Mr. Christopher Piro, Director of Sales and Marketing at Indochina Land, told VET's Linh San that the retail and hospitality segments will be the most attractive for large scale institutional, private equity, and fund investors this year.
How do you view the property market at this time?
We are very bullish on Vietnam’s property market as we enter 2015. From a macro perspective, the government’s disciplined approach to reining in inflation and curbing interest rates over the past several years while maintaining healthy GPD growth at nearly 6 per cent (the second best in the region) have been key drivers in the recovery of the property market. These developments have created a fertile environment for capital flows that have significantly improved consumer confidence in real estate, the stock market, and several other key investment vehicles.
Looking at the property market specifically, 2014 presented excellent buying conditions for investors and owner-occupiers alike, resulting in record residential sales in Ho Chi Minh City and positive sales in Hanoi, with over 17,000 and 11,000 transactions, respectively. These excellent buying conditions resulted from reasonable price levels given the market has corrected over the past four years, developers building projects in line with market demand, and lower borrowing costs, with interest rates at between 8 per cent and 10 per cent. Finally, in all key markets (Hanoi, Da Nang, and Ho Chi Minh City), local governments are continuing to make significant advancements in terms of infrastructure.
Overall, the general outlook for 2015 is very positive as the aforesaid market conditions are expected to improve with investor sentiment and sales rates to maintain a positive trajectory. Most importantly, the macro outlook is positive with the economy expected to remain stable while GDP growth is planned to exceed 6 per cent this year.
How was the business performance of Indochina Land in 2014? What are your targets for this year?
2014 was another successful year for Indochina Land. On the residential front we made significant advancements on Indochina Plaza Hanoi and the Hyatt Regency, clearing most of the available inventory while selling over $30 million worth of high-end property. More importantly, we were able to successfully implement strategies that allowed for attractive price growth.
In terms of our hospitality assets, we consistently performed ahead of budget, which was very encouraging given the drop off in tourism arrivals following the political tensions with China in the second quarter. During this period we benefited from having some of the world’s best operators manage our properties, as we were able to strategize and recover. Our best-performing asset during this period was the Hyatt Regency, with net operating income increasing 62.4 per cent year-on-year (selling 63,700 room nights).
On the commercial front, we have now nearly 100 per cent leasing in office space and retail at Indochina Riverside Towers in an immature Da Nang market. At Indochina Plaza Hanoi we were able to successfully implement a well thought out turnaround strategy and have now reached 80 per cent occupancy in both the office and retail components, which are now thriving and attracting international brands such as Starbucks, Dunkin’ Donuts, and CGV Cinemas (in the retail component) and Schindler, Dasan, Ricoh, Punch, and EMC (in the office component).
In 2015 our focus will be on working with local partners and global investors to develop flagship properties and create new and exciting real estate platforms focusing primarily in the hospitality and residential space. To start the year we have several very promising initiatives that will unfold over the year.
What sector will be of interest to foreign investors this year?
We anticipate both the retail and hospitality segments will be the most attractive for large scale institutional, private equity, and fund investors. Commercial assets are always very attractive, as investors create listed platforms and attractive income producing portfolio’s that are common in more mature markets throughout Asia.
Looking at retail specifically, Vietnam has an excellent demographic profile, with nearly 100 million people and a median age of roughly 28, most of who fit into a growing middle class with rising discretionary incomes. The demographic profile of Vietnam and improving legal framework as it relates to foreign retailers has led many global players to assess Vietnam more closely. According to a recent survey by CBRE entitled “How Active are Retailers in Asia Pacific 2014?”, Vietnam, including Ho Chi Minh City and Hanoi, were among the top target destinations for retailers intending to open stores in 2014. This was proven by the openings of key global brands such as Starbucks and McDonalds. In addition, large scale retailers such as AEON and Lotte continue to pour additional investment into Vietnam.
The hospitality segment is growing rapidly, with nearly 8 million international arrivals in 2015 despite the challenges presented by the tensions with China. International routes continued to expand, with nearly ten more from Ho Chi Minh City, Phu Quoc Island, and Da Nang, and the government has announced visa exemptions for seven additional countries to spur demand. Furthermore, infrastructure is being developed in key markets to meet growing demand, as noted by the new International Airport T2 recently opening in Hanoi and a new airport opening on Phu Quoc. These factors combined with the availability of affordable land from a regional perspective and an active investment market (eight hotels were sold recently) create an attractive sector for foreign investment.
What are your thoughts on the recent change allowing foreigners to buy houses in Vietnam?
We anticipate this will support the boosting of residential property sales in 2H 2015 and we are keen to see developments in several buyer segments.
Firstly, long-term expats who have been living in Vietnam for three to five years may consider purchasing property as opposed to renting, as they will be able to rent and mortgage the property given that the process to secure an ownership certificate is expected to become simpler.
Secondly, more Viet Kieu (overseas Vietnamese) are expected to invest directly into Vietnam as freehold is available and they can purchase multiple properties. In our experience, most Viet Kieu purchasers would typically purchase vacation homes or one or two properties (one in their name and one in a family member’s name). However, with the new laws permitting the right to own an unlimited number of properties we expect this segment will become more active.
Finally, we believe regional property investors from Hong Kong and Singapore will seek out vacation properties in areas such as Da Nang, Nha Trang and Phu Quoc Island, as they are familiar in doing so in areas such as Phuket and Bali. The primary difference is that Vietnam’s coastal property is half the price of similar properties in comparable regional destinations. Furthermore, Ho Chi Minh City is becoming a vibrant and livable city with a strong economic base, rapidly developing infrastructure, and great rental yields in the high-end segment (of 5 to 8 per cent). We believe this is an attractive proposition for regional investors.
What will be the challenges for property investors in 2015?
The biggest challenge or potential threat to the property market’s continued recovery and eventual upswing (hopefully!) is the threat of future supply. As the market continues to improve and absorption increases, developers have a tendency to become overconfident and move forward with premature new launches. As we all witnessed during the economic downturn, the effects of a reeling economy is exacerbated by an overhang of supply.
For example, Ho Chi Minh City’s residential market has witnessed the launch of two projects consisting nearly 13,000 units within 5 km of one another, in Masteri and Vinhome’s Central Park (to be launched in multiple phases). This could adversely affect the high-end segment and specifically Binh Thanh district and District 2. Hanoi’s office market in western districts is currently suffering from an oversupply and there is 250,000 sq m of office space expected to come online in 2015. This will only serve to create more competitive market conditions and put additional pressure on developers to drop rates in order to fill vacant space.
Overall, from our perspective, while demand is improving the market is still somewhat fragile and in a state of recovery, so if too much supply comes online over the next 12 to 18 month this could diminish the prospects of a brighter future in Vietnam’s property sector.
What makes Indochina Land confident now?
Indochina Land continued to launch, develop, and complete some of Vietnam’s most recognizable mixed use, residential, and hospitality assets from 2009 to 2014 despite some of the most challenging economic conditions the country has witnessed. Through our experience during this period and by consistently developing well thought out strategies to overcome adverse market conditions we have developed an unwavering confidence in our ability to execute successful and profitable assets in Vietnam. Given the current outlook for 2015 is the best we have seen over the past five years this bodes well for an experienced and proven developer like Indochina Land.