The Bank for Investment and Development of Vietnam (BIDV) announced last week that it was teaming up with Vietnam Partners to raise $40 million for a real estate fund by the end of this year, in addition to the $100m Vietnam Investment Fund it has closed.
“We initially planned real estate as one of the core businesses of Vietnam Investment Fund. However, we decided to set up a separate real estate fund as the opportunities in this sector are attractive to investors,” said Tran Bac Ha, general director of BIDV.
The plan is another indication of strong investor’s interest in the local real estate market. VinaCapital, with a proven track record with its $171 million Vietnam Opportunities Fund, is due to raise $200m for its VinaLand fund, quadrupling the initially targeted figure.
Indochina Capital, an investment company which has been active for over a decade and last year raised $42m for the country’s first real estate fund, Indochina Land Holdings, is in the process of establishing a much bigger second fund.
Indochina Capital managing director Peter Ryder revealed that the first fund had been fully invested in eight office, hotel, retail, residential and mixed-use projects.
Ryder said the company aimed to raise $100m for the second fund to invest in diversified property types in Hanoi, Ho Chi Minh City and the central coast. However, due to strong investor’s interest, the amount could double.
The fund would target large office, retail, hotel and resort projects but most of the cases would be the residential properties. Ryder said the second fund would look for a 25 per cent internal rate of return compared to the 30 per cent level of the first fund.
Ryder dismissed concerns about the frozen real estate market over the past year, claiming opportunities were there.
“We think the opportunities here today are greater than they were a few years ago,” he said. “The actual demand is still there, and it is very strong, very deep. I’d like to say it is the beginning of a long wave of opportunities, particularly in the residential sector.”
Peter Dinning, managing director of VinaCapital Real Estate, shared that view. He said the opportunity was ripe for property investment due to vibrant economic growth, increased living standards, rapid urbanisation and growing foreign investment inflow.
VinaCapital said property supply was low while latent demand was enormous across all sectors. It estimated that Ho Chi Minh City should build at least 130,000sqm of office space every year for the next 10 years to meet long-term future demand.
Retail space supply is very limited at less than 200,000sqm compared with five million square metres in Manila and four million square metres in Bangkok, while conspicuous consumption is driven by the young population and burgeoning middle class, coupled with overseas remittances of around $4 billion a year.
Property consultants noted that demand for residential properties was particularly high because living standards are improving, young people are exercising independence from parents and there is currently a lack of quality properties.
Rick Mayo-Smith, another managing director of Indochina Capital, said the real estate market was frozen because there are not many investors who have real money.
“There are a lot of people who have land but not many know how to develop it or have money to develop it,” said Mayo-Smith.
He said most people do not have enough money to develop properties properly and professionally. Quality projects like Phu My Hung were selling well.
“It is not a frozen market,” he said. “Indochina will become one of the leading developers in the residential sector over the next five years with quality projects.”
Indochina Capital principals are in a position to know. Both Ryder and Mayo-Smith have co-developed and advised prominent properties in Vietnam such as Saigon Centre in Ho Chi Minh City, 63 Ly Thai To Building in Hanoi and the Furama Resort in Danang.
Indochina Capital is also the leading shareholder in the Nam Hai, a luxury resort with residential villas along a world-class stretch of white sand beaches in Quang Nam province.
The resort, due to open by the end of this year, boasts 60 hotel rooms and 45 villas of international style that will be managed by GHM, a boutique resort operator with Datai in Langkawi and Legian in Bali. Indochina Capital has hammered out a structure that allows the villa owners to use the properties for residences or, when not using them, they can contribute the villas to the hotel rental pool.
It is clear why Indochina Capital is focusing on hotel development. Vietnam received 3.5 million foreign visitors last year and the figure is expected to triple over the next five years.
As the number of luxury beach resorts remains small, developers like Indochina Capital have reasons to build more. Ryder says the company is building a resort on unexploited Con Dao island and looking for one more location for a resort on the central coast.
The central region of the country is one of the three core areas Indochina Capital is focusing on. In addition to the Nam Hai, the fund is developing Indochina Riverside Towers, a mixed-use development with retail podium and two office and apartment towers above, a property type that Ryder says the company is very interested in. The property will be located on a site that two investors in the past failed to develop into a luxury hotel due to a lack of finances and low demand.
For a long time, developers focused on the more commercial cities of Hanoi and Ho Chi Minh City and just a few of them have taken a look at central Vietnam due to the region’s poor infrastructure. However, Indochina Capital is confident that with improved roads, ports and power supply the central coast is ready for growth.
“Danang and the central coast are just starting to take off,” said Mayo-Smith.
And as investors are confident enough to invest more in Vietnam, more properties will hit the sky.
No. 753/March 20-26, 2006
Ngoc Son (vir.com.vn)