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The Great Reflation

“When you see that trading is done, not by consent, but by compulsion — when you see that
in order to produce, you need to obtain permission from men who produce nothing — when
you see that money is flowing to those who deal, not in goods, but in favors — when you see
that men get richer by graft and by pull than by work, and your laws don’t protect you against
them, but protect them against you — when you see corruption being rewarded and honesty
becoming a self-sacrifice — you may know that your society is doomed.”

Ayn Rand, Atlas Shrugged (Francisco’s “Money Speech”)


The April 2010 Gloom, Boom & Doom Report will be sent out on April 5, so subscribers may expect to receive it
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DISCLAIMER: The information, tools and material presented herein are provided for informational purposes only and
are not to be used or considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for
securities, investment products or other financial instruments, nor to constitute any advice or recommendation with
respect to such securities, investment products or other financial instruments. This research report is prepared for
general circulation. It does not have regard to the specific investment objectives, financial situation and particular
needs of any specific person who may receive this report. You should independently evaluate particular investments
and consult an independent financial adviser before making any investments or entering into any transaction in
relation to any securities mentioned in this report.

I apologise for boring my readers with this nonsense, but it has come to my attention that certain asset
management companies that subscribe to one copy of the Gloom, Boom & Doom Report are photocopying and
distributing the report — in some cases, to up to 35 different individuals. In other cases, the report is being
copied and sent to friends, relatives, etc. Often this is done without any devious intent to breach copyright. A
client of a financial advisory firm or bank may simply ask his portfolio manager to send him the GBD report, and
the portfolio manager complies with the request in order to please the client. However, these are usually people
who can perfectly well afford to subscribe to a report like the Gloom, Boom & Doom Report and, therefore, they
should be required to pay for it.
Vietnam’s “Residential Plus” Market
Peter Ryder and Rick Mayo-Smith, Indochina Capital/Indochina Land
Capital Place, Floor 10, 6 Thai Van Lung Street, District 1, Ho Chi Minh City, Vietnam
Tel: (848) 3910-4855; E-mail: or;

When we first wrote in Dr. Faber’s country’s emerging middle-class is on stabilizing macroeconomic
journal in August 2004, expounding approaching the size necessary to pressures by utilizing more
the merits of Vietnam as an attractive generate self-sustaining internal preventative measures, and it is clear
investment destination, we growth and demand in the property that policy changes are already
highlighted opportunities in the market, particularly the residential underway with the State Bank of
residential, retail, office, and and retail sectors. Vietnam increasing interest rates by
hospitality sectors and noted the 100 bps in November 2009 and
country’s comparable position vis-à- THE TIGER CUB CONTINUES consecutively devaluing the currency,
vis more mature property markets TO GROW first in November 2009 by 5.0% and
around Asia. At that time, we were most recently by 3.3% in February
raising funds for Indochina Land In the past decade, Vietnam, the 2010. As learned in previous bouts,
Holdings, Vietnam’s first real estate world’s 13th-largest country by the timely implementation of
fund, which launched the following population with nearly 90 million, monetary policies is necessary for
year. Five years on, investment has emerged as Southeast Asia’s avoiding boom and bust cycles, and
opportunities in Vietnam’s real estate greatest economic success story, as steady tightening of the monetary
market continue to appear and are evidenced by repeatedly strong GDP policy and careful control of the
even more appealing, as the country’s growth (average annual growth of foreign exchange regime will
growth trajectory has demonstrated 7.25% between 2000 and 2009) ultimately rebalance risks.
its resilience in the aftermath of the driven by rising export turnover, a
global financial crisis. rapidly expanding private sector, DOMESTIC CONSUMPTION
Today, Indochina Land manages robust domestic consumption, and GROWTH WAVE: VIETNAM
three private, closed-ended funds emerging service-based industries, RIDES THE CREST
with US$460 million of equity, including tourism.
which translates into approximately In the past year, the country has Collectively, Asia is projected to
US$2 billion of projects in operations performed exceptionally well generate more new demand in 2010
or under development in Vietnam. considering the global context and, (and onwards) than the United
(We focus exclusively on Vietnam, following China and India, has States — and new demand is the very
peeking occasionally at Cambodia outperformed all other Asian nations measure of economic growth. This
and Laos.) Our core strategy is in terms of economic growth, which demand is primarily driven by a rise
“residential plus” where we develop steadily increased throughout 2009. in domestic consumption and is the
stand-alone for-sale residential Rising from 3.1% in Q1 to 4.5% in impetus behind Asia’s sharp
projects or combine for-sale Q2, Vietnam’s GDP growth rate economic recovery.
residential with other property types accelerated further to 6.0% in Q3 In Vietnam, the rise in domestic
such as retail, office, hotels, and/or and finally to 6.9% in Q4, on the consumption is palpable. The
resorts. This strategy allows us to back of strong domestic demand and headline figure for growth in retail
capitalize on the significant the government’s stimulus program. sales of consumer goods and services
imbalance between quality supply Average GDP growth for the year of alone illustrates this trend, with a
and demand in Vietnam’s housing 2009 was 5.3%, and according to year-over-year increase of 18.6% in
market. It also enables us to limit prognosticators, economic 2009. Accounting for inflation, the
fund equity injections and enhance momentum will escalate to 6.5–8.0% jump was still in the double-digits at
our returns on equity through the in the Year of the Tiger, as global 11% year-over-year, amounting to
optimal use of proceeds from the off- trade recovers and domestic US$64.7 billion. Between 2005 and
plan sale of residences (what we like consumption continues to expand. 2008, growth in Vietnam’s retail sales
to call “equity financing”). Accompanying the economic rose in excess of 20% per annum.
Vietnam’s residential market is turnaround, the annualized inflation Vietnam’s retail sector is buoyed
underpinned by rapid urbanization, rate returned as a macroeconomic by the country’s young population
evolving socio-cultural preferences concern, rising to 6.88% by year end with increasing disposable incomes
related to housing, compelling in 2009, and the expanding domestic and evolving consumer preferences
demographics, consistently positive economy created an uptick in import favoring luxury items. While
macroeconomic growth, private growth, producing a trade deficit of mushrooming brand awareness has
sector wealth creation and socio- US$12.2 billion. Heading into 2010, fueled a rise in modern retail, the
political stability. Additionally, the the government’s agenda has focused most salient fundamentals supporting

March 2010 The Gloom, Boom & Doom Report 15

growth in domestic consumption are
Vietnam’s compelling demographics Figure 1 Population Age Structure (% of Total Population)
and emerging consumer class.
We cannot stress enough
Vietnam’s demographic
phenomenon. For a country of nearly
90 million people, the age structure
of Vietnam’s population is a perfect
pyramid, with approximately 80% of
the populace under the age of 40 and
72% of this majority under the age of
24 (and 40% of the population is 15
years old or younger). The lost
generation caused by the conflicts of
the 20th century has resulted in a
thin layer of citizens over the age of
60, which represents only 8% of
Vietnam’s total population.
Compared to other Asian nations,
Vietnam has the youngest
demographic profile, in contrast to Sources: GeoHive; Nomura Research Institute
the “middle-age” population of China
(very similar in profile to that of the
United States) and the aging
population of Japan, the region’s most
Figure 2 Vietnam Monthly Household Income Growth
industrialized economy (see Figure 1).
Bolstering domestic consumption,
the process of wealth creation has
gained momentum in recent years,
rising alongside the expanding
economy. Official per capita GDP in
major urban areas is far higher than
the national average: approximately
US$2,500 in Ho Chi Minh City
(HCM City) and US$1,700 in the
capital city of Hanoi. Based on
information from quantitative census
reports, household incomes in HCM
City have doubled in the last four
years and increased fivefold in Hanoi
since 2004 (see Figure 2).
However, official incomes are
hard to pin down in an opaque Source: TNS Vietnam
market such as Vietnam, and the
rising number of Mercedes, Bentleys,
Beamers, and Rolls-Royces cruising
the streets demonstrates that an do official figures for GDP and per These factors, compounded by the
upper-crust of consumers has capita income take into account the country’s resilient economy, pave the
emerged. Additionally, incomes are under-reported informal economy.) way for opportunities in real estate,
augmented by remittances from On the back of strong income particularly the residential sector.
overseas Vietnamese living and growth, Vietnam’s young population
working abroad; the official total in forms a very attractive real estate VIETNAM’S RESIDENTIAL
2009 was US$6–6.8 billion, whereas consumer base, and the country’s MARKET
in 2007–2008 the annual figure was high literacy rate — in excess of
more than US$8 billion. We say 90%, one of the highest in the world Vietnam’s urban communities
official because these figures don’t — and entrepreneurial, Confucian continue to benefit from the
take into account the cash that is work-ethic create a highly capable country’s positive economic
carried in for relatives and real estate workforce and foundation for a fundamentals, compelling
investments on a regular basis. (Nor dynamic and sizeable middle-class. demographics, evolving cultural

16 The Gloom, Boom & Doom Report March 2010

preferences, and rapid urbanization,
which is projected to grow from Table 1 Top 20 Urban Agglomerations by Projected Average Real
30.5% in 2009 to 45% by 2020. GDP Growth in 2008–25 (using UN population definitions
(Government figures indicated that 20% and projections)
of the population lived in cities in 1992,
when we first set up shop in Vietnam.)
As Vietnam emerges from the global Average Real GDP Growth in 2008–25
Rank City Country (% per annum)
economic downturn, its long-term
potential looks considerably 1 Hanoi Vietnam 7.0%
promising, particularly in Hanoi and 2 Ho Chi MinK Cit\9ietnam
HCM City, which 3 Changchun China 6.9%
PricewaterhouseCoopers (PwC) 4 Guangzhou China 6.8%
projects to be the top two fastest-
5 Addis Ababa Ethiopia 6.8%
growing urban economies in the
6 Xian China 6.7%
world between 2008 and 2025.
In its report on global cities, PwC 7 Surat India 6.7%
ranked Hanoi and HCM City as first 8 Beijing China 6.7%
and second in a list of the top 20 9 Jaipur India 6.7%
fastest-growing cities, with an average 10 Lucknow India 6.6%
real GDP growth of 7% per annum 11 Chengdu China 6.6%
for that period. Alongside Vietnam, 12 Shenyang China 6.6%
PwC ranked seven cities in India and
13 Kanpur India 6.6%
nine cities within China in the top
14 Shanghai China 6.6%
20 (see Table 1).
Capital values in Vietnam’s 15 Tianjin China 6.6%
residential market are fairly insulated 16 Pune India 6.6%
from global pressures, and while 17 Chongqing China 6.6%
average asking prices in Hanoi’s and 18 Ahmedabad India 6.5%
HCM City’s residential sector 19 Kabul Afghanistan 6.5%
recalibrated in late 2007 (a result of 20 Bangalore India 6.5%
domestic economic overheating,
rising inflation, and concomitant Source:
tight monetary policy and high
interest rates), prices stabilized in
early 2009 and then increased in
HCM City’s mid- to low-end urbanization steams forward à la With a lack of sound investment
markets, while climbing all the way China. alternatives, we perceive residential
back to and above pre-crisis levels in Additionally, socio-cultural real estate as the most favorable asset
Hanoi (see Figures 3 and 4). preferences are transforming the class and believe that newly created
We perceive persistent demand extended family housing format, wealth in Vietnam will continue to
for quality housing for the next where multiple generations and other flow into quality housing
decade, as we estimate that 95% of relatives live under one roof. Given developments, particularly as demand
the nearly 90 million Vietnamese still the rising level of wealth in Vietnam, from end-users outpaces the available
live in sub-standard accommodations. there is a trend to move away from supply — an imbalance illustrated by
Concentrating on Hanoi and HCM the extended family and towards the a paltry level of urban housing area
City, with a combined population of nuclear family, which will result in per capita, which is estimated to be
approximately 15 million people and more demand for individual only 15 m2 on average as of 2009,
an average household size of five accommodation. according to the Ministry of
persons, we estimate that there are In terms of future supply, CB Construction. In comparison, China’s
roughly three million families. If we Richard Ellis Vietnam estimates that average housing area per capita in
then income disqualify 90% of in the next three years, only 60,000 urban cities is approximately 25 m2.
these families, the remainder units will be released in HCM City With the backdrop of strong
equates to approximately 300,000 and 30,000 in Hanoi. However, of economic growth, rapid urbanization,
potential buyers of quality these future projections, a large and an expanding middle-class, we
residences in the near term — a percentage — more than 50% — will believe that Vietnam’s residential
sizeable market that will keep likely not materialize or will be market offers lucrative investment
developers like Indochina Land delayed well beyond 2012, as opportunities. While some property
busy for a long time as the youthful actualizing investments in Vietnam sectors such as the office market are
population matures and remains a challenging endeavor. softening due to over-supply,

March 2010 The Gloom, Boom & Doom Report 17

launching, we have sold
Figure 3 Condominiums in HCM City: Average Asking Price per m2 approximately 75% of the west tower
(USD) and selective units in the east tower,
generating more than US$50 million
in sales proceeds with prices
averaging US$2,700 per m2. Here,
more than 95% of the buyers are
local Vietnamese.
For both of these projects, we
secured debt financing in 2009,
US$44 million for Indochina Plaza
Hanoi and US$39 million for Hyatt
Regency Danang. In both cases, our
gearing ratio is approximately 30% of
total project costs, with the
Source: CB Richard Ellis Vietnam remaining portions of project
financing consisting of residential
presales and equity from the fund.
While this gearing ratio is
comparably low, more dramatic is the
Figure 4 Condominiums in Hanoi: Average Asking Price per m2
contrast in leveraging trends among
Vietnamese buyers of residential real
estate. In Vietnam, the mortgage
market is still a nascent industry,
with unofficial estimates indicating
that less than 15% of home purchases
are made with bank debt financing.
As mortgage products are still new to
Vietnam, and lending rates are
comparatively high (approximately
12–14% p.a.), the common practice
is for buyers to make home purchases
with cash savings or raise the money
Source: CB Richard Ellis Vietnam through unofficial lending channels
(family and friends). But going
forward, we expect the ramping-up of
the embryonic mortgage market will
Vietnam’s residential market in both latter to be built in a subsequent further boost demand and stimulate
a stand-alone and mixed-use phase) and is scheduled for residential sales.
(“residential plus”) context will completion in July 2011. Through
remain a highly attractive asset class year-end 2009, we sold 70% of the INDOCHINA LAND
because of the country’s long-term inventory, generating approximately
fundamentals. US$54 million in sales proceeds. Of Across Indochina Land’s first two real
note, more than 90% of our buyers estate specific funds (Indochina Land
TWO RECENT INDOCHINA are Vietnamese nationals, and we Holdings and Indochina Land
LAND “RESIDENTIAL PLUS” believe that total residential sales of Holdings 2), our investment strategy
DEVELOPMENTS US$54 million is the high-water has focused on the three primary
mark for any comparable resort- markets of Hanoi, HCM City, and
Last year on April 30th, coinciding related project in Asia, if not the the Central Coast, primarily Danang
with Vietnam’s celebration of Victory world, in 2009. and Quang Nam provinces, with
Day (commemorating the April 30, In November 2009, we initiated investments in the residential, office,
1975 end of the “American War”), sales at Indochina Plaza Hanoi, a retail, and leisure (resort and golf
we launched the sale of the US$158 million mixed-use complex course) sectors.
residences associated with our Hyatt (residential, retail, and office) Going forward in our third fund
Regency Danang Resort and Spa on scheduled for completion in (Indochina Land Holdings 3), we
renowned China Beach. This December 2011 with an inventory of will concentrate exclusively on the
development includes a 200-room 390 luxury condominiums located in mega-urban areas of Hanoi and
Hyatt resort plus 174 condominiums, twin towers in the capital city’s My HCM City (aka Saigon), and
27 villas, and 20 maisonettes (the Dinh new urban area. Since therein our focus will be stand-

18 The Gloom, Boom & Doom Report March 2010

alone residential — condominiums Vietnam (and multiple decades in the In July 2008, we held the first
and single family homes — as well business of developing and financing closing of our third real estate fund,
as mixed-use retail/commercial property internationally). With Indochina Land Holdings 3, raising
projects with dominant residential approximately 50 investment US$152.5 million from a group of
components. professionals and 150 project-specific prestigious institutional investors.
Local buyers have become expatriates and local Vietnamese to With the recent improvements in
increasingly sophisticated and implement our projects, our Vietnam’s market fundamentals and
prudent in their evaluation of management team includes some of the identification of attractive
property investments, and we are the most distinguished professionals investment prospects, we have
seeing a shift in preferences and more in the industry, covering a broad resumed our fundraising activities to
mature consumers, who recognize the range of disciplines from deal allow new investors to capitalize on
importance of quality as it concerns sourcing and underwriting to project these opportunities. Specifically for
investing into and living in costing and construction Indochina Land Holdings 3, our focus
residential real estate. As buyers seek management. An extensive network will be the residential markets in
high-quality projects, they will of external consultants including Hanoi and HCM City. We are now
stretch to pay higher prices to ensure architects, designers, engineers, targeting to raise an additional
that they are getting the best lawyers, and accountants US$100–150 million by the end of
available product (widening our complements our team. Q2 2010 and have extended the final
margins). However, there is a limited closing date to July of this year.
supply of quality developments, and OPPORTUNITIES WITH Despite the challenging
this presents an excellent opportunity INDOCHINA LAND investment climate, our core base of
for Indochina Land as we focus on global institutional investors
delivering properties of world-class In the context of global real estate continues to recognize the potential
standards and have developed a investment, Vietnam’s residential of Vietnam’s real estate market. For
brand name in the marketplace that property market has demonstrated more information regarding fund
is synonymous with quality. attractive domestic demand dynamics subscriptions or other investment
Achieving quality delivery of and resiliency, bellied by the long- opportunities, please visit our website
property in Vietnam is difficult. To term fundamentals of consistently at or
meet this challenge, Indochina Land positive economic growth, contact us directly; we’re more than
has built a vertically integrated team compelling demographics, rapid happy to discuss the attractive
of professionals, many of whom have urbanization, wealth creation, and an “residential plus” deals and prospects
more than ten years’ experience in emerging middle-class. that exist in Vietnam today.

March 2010 The Gloom, Boom & Doom Report 19

© Marc Faber, 2010
DISCLAIMER: The information, tools and material presented herein are provided for informational purposes only and are not to be used or
considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities, investment products or other
financial instruments, nor to constitute any advice or recommendation with respect to such securities, investment products or other financial
instruments. This research report is prepared for general circulation. It does not have regard to the specific investment objectives, financial
situation and the particular needs of any specific person who may receive this report. You should independently evaluate particular investments
and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities
mentioned in this report.

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