was built in 1922. Although the property is located on a spacious 4ha, it has the smallest 5-star supply in Vietnam with 38 rooms and five apartments. Facilities include the Dalat Palace 18-hole golf course. The majority of guests are business and conference oriented. DaLat Edensee Lake Resort & Spa is the newest 5-star hotel in the city. Maico completed the project in 2011, which comprises of 112 rooms in over 28 different villa clusters. The resort achieved a 5-star rating in 2014. Four-star hotels have 56% market share with more than 1,400 rooms from 11 projects. Since 2013, it has had the strongest segment growth of 22% pa. Growth in the three-star segment has been 8% pa and five-star segment has remained stable. In 2015, two 4-star projects, Terracotta and Swiss-Belresort entered the market. Both are located at Tuyen Lam Lake. Terracotta is the largest hotel in Da Lat with 315 rooms, including 240 standard rooms and 75 lake villas. 6.2 PERFORMANCE The high season is from June to August and also includes national holidays. The remaining months are considered as the low season. The ARR discrepancy between high and low season is between 10-30%. During Tet, Dalat Flower Festival and holidays, ARR may increase by up to 50%. Average occupancy in the high season was over 60% and occasionally achieves approximately 80% in the peak seasons of June and July. Occupancy can occasionally drop to 40ppts during the low season. Occupancy was highest Thursday to Sunday; the remaining days had an average occupancy below 40%. In 2017, 3-5 star average occupancy was 56% and ARR was US$41/room/night. Novaland D20180309 61 B-63
Figure 6. 3: Grade performance, 2017 80 US$/room/night % 100 60 80 40 60 40 20 20 0 5- star hotel 4- star hotel 3- star hotel Avg. room rate 75 47 31 Avg. occupancy 33 56 61 Source: Savills Research & Consultancy - 6.3 DEMAND ANALYSIS Visitors & Tourism Revenue From 2013-2017, tourism revenue increased 16% pa. The strongest growth was in 2017, increasing 47% YoY. This large increase was attributed to a remarkable record in accommodation revenue, up 49% YoY at US$47 mil. Figure 6. 4: Overnight Visitors and tourism revenue Lam Dong thousands visitors Domestic tourists International arrivals Tourism revenue 5,000 Mil US$ 60 4,000 50 3,000 40 30 2,000 1,000 20 10 0 2013 2014 2015 2016 2017 Source: Lam Dong Statistic Ofiice 0 Around 10% of total yearly visitors are international, however the prime target customers are domestic tourists who travel to Da Lat via road. Over the last five years, international visitors Novaland D20180309 62 B-64
achieved a higher growth rate of 24% pa compared to 10% pa growth of domestic visitors. By 2017, total international arrivals reached approximately 384,000, up 34% YoY due to an increase from Chinese and Korean visitors. Domestic & International Average Length of Stay (ALoS) Visitors to Da Lat accounted for 80% of visitors to Lam Dong. Therefore, it can be said that ALoS of Lam Dong visitors was considered as a study of the Da Lat market. In 2016, ALoS was 1.7 days in Lam Dong. ALOS of international visitors was also 1.7 days while in Nha Trang ALoS was 3.5 days; in Da Nang, 2.8 days and in Phu Quoc, 2.6 days. Currently, there is just one direct international route, from Wuhan to Lien Khuong airport. The above statistics are evidence that Da Lat has not yet perfected the promotion of its unique tourism attractions. Figure 6. 5: Average Lam Dong LoS 2.3 Day ngày Số Average ngày lưu stay trú bình quân của khách Khách Domestic nội địa Khách International quốc tế 2.2 2.1 2.0 1.9 1.8 1.7 1.6 2010 2011 2012 2013 2014 2015 2016 Nguồn: Source: Cục Lam thống Dong kê tỉnh Statistic Lâm Đồng Office Novaland D20180309 63 B-65
As well as the cool climate, Da Lat also has unique and diversified tourism products. Sightseeing The mountain scenery and cool climate offer a unique experience compared to other tourist destinations within Vietnam. Table 6. 1: Lam Dong Da Lat tourist sites STT Destination Type 1 Xuan Huong Lake Landscape 2 Than Tho Lake Landscape 3 Tuyen lam Lake Landscape 4 Datanla waterfall Landscape 5 Cam Ly Waterfall Landscape 6 Prenn Waterfall Landscape 7 Hang Cop Waterfall Landscape 8 Love Valley Landscape 9 Vang Valley Landscape 10 Cu Lan Village Landscape 11 LangBiang Mountain Landscape 12 Truc Lam Pagoda Landscape 13 Da Lat Station Historic architecture 14 Da Lat Historic architecture 15 Children Prison Historic architecture 16 Nghe Tinh Temple Historic Cultural Relics 17 Truong Xuan Temple Historic Cultural Relics 18 Bao Dai Valley Historic Cultural Relics Transportation to Da Lat The two main transportation forms to Da Lat are by plane or by car. Airway: There are over 90 weekly flights from Ho Chi Minh, Hanoi, Hai Phong, Vinh, Hue, Da Nang and Thai Lan, bringing approxmimately 1,800 visitors to Da Lat every day. Lien Khuong airport was upgraded in 2015 and can now serve two million people annually as well accommodate international flights. Flights from Wuhan (China) operate three times each week; flights from Bangkok and Singapore are infrequent and only by charter. Novaland D20180309 64 B-66
The airport is 30 kilometers from the city center. Tourists can travel to the city using public bus, taxi or hotel transfer. Table 6. 2: Commercial flights to Lien Khuong airport No From Carriage Frequency No. of flight 1 HCMC Vietnam Airlines Daily 3 2 HCMC Vietjet Air Daily 2 3 Da Nang Vietnam Airlines Daily 1 4 Hanoi Vietnam Airlines Daily 1 5 Hanoi Vietjet Air Daily 3 6 Hanoi JetStar Pacific Daily 1 7 Vinh Vietjet Air Daily 1 8 Hai Phong Vietjet Air Weekly 3 9 Hue JetStar Pacific Weekly 3 10 Wuhan Vietjet Air Weekly 3 Road: Nationwide, approximately 132 coaches a day arrive in Da Lat. Voyages from HCMC represent 55% of these trips, with Nha Trang and Phan Thiet providing to 21 trips/day and eight trips/day respectively. The maximum number of tourists by road was approximately 4700 guests/day. As well as travelling by car, some tourists arrive by motorbike. The 20-km long Lien Khuong highway has helped to reduce travel times to Da Lat. Novaland D20180309 65 B-67
Figure 6. 6: Lien Khuong Airport visitors & flights, 2016 1,000 people Total passenger No of flights/week Flight 36 800 30 600 24 18 400 12 200 6 0 Ha Noi HCMC Vinh Da Nang Hai Phong Hue Bangkok 0 Source: Savills Research & Consulatncy 6.4 FUTURE OUTLOOK Outlook for Supply In 2017, six projects providing approximately 100 rooms were listed as future hotels. Of those, 40% are vacant land or planned. The remaining are under construction or completed. Table 6. 3: Projects awaiting approval No Project Ward Expected Grade No. of Room 1 Bavico 1 4 star 252 2 LaDalat 8 5 star 200 3 Kings 2 4 star 99 Da Lat has two operational hotel projects which as yet have not received their official grade rating: Kings Hotel, aimed at a 4-star standard, opened in Q1/2016. Bavico Plaza Hotel began operation in 2015 with incomplete landscaping and services. It was developed to a 4-star standard with 170 of the originally planned 252 rooms operational. LaDalat was inaugurated in late 2017, the hotel anticipated 5-star quality. Novaland D20180309 66 B-68
Figure 6. 7: Future supply by location, 2017 Ward 2 9% Ward 3 14% Ward 1 34% Ward 8 18% Ward 10 25% Source: Savills Research & Consultancy Outlook for Demand In 2016, Da Lat was chosen as one of the 52 most attractive world destinations by the New York Times. A cool climate makes leisure activities and outdoor activities extremely appealing. Da Lat held a second international mountain bike race in March 2016 with 175 international and domestic athletes participating. Among those, 65 were from the USA, Canada, Germany, Malaysia and Cambodia. In March 2016, the first female professional golf tournament was held at The Dalat at 1200. The Vietnam Department of Aviation hopes to stimulate more international flights to Lien Khuong, Phu Bai, Cam Ranh, Can Tho and Phu Quoc Airport by offering special service fees. With this offer, Da Lat will gain more direct flights and open up overseas markets. Novaland D20180309 67 B-69
7 PHU QUOC 7.1 SUPPLY With a total area of more than 580 km 2, Phu Quoc is Vietnam s largest island. It has an ideal tropical climate and rich natural resources, including cave systems and more than 10 pristine sandy beaches along its 150 km coastline. Compared to other well-known coastal destinations such as Da Nang and Nha Trang, Phu Quoc has only been recently developed due to the large distance from the mainland and improved connectivity. Major improvements have included the inauguration of Phu Quoc International Airport in 2012 and the national electricity network project in 2014. Figure 7. 1: Total stock 4,000 Rooms 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2013 2014 2015 2016 2017 5-star 70 950 1,352 1,809 2,053 4-star 406 479 620 896 1,180 3-star 177 260 343 397 397 Source: Savills Research & Consultancy According to Kien Giang s Culture, Sports and Tourism Department, by the end of 2017, there were 506 operational hospitality projects supplying 14,739 rooms. Nevertheless, most are small uncertified hotels and local guesthouses. Within the scope of this market study, the report covers only projects with a rating of three to five-star by VNAT or those managed under standards and trademarks of recognised international hoteliers. Following the above criteria, as of 2017, there were more than 3,600 hotel rooms from 20 three to five-star projects in Phu Quoc. As an emerging tourism market with various authority Novaland D20180309 68 B-70
investment incentives and an international airport, Phu Quoc has far more 5-star hotels than any other segment. The five-star segment accounted for a 57% share, the four-star for 33% and the three-star for 11%. All hotels developed prior to 2013 have small scale of less than 100 rooms per project. Since 2014, many new projects have launched, averaging 300 rooms per project. Of which, the fivestar Vinpearl Phu Quoc is the largest with 750 rooms. In 2017, Phu Quoc market welcomed one new 5-star, the J.W Marriott Phu Quoc with 244 rooms and one 4-star hotel, Sol House Melia with 284 rooms; both are managed by international hoteliers. There were three international operators including Accor, J.W Marriott and Melia, managing over 900 rooms from four projects, equivalent to 30% of total supply. The others were self-operated. 7.2 PERFORMANCE The average room rate and occupancy fluctuates widely between peak and low seasons. Phu Quoc s tourism season is similar to other markets such as Da Nang and Nha Trang; the high season is from November to March with a stable average temperature of 30 0 C. As such, the island welcomes many beachgoers during this period. A section of the low season occurs during rainy season. Although there are many domestic visitors during this time, they prefer homestays or low to unrated accommodation. This demographic has little affect upon the three to five-star market. Prior to 2014, due to limited supply, the Phu Quoc hotel market had stable occupancy from 75-90% during the peak season and 50-70% during the low season. There were no five-star projects open at this time, resulting in a moderate room rate of US$70/room/night, which would fluctuate up to 70% depending on the season. Since 2014, ARR has remained high due to the large amount of newly-launched upscale projects. With increasing upscale stock, the market average room rate in 2014 experienced a 25% increase compared to previous period and has maintained an average of US$90/room/night since then. In 2017, the ARR was US$86/room/night. On the other hand, continual supply growth pressured occupancy with 51% of current supply entering within the past three years. The entrance of large-scale projects including J.W. Marriott and Sol House Beach and their low occupancy rates of less than 40% had a negative effect on Novaland D20180309 69 B-71
the overall record. Additionally, the conventional hotel market faced strong competition from Vingroup beachfront villas which were handed over at the end of 2016. Over 670 two-to-four bedroom villas from Vinpearl Phu Quoc Resorts & Villas and Vinpearl PQ Paradise Resort & Villas began operation in 1H/2017. In 2017, market average occupancy was only 50%. According to leading tourism agencies such as Saigon Tourist, Viet-travel and Ben Thanh Tourist, in the past two years, the number of tours to Phu Quoc has increased by 300%, especially after the inauguration of the Vingroup projects. 7.3 DEMAND ANALYSIS Tourism Figure 7. 2: Visitor volume, Phu Quoc 3,200,000 visitors International arrivals Domestic visitors 2,800,000 2,400,000 2,000,000 1,600,000 1,200,000 800,000 400,000-2011 2012 2013 2014 2015 2016 2017 Source: Kien Giang Statistic Office Phu Quoc is an attractive destination for both local and international tourists. From 2013-2017, the number of international and domestic visitors increased 63% pa due to the opening of the international airport, upscale accommodation and leisure services. The domestic visitor volume increased 68% pa and accounted for 87% of arrivals. International tourist growth was lower at 38% pa due to limited international direct flights. The only international direct flights are from Kunming and Guangzhou. Heavy competition with other coastal destinations that have better tourism infrastructure has affected arrival growth to the isolated island. Novaland D20180309 70 B-72
As the end of 2017, there were more than three million arrivals to Phu Quoc, up 58% YoY. Figure 7. 3: Tourist volume by month, Kien Giang 2017 800,000 Visitor International visitor Domestic visitor 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Source: Kien Giang's Culture, Sport and Tourism Department Seasonality significantly changes arrival numbers to Kien Giang Phu Quoc. In 2017, the number of arrivals was peak in summer time between June-August. March to May and September to October were the low seasons for tourism due to bad weather. International arrivals spike from November to March with many people escaping the chilly winter weather in the northern hemisphere. On the contrary, domestic tourists visit in the summer season (June to July), during which time they account for 90% of total tourists. Average Stay The average stay is approximately 1.7 days. International tourists stay longer than domestic tourist, at 2.4 days. The number of repeat visits is low at only 5% of total yearly visitors. A preeminent concern for the tourism market is how to create a range of tourism products and recreational activities to motivate tourists to stay longer and increase repeat visits. Nationality Unlike other sea tourism cities such as Da Nang or Nha Trang, the majority of foreign tourists in Phu Quoc comes from developed countries of Europe, North America and Australia. Meanwhile, Russia and China account for 22% of total current visitors. European travellers are expected to increase after numerous chartered flights begin from Sweden, England and Italy. These nations are promising countries for passenger growth over the next two years. Novaland D20180309 71 B-73
Direct flights to Kunming and Guangzhou will bring a large number of visitors from China. The share of Chinese tourists in Phu Quoc may increase dramatically in the future, as already seen in Nha Trang and Da Nang. Within the South East Asian countries, Thailand is the most significant source of tourists, accounting for 3% of total international arrivals. Direct flights from Bangkok to Phu Quoc will increase the number of Thai visitors in near future. Figure 7. 4: International arrivals structure, Kien Giang 2017 USA, 7% Others, 17% Russia, 22% UK, 11% China, 22% French, 21% Source: Kien Giang Statistic Office Transportation The two major modes of transportation are air and sea. By sea Tourists can travel to and from Phu Quoc via four seaports: Bai Vong, Ham Ninh, Da Chong and An Thai International Seaport. An Thai has the capacity to handle 280,000 tons of goods and 440,000 passengers every year. There are daily trips from Rach Gia and Ha Tien to/from Phu Quoc: Rach Gia Phu Quoc route: eight hydrofoil trips every day. The fare is as low as US$15 per person. Travelling time is 2 hours and 20 minutes. Ha Tien Phu Quoc route: 4 hydrofoil trips every day. The fare is as low as US$10 per person. Travelling time is 1 hour and 20 minutes. Novaland D20180309 72 B-74
The boats have an average capacity of 200 people. International arrivals via seaports is expected to be from 105,000-190,000 by 2020 and 350,000-550,000 by 2030. Currently, 90% of arrivals via seaport are domestic visitors. To meet the anticipated surge in demand, Kien Giang Province is calling for investment into at least four other ports, including the 675-ha Nam Du Deep-water Port with VND 16.8 trillion (US$840 million) on Nam Du islet, Bai Dat Do Port of VND with 10.5 trillion (US$525 million), Hon Chong Port of VND 1.1 trillion (US$55 million) and Bai No Port. By air Travelling by air to Phu Quoc is favoured. The new Duong Dong International Airport opened in late 2012 to replace the local airport that could only receive small aircrafts on domestic routes. While the old airport could only serve a maximum of 455,000 passengers per year, the new one can accommodate up to 2.6 million passengers per year. It is expected that by 2030, Phu Quoc International Airport will reach a capacity of seven million passengers. Vietnam Airlines has the most flights connecting HCMC, Hanoi, Rach Gia, and Can Tho with Phu Quoc, up to 22 flights per week. Currently, there are two direct flights from Kunming and Guangzhou to Phu Quoc. Table 7. 1: Flight timetable to/from Phu Quoc From/to Frequency Airlines No. of flights Ho Chi Minh Daily Jetstar Pacific 2-3 Ho Chi Minh Daily VietJet Air 1-5 Ho Chi Minh Daily Vietnam Airlines 4-7 Hanoi Daily VietJet Air 1-2 Hanoi Daily Vietnam Airlines 1-2 Can Tho Daily Vietnam Airlines 1 Rach Gia Monday and Friday Vietnam Airlines 2 flights/week Hai Phong Monday, Wednesday, Friday, Sunday Vietjet Air 4 flights/week Kunming Thursday and Sunday Lucky Airlines 1-3 flights/week Guangzhou Wednesday, Friday and Sunday China Southern Airlines 3 flights/week There are also several non-scheduled flights from Sweden by TUI Nordic. At the of 2017, two major European tour operators, TUI and Alpitour World, will open weekly charter flights from England and Italy to Phu Quoc. At the end of 2017, Bangkok Airways announced a plan to begin a direct flight from Thailand to Phu Quoc in the near future. Novaland D20180309 73 B-75
Key Infrastructure To push Phu Quoc towards becoming a center of tourism, a number of infrastructure projects are being developed. Important projects under construction include the south-north route on Phu Quoc Island, which has a total investment capital of approximately US$117.4 million and is 70% completed and the 100 km long ring road with a total investment of US$143 million. Upon completion of the projects along Truong beach, ownership of the road will be transferred to project developers. Other important projects include upgrades to An Thoi port, a breakwater project, dredging of the Duong Dong estuaries, a water supply project and a lake upgrade project. Despite the efforts to achieve rapid development, basic infrastructure such as paved roads is lacking in most areas of the island. Most regular roads, even the main roads leading to upscale hotels and resorts are paved with red dirt and full of potholes. Improvements and expansion of roads should be made to provide better accessibility for tourists, therefore motivating longer stays. Table 7. 2: Infrastructure Update # Project Location description Capacity/remarks Project status Construction A total length of The total Construction progress of the North- approximately 51.5 km. investment is reached 95%. Expected to South Phu estimated to be be completed in 2017. 1 Quoc axis road VND 2,468.6 billion (US$108.27 million). Phu Quoc Phu Quoc International International Passenger Ship Port Passenger Ship Port was built on an area of 179.3 ha, located in Duong Dong 2 Town. The investor is Phu Quoc Investment and Tourism Development Joint Stock Company, which belongs to Vingroup Group. The total Construction started in investment is April 2015. Package 2 estimated to be expected to be completed VND 1,640 by Q2/2017. Package 3 billion (US$72 started in November 2016 million). and is expected to be complete by 2018. Upgrading An Thoi fishing port An Thoi port is a commercial port with clearance capacity of 280,000 tonnes of cargo and 440,000 passengers per year. The port includes 2 The total investment is estimated to be VND 62.44 billion (US$2.7 million) Constructors approved in 2010. The project began in 2017 and will finish in 2020. Novaland D20180309 74 B-76
# Project Location description Capacity/remarks Project status functional areas: terminal area and transhipment port area (wharf). Dredging Phase 1: Construction of The total Phase 1 started Duong Dong North-South breakwaters investment is construction in 2012 and River and has a total length of 525 m estimated to be completed in May 2014. building and is 4 m wide. VND 129 billion Phase 2 is under breakwater Phase 2: Dredging Duong (US$5.65 construction, and expected 4 Dong River. The length of million). to complete in 2018. the channel is 270m, the width is 30m, the height of dredging of the channel and the water area is -3.0m. Dredge volume is estimated at 88,119 m 3. The North A route running from the The total Construction started in Gateway of centre of Bai Thom investment is October 2016 and is Phu Quoc commune and ending at estimated to be expected to complete in 5 Island Route Cape Da Chong, Bai Thom commune. The route has a total length of 9 km and is 7 m wide. VND 61 billion (US$2.67 million). 2018. 7.4 FUTURE OUTLOOK According to the Phu Quoc Management Board of Investment and Development (MBID), in 2016, 220 projects were granted investment certificates, representing 79% of projects in Kien Giang and totalling an investment exceeding VND 222,000 billion. By 2019, upscale hotel and resorts supply is estimated to strongly increase by approximately 4,000 rooms from 15 projects. Gand Dau is expected to have most future stock with 40% share. However, according to the Economic-Social Development Plan of Kien Giang province, Phu Quoc will become a Strategic Economic-Administration Zone by 2020. Up to 2030, it is forecast arrivals will be 5-7 million pa, with international arrivals accounting 45-50%. The performance of the upscale hotel and resort segment is expected to remain positive in the near future and increase slightly by 2020. Approximately 47% of future projects are proposed as upscale accommodation with international operators. Currently, Accor, Marriott and Melia are the only three international operators on Phu Quoc. There is a possibility that international operators such as Dusit International, Hyatt, Six Senses, IHG and Fusion may also enter. Novaland D20180309 75 B-77
Table 7. 3: Key future Phu Quoc projects No Project Location Expected completion Rooms Expected Grade 1 Nam Nghi Cua Can 2017 139 5 Status Completed & pending rating 2 Thien Thanh Resort Duong Dong 2018 190 4 Completing 3 Seashells Hotel Duong Dong 2018 278 5 Completing 3 Intercontinental PQ Ganh Dau 2018 500 5 Under construction 4 Fusion Suite Duong To 2018 107 5 Under construction 5 VinOasis Cua Duong 2018 440 4 Under construction 6 Mercury (expansion) Duong To 2018 30 4 Under construction 7 8 Dusit Princess Moonrise Resort Crowne Plaza Phu Quoc Starbay Duong To 2018 108 4 Under construction Duong Dong 2018 300 5 Under construction 9 Grand World Ganh Dau 2018 600 5 Under construction 10 Pullman Ganh Dau 2019 332 5 Under construction 11 Huong Bien resort Duong To 2018 250 4 Under construction 12 MÖVENPICK Phu Quoc Ganh Dau 2019 250 5 Under construction 13 Star Bay Ganh Dau 2019 300 4 Under construction 14 Sheraton Duong To 2019 300 5 Planning It is expected that Phu Quoc will attract approximately five million tourists by 2020, representing a growth of 19 pa from 2017. The occupancy of the upscale hotel and resort segment is expected to remain high at 70% year-round in the near future. The investment progress in most planned projects is slow due to difficulties in compensation and site clearance as well as poor infrastructure, public facilities and human resources. A capitalintensive island location may be responsible for a large proportion of the delays. There are several projects under construction and various others with unknown timelines. With improvement to the construction progress of the aforementioned projects, the island has significant potential to become a mid to high-end tourism and service area in the region. The new international airport and the island ring road will make transportation more convenient. Although there are constrains such as infrastructure and limited recreational area, Phu Quoc has many advantages and opportunities for developers to seize. Phu Quoc has a strategic location, centrally located between the capitals of 10 ASEAN countries. CEO Group plans to open three major projects with a total size of 300ha. FLC Group is in discussion with the local government to promote investment into Phu Quoc Island. Novaland D20180309 76 B-78
Table 7. 4: International operators in future. Operators Hotel Address Grade No. of rooms Intercontinental Intercontinental Phu Quoc Duong To 5-star 500 Crowne Plaza Phu Quoc Starbay Ganh Dau 5-star 300 Dusit Dusit Princess Moonrise Resort Duong To 4-star 108 Serenity Fusion Suite Cua Can 5-star 107 Accor Pullman Duong To 5-star 332 Marriotte Sheraton Duong Dong 5-star 300 Movenpick Movenpick Phu Quoc Cua Duong 5-star 250 Regent Regent Phu Quoc Duong To 5-star 150 Much investor attention is due to the fact that the island will soon become a "special economic zone"; and in order to boost progress, Phu Quoc will likely apply more investor incentives. These incentives could include: Tourism investors will have land rentals waived for the first three years of construction. Depending on the business category and project completion, the investor can further benefit from further waivers of 11 to 15 years. Depending on the business category, corporate income tax (CIT) will be reduced from 22% to 10% for the first 10 to 30 years or for the entire period of operation. A 50% reduction in personal income tax (PIT) for both locals and foreigners working on the island. Zero tax on fixed assets imported to the island for business purposes. Foreign passport holders will be granted 30-day visa exemption. These incentives will potentially motivate investments from local and foreign investors. Novaland D20180309 77 B-79
8 CAN THO 8.1 SUPPLY Overview This report analyses and provides an overview of 3 to 5-star hotels in Can Tho. All hotels included in this report have been officially rated by the VNAT or are managed according to international standards. According to the Can Tho Annual Report 2017, the city has 270 hotels (an increase of 26 units YoY) providing a total of 6,931 rooms. The majority of accommodation on offer are small, unrated hotels. At the end of 2017, 18 three to five-star hotels offered more than 1,700 rooms. The 3 to 5-star market in Can Tho is ranked second in total supply in the Mekong Delta region. Kien Giang is ranked first with more than 4,000 rooms due to the areas potential for development and tourism. Figure 8. 1: Mekong Delta 3 to 5-star supply, 2017 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 rooms 3-star 4-star 5-star 0 Kien Can Tho An Ca Mau Ben Tre Bac Lieu Giang Giang Source: Vietnam National Administraion of Tourism Soc Trang Dong Thap Vinh Long Tra Vinh Overall, three and four-star supply did not change from 2013-2017. The five-star segment only entered the market in 2015. Novaland D20180309 78 B-80
Figure 8. 2: Total supply, 2013 2017 2,000 rooms 1,600 1,200 800 400 0 2013 2014 2015 2016 2017 5-star 0 0 309 571 571 4-star 567 648 648 648 648 3-star 502 502 558 558 558 Source: Savills Research & Consultancy By grade Amongst the 18 hotels rated by VNAT in Can Tho, two 5-star hotels, Vinpearl Can Tho and Muong Thanh Luxury account for 32% market share. The four-star segment provides 37% of market share, the remaining 31% belongs to 3-star. Figure 8. 3: Three to five-star market share by grade 3-star 31% 5-star 32% 4-star 37% Source: Savills Research & Consultancy Four to 5-star hotels such as Vinpearl Can Tho, Van Phat Riverside, TTC Premium Hotel and Victoria are located on the riverfront. The majority of the 3-star hotels are concentrated around Ninh Kieu wharf. Novaland D20180309 79 B-81
3-star: One rated project entered the market in 2014, providing 56 rooms. Slow supply growth reflects the real demand while most domestic tourists choose 1 or 2-star hotels instead. In addition, low demand from international visitors and domestic tourists also affected growth. The majority of this segment was constructed in the late 20 th century, so the quality has a few drawbacks even through improvements have been made. 4-star: This segment has had no new supply enter the market in the last four years. The average scale of this segment is 108 rooms/hotel. Dong Ha Fortuneland has the largest scale of 171 rooms. IRIS hotel entered the market in 2014, increasing supply by 14% YoY. Golf Hotel was transferred to Thanh Cong Group in an M&A deal in 2014. The hotel expanded in scale and was renamed TTC Premium-Can Tho in 2015. The six hotels and resorts under the Victoria brand were acquired by Thien Minh Tourist for US$45 million in 2011. They are managed by Strategic Hospitality F&L REIT at an international standard. Instead of investing in new hotels, TTC Premium upgraded existing projects, which caused constant supply growth in this segment from 2014 until now. 5-star: Muong Thanh Luxury was the first 5-star project to enter the market, providing 309 rooms in 2015. A year later, Vinpearl Can Tho entered the market supplying 262 rooms. These two hotels were developed Muong Thanh and Vingroup, domestic investors renowned for luxury hotel chains throughout the country. Possessing a convenient location between Ninh Kieu wharf and Cai Rang floating market, Vinpearl Can Tho is the tallest complex in the Mekong Delta with 30 levels and three basements. With contemporary Asian architecture and a river view, Vinpearl Can Tho provides 5-star international standard services including three restaurants, an entertainment area with swimming pool and bar and a Vincharm Spa. To meet the demands of MICE groups, it also offers a ballroom with a 500 guest capacity and three boutique meeting rooms. Another highlight is Vincom Xuan Khanh shopping centre, which provides reputable world-class brands to meet the shopping needs of tourists. Muong Thanh Luxury has a favourable location at Cai Khe dune, 10km from Can Tho International Airport. This is the first hotel by the Muong Thanh hotel chain in the Mekong Novaland D20180309 80 B-82
Delta. The hotel has 27-levels providing 309 rooms and four multi-function conference rooms with a capacity of 50 to 1,200 seats. 8.2 PERFORMANCE Can Tho s climate is hot and humid year round. The rainy season lasts from May to November and the dry season from December to April. The majority of tourists in Can Tho are domestic, accounting for 85% of total visitors from 2013 to 2017. Can Tho s hotel occupancy has a steady year-round performance with a YoY average of seventy%. The market experiences fluctuations during local festival occasions or large-scale events. During summertime, average occupancy increases to 80% due to an increase in domestic visitors. Can Tho finds it difficult to attract winter break tourists as it has no beaches. Whilst occupancy of coastal cities such as Da Nang, Nha Trang or Vung Tau fluctuates between 70-80% in high season and 50-60% in low season, Can Tho s occupancy has less variation. In 2017, the average occupancy of 3 to 5-star segments in Can Tho reaches 66% and ARR is US$38/room/night. Most studied hotels have stable ARR during the year; however the rates of two hotels, Vinpearl Can Tho and Tay Do, fluctuate due to local festivals and an increase during high season. Figure 8. 4: Can Tho s performance 60 US$/room/night % 100 80 40 60 20 40 20 0 5-star 4-star 3-star ARR 46 43 22 Occupancy 75 68 55 Souce: Savills Research & Consultancy 0 Novaland D20180309 81 B-83
8.3 DEMAND ANALYSIS Arrivals and Stays Figure 8. 5: Tourist arrivals in Mekong Delta, 2017 8,000,000 visitors Domestic visitors International visitors 6,000,000 4,000,000 2,000,000 0 Kien Giang An Giang Can Tho Ben Tre Soc Trang Vinh Long Source: Local Department of Culture, Sports & Tourism In 2017, Can Tho welcomed 7.5 million visitors, an increase of 41% YoY. The rapidly increasing number of tourists in 2017 was due to various political, cultural, sporting events such as Food Security Week, International Volleyball League tournament, Vietnam Japan Cultural Exchange festival and the Southern Traditional Cake festival. Despite having the largest amount of arrivals in the Mekong Delta, the number of international visitors to Can Tho is low and is ranked behind other provinces in region, such as Tien Giang, Ben Tre and Kien Giang. The city has an international airport without international routes, therefore the majority of tourists are transit visitors traveling to HCMC and nearby provinces. Novaland D20180309 82 B-84
Figure 8. 6: Tourist volume and Tourism turnover, Can Tho 2,500,000 2,000,000 1,500,000 1,000,000 500,000 visitors 140 120 100 80 60 40 20 0 2013 2014 2015 2016 2017 Domestic 1,040,268 1,147,446 1,411,259 1,476,251 1,874,833 International 211,357 220,280 202,658 240,289 305,167 Tourism Turnover (Bil. VND) 46.40 55.60 79.61 80.09 127.10 0 Source: Can Tho Department of Culture, Sports & Tourism From 2013-2017, the growth rate of tourists to Can Tho was 15% pa. By 2017, the number of tourists was 1.87 million, accounting for only 25% of total arrivals. In particular, domestic visitors accounted for 80%, increasing 16% pa. Can Tho has developed various forms of tourism such as clean agriculture tourism, Con Son community tourism and village experience tourism. The development level is not clearly outlined and overlaps with other provinces in Mekong Delta. In 2017, total tourism turnover reached VND 2,900 billion, up 59% YoY, and ranked third in the Mekong Delta after Kien Giang and An Giang. Transportation Air and road are the two main forms of transport. Travelling by road is the most popular form due to cost-efficiency and convenience. By air: Can Tho International Airport has been operational since December 2010. Currently, domestic flights to Hanoi, Phu Quoc, Con Dao and Da Nang are operational. Airlines servicing Novaland D20180309 83 B-85
these routes include Vietnam Airlines, VietJet and Vasco. Flight information is summarised in the following table. Charter flights by Viettravel to Dalat and Nha Trang were previously available but have since ceased due to budget restrictions. An international route to Taipei (Taiwan) operates in the Lunar New Year and charter route to Bangkok (Thailand) has stopped. Table 8. 1: Flights from/to Can Tho city No. Airline Route Frequency Flights 1 Vietnam Airlines Hanoi Can Tho Hanoi Daily 2 2 VietJet Air Hanoi Can Tho Hanoi Daily 1 3 VietJet Air Hanoi Can Tho Da Nang Daily 1 4 VietJet Air Da Nang Can Tho Hanoi Daily 1 5 Vasco Con Dao Can Tho Phu Quoc Daily 1 6 Vasco Phu Quoc Can Tho Con Dao Daily 1 According to the Can Tho Department of Transport, in 2017, more than 700,000 tourists arrived by air, equalling 23% of the designed capacity of the airport. The demand to Can Tho was low as travel agencies prefer to travel by road due to lower cost overheads. Figure 8. 7: Arrivals by Air, Can Tho 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 visitors % 100 80 60 40 20 0 2013 2014 2015 2016 2017 Volume 241,500 305,568 481,447 547,029 696,000 Growth 21 27 58 14 27 Source: Can Tho Department of Transport 0 By road: This mode of transport is cheaper, with an average bus ticket price is US$6-7/people. Can Tho is 165 kilometers from Ho Chi Minh with a travelling time of approximately four hours. Fifteen operators run coaches from 1am to 11.30 pm every day. Novaland D20180309 84 B-86
A highway connecting HCMC to the Mekong Del has been completed and is operational. Trung Luong - Can Tho route is currently under construction, and is expected to be completed in 2021. This will shortened the travel time from HCMC to Can Tho to only two hours, which in turn will stimulate the tourism industry in Can Tho and Mekong Delta provinces. Infrastructure As the economic centre of Mekong Delta, Can Tho s infrastructure has developed rapidly in the past five years. Key infrastructure projects include Can Tho Bridge, Can Tho international airport, Cai Cui seaport, phase one of Can Tho - Vi Thanh route, Nam Hau road and the upgrade of National Road 91 and National Road 1A. Can Tho Department of Transport has approved the infrastructure development plan by 2030, and proposed the following key infrastructures: Upgrading National Road 1A, 80 and 91; Constructing roads to Can Tho bridge; Upgrading Lo Te - Rach Soi route, connecting Can Tho to Kien Giang; Constructing Nhi Kieu bridge; Upgrading bridge 91B, National Road 1, 2 and 3; Constructing new Thot Nat and O Mon bridge. Novaland D20180309 85 B-87
8.4 FUTURE OUTLOOK Supply As of the study date, there are five 3 to 5-star hotels recorded in future project group. However, all projects are in the planning stage apart from the expansion of Ninh Kieu 3 hotel. This accommodation, which has been operational since July 2016, provides 109 rooms, and is currently under evaluation. Table 8. 2: Expected future supply No. Project Location Supply Status 1 Water Paradise Cai Khe ward N/A Planning 2 ÊMM Can Tho hotel Cai Khe ward N/A Planning 3 International Conference Centre Cai Khe ward 250 Planning 4 Ninh Kieu 3 hotel Tan An ward 109 Operating/In rating process 5 Racecourse and Entertainment complex Binh Thuy district N/A Planning Demand Can Tho is the only city in Vietnam to achieve the Asia Landscape Award 2016. In 2015, the website Mysteriousworld named Can Tho was named as one of the top 10 cities with the most beautiful canals. Along with these accolades, the People s Committee of Can Tho issued Can Tho tourism promotion campaign 2018-2020 orientating to 2030. From 2018 to 2020, the city will continuously promote tourism and expand potential markets. The Can Tho promotion campaign has set a target of having 3.48 million tourist arrivals by 2020, including 480,000 international arrivals reaching a turnover of 5400 billion VND. As of 2030, the target will be 3,900,000 arrivals, including 900,000 international arrivals and 12,726 billion VND in turnover. The development and construction of infrastructure are considered to be promoted through four investment projects in tourism including Con Son tourism area, Phong Dien, Bang Lang stork garden and Tan Loc. Novaland D20180309 86 B-88
9 SWOT ANALYSIS Da Nang Da Lat Phan Thiet Nha Trang Vung Tau Can Tho Phu Quoc Local landscape, beaches, and Upgraded 2 million pa airport Steady tourism growth. Pleasant weather, long coastline Vung Tau is a tourism centre in The key economic, transport, Continual growth of climate make Da Nang an capacity helps reduces travel An attractive destination about and beautiful beaches. the Southeast Vietnam, 90 trade and tourism municipality international and domestic attractive destination. times four hours from HCMC. Reputable international minutes from HCMC by coach. in the Mekong Delta. arrivals. Strategically located and part Cool climate provides unique Long beaches. hoteliers. Two beautiful beaches Pleasant climate year round. Virgin forests and beautiful of the tri-city coastal tourism advantages to attract domestic Numerous luxury hotels and Diversification in hotels and including Bai Truoc and Bai Interlaced river system, suitable beaches corridor. guests resorts along the coast. resorts. Sau. for ecological tourism activities. Presence of international Strengths Highest ARR and occupancy in Diverse tourism sites: historical Numerous luxury hotels and hospitality operators. resorts. sites and waterfalls last five years. High awareness of hygiene and High supply growth rate in environmental protection. recent years. Increased participation and Shortage of tourism products and entertainment centres. Weak marketing strategy. Human resources for tourism are limited. Tourism development and promotion are less attractive, especially to foreign visitors. Most accommodation is old and below expected standards Tourism products lack diversity. Low tourist stay. No international airport. The number of foreign visitors is low compared to other Heavily dependent on Russia and Chinese tourists. Lack of professional tour guides. Lack of diversified tourism products. Lack of attractive tourism products and entertainment options. Lack of diversify in existing products. The road to Da Lat is dangerous with many hills and potential for accidents Low amount of 3-5 star hotels Local culture not appealing to entry of international operators. Lack of tourism and entertainment services leads to shorter average length of stay compared to national and Weaknesses South East Asian destinations. B-89 Vulnerable to floods in the wet international visitors Short ALoS. tourism destinations such as Lack of professional human Poor infrastructure. season. No international airports and Nha Trang and Da Nang. resources for tourism. High cost of construction and operation. few international operators. Steady tourism growth. Improved transportation: Important highways completed Continuous growth of The first service airport in Ba Transport infrastructure such as Important infrastructure such Additional international flights. international flights and in the next 3-5 years. international visitors and Ria Vung Tau is in planning bridges, highways are currently as the south-north route and Improving infrastructure and upgraded roads Airport is under construction longer stays. process. being completed. the island ring route are facilities Local provincial programs and expected to be completed Cam Ranh international airport Vung Tau city has High tourist growth rate. expected to be completed in Niche market potential, e.g., positively promote tourism by 2020. being continually upgraded. implemented protection Many urbanization, the next five years. Opportunities MICE, casino, spirituality and Improved service quality Various untouched islands with activities. entertainment projects are Project scale remains low wellness tourism. beautiful beaches. The transport infrastructure planned, such as the upgrade which could be a good Proximity to North East and Strong investment strategies connecting Ba Ria Vung Tau of Can Tho Water Park. opportunity for hospitality Planned golf courses and improved. South East Asian mass- for tourism industry to other provinces has been investors. markets. casinos. Novaland D20180309 87
Da Nang Da Lat Phan Thiet Nha Trang Vung Tau Can Tho Phu Quoc The island is largely undeveloped, with potential for ecological tourism and ecoresort development. Entry of other international hoteliers will boost the location s prestige. Increasing competition from Yearly visitor rates unbalanced, Strong competition with More upscale Bai Dai High competitiveness from Climate change is a major Phu Quoc faces strong local and regional destinations. mostly weekends, high season coastal cities in Vietnam and developments in Cam Ranh other coastal cities such as Nha threat. Flooding and riverbank competition with other coastal Increasing competition from and holidays. the region. creating competition. Trang, Phan Thiet and Da erosion in recent years have cities in Vietnam and other local large future supply. Competition with other Planning projects affected by Sustained competition with Nang. directly affected transportation regional countries. RPP competition offering domestic tourism destinations. revisions to the provincial local and regional destinations. Tourism promotions are weak. Compensation and site Threats cheaper equivalent quality master plan. clearance stages. Projects in planning are subject Competition from low or nonrated hotels. to continual revision due to Coordination between tourism adjustments to the island s and airlines needs master plan. improvement. Novaland D20180309 88 B-90
DISCLAIMER The property market research contained is verified to the best of Savills Vietnam abilities. Savills reports reflect an overview of the current property market and are indicative research only. Savills Vietnam does not guarantee the accuracy of research and forecasts contained herein. Savills Vietnam does not accept any responsibility for losses arising from reliance on the research and forecasting. Savills recommends that the reader obtain a detailed market study of the specific sector of interest should a deeper understanding of the market be required. Reproduction of this report, in any manner whatsoever, in whole or in part, without written prior consent from Savills Vietnam is prohibited. Approval should be obtained from Savills Vietnam before any reference to this report can be made in any statement, published document, or circular. Where information is given without reference to another party, it shall be taken that this information has been obtained or gathered through Savills best efforts and to Savills best knowledge. Processed data references there from shall be taken as Savills opinion and shall not be freely quoted without acknowledgement Novaland D20180309 89 B-91
B-92