Real Estate - 201409 - BMI

Q4 2014
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VIETNAM
REAL ESTATE REPORT
INCLUDES 5-YEAR FORECASTS TO 2018
ISSN 2040-770X
Published by:Business Monitor International
Vietnam Real Estate Report Q4
2014
INCLUDES 5-YEAR FORECASTS TO 2018
Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: August 2014
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Vietnam Real Estate Report Q4 2014
CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 9
Political ................................................................................................................................................. 11
Economic ............................................................................................................................................... 12
Business Environment .............................................................................................................................. 13
Industry Forecast .............................................................................................................. 14

Office ................................................................................................................................................... 17
Table: Forecast Office Rental Costs, 2014-2015 (USD per square metre per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Forecast Short-Term Office Net Yields, 2014-2015 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Forecast Long-Term Office Net Yields, 2011-2018 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Retail ................................................................................................................................................... 18
Table: Forecast Retail Rental Costs, 2014-2015 (USD per sq m per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Forecast Short-Term Retail Net Yields, 2014-2015 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Forecast Long-Term Retail Net Yields, 2011-2018 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Industrial .............................................................................................................................................. 20
Table: Forecast Industrial Rental Costs, 2014-2015 (USD per sq m per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table: Forecast Short-Term Industrial Net Yields, 2014-2015 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table: Forecast Long-Term Industrial Net Yields, 2011-2018 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Construction And Infrastructure Forecast Scenario ........................................................................................ 22
Table: Construction And Infrastructure Industry Data (Vietnam 2012-2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table: Construction And Infrastructure Industry Data (Vietnam 2018-2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table: Factbox - Key Elements Of Vietnam's Revised Land Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Macroeconomic Forecasts ............................................................................................... 37

Table: Foreign Direct Investment By Country Of Origin (Top Five) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Industry Risk Reward Ratings .......................................................................................... 43

Asia - Risk/Reward Ratings ....................................................................................................................... 43
Table: Asia - Real Estate Risk/Reward Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Vietnam - Risk/Reward Ratings .................................................................................................................. 44
Market Overview ............................................................................................................... 46

Office .................................................................................................................................................... 51
Table: Historic Rental Costs, 2012-2014 (USD per square metre per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Table: Net Yields, 2012-2014 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Table: Terms Of Rental Contract/Leases, H213 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Retail .................................................................................................................................................... 54
Table: Historic Rental Rates, 2012-2014 (USD per square metre per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Table: Net Yields, 2012-2014 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
© Business Monitor International Page 4

Industrial ............................................................................................................................................... 57
Table: Historic Rental Costs, 2012-2014 (USD per square metre per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Table: Net Yields, 2012-2013 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Competitive Landscape .................................................................................................... 62
Company Profile ................................................................................................................ 66

Becamex IDC Corp .................................................................................................................................. 66
Nam Cuong ............................................................................................................................................ 68
Song Da Construction Corporation ............................................................................................................. 70
Vietnam Construction And Import-Export Corporation ................................................................................... 72
Vingroup ................................................................................................................................................ 74
Demographic Forecast ..................................................................................................... 77

Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Methodology ...................................................................................................................... 81
Industry Forecast Methodology ................................................................................................................ 81
Sources ................................................................................................................................................ 82
Risk/Reward Ratings Methodology ............................................................................................................ 82
Table: Real Estate Risk/Reward Ratings Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

BMI Industry View

BMI View: The international reputation of Vietnam's real estate sector is steadily building. Increasing
levels of foreign direct investment (FDI) are testament to the growing demand for commercial real estate
space in particular, combined with accelerating economic growth and an improving regulatory climate.
Vietnam's commercial real estate sector is strengthening as it increasingly opens itself up to foreign
investment. FDI into the real estate market grew to almost USD10bn in the first half of 2014, making it one
of the largest recipients of foreign capital in the Southeast Asia region. Various factors have combined to
pique the interest of overseas developers and investors.
Firstly, the economy is now on a firmer footing, with growth of 5.9% forecast for 2014, which will provide
a healthier environment for commercial real estate investment as demand grows. We expect Vietnam's
manufacturing and export sectors to pick up, which will boost demand for industrial real estate, particularly
for high-tech space. Meanwhile, the country's young and increasingly urbanised population will ensure
continued strong demand for high quality retail real estate.
Secondly, we note a gradually more transparent climate for real estate investment and a government which
is increasingly receptive to participation from foreign players. Combined with this are the country's
strengthening trade links with the US, China and other regional markets, most notably through the recent
signing of the Trans-Pacific Partnership Agreement.
Lastly, we note the positive effects of Vietnam's rapidly growing tourism sector which is driving
developments of new hotels and resort facilities across the country as well as providing further stimulus for
demand for shopping malls and other modern retail space.
Although some areas suffer from oversupply, in general the development pipeline across the three sub-
sectors we cover is limited, and this will mean that in the medium-term a healthy supply-demand dynamic
can make itself felt across the market.
Recent Developments
■ Israel's Alma Group is investing USD300mn in the development of the Alma Resort in Central Khanh
Hoa Province through its subsidiary Paradise Bay Resort Company Limited. As tourist numbers grow,
there are expected to be beneficial offshoots for other areas of the commercial real estate sector,
particular the retail segment as spending is channelled into the country's growing stock of Western-style
shopping malls.

■ In July 2014, real estate developer Vingroup revealed plans to launch its Vinpearl Resort Phu Quoc on
the district island of Phu Quoc in November of the same year. The resort, which is currently under
construction, measures 300 hectares and will include a five-star hotel complex. Once completed, Vinpearl
Resort Phu Quoc will become the largest 5-star hotel on the island, offering 750 rooms to accommodate
up to 2,000 people.
■ Foreign direct investment (FDI) for both new and expansion real estate projects totalled USD9.53bn, in
H1 2014, placing the real estate sector second to processing and manufacturing as the largest recipients of
foreign capital.
Key BMI Forecasts
■ We forecast that office rental rates will remain stable in Hanoi and Da Nang through 2014 and 2015, but
see a slight fall in Ho Chi Minh City (HCMC).
■ Rents in Hanoi will rise 5% in 2015, but we see no change for HCMC or Da Nang.
■ We forecast industrial rental rates to remain stable over our short-term forecast period.

SWOT
Vietnam Real Estate SWOT
Strengths ■
Growing investor interest and foreign direct investment into Vietnam.
■
Real GDP growth of 5.4% in 2013, as well as lower inflation, indicates the economy is
back on a firmer footing.
■
Development of industrial parks (IPs) and export processing zones (EPZs) is a
significant part of the country's move to modernisation and industrialisation.
■
With slow growth or stagnation in other areas of the world, notably Europe, investors
may increasingly turn to Vietnam for opportunities.
Weaknesses ■
Oversupply in all real estate sub-sectors due to an earlier construction boom.
■
Access to credit for real estate development is restricted.
■
Continued rent decline has forced landlords to create extended incentive packages to
maintain market rates.
■
Corruption, especially regarding land disputes, continues to affect the business
environment.
■
The country's manufacturing sector has lost some of its dynamism as services have
come to dominate the local economy.
Opportunities ■
Foreign interest and FDI in property is projected to rise.
■
In cities, consumer demand is high, driven by increasingly affluent urban population
with larger disposable incomes which have benefited Vietnam's retail sector.
■
Increasing interest in Vietnam from international retailers.
■
Vietnam is an increasingly important export-oriented manufacturing hub, which
should benefit the industrial and office real estate sub-sectors.

Vietnam Real Estate SWOT - Continued
■
The signing of the Trans-Pacific Partnership agreement should boost trade with the
US as well as Vietnam's Asian neighbors.
■
Tourism is a growing industry, with significant investment into tourist-related real
estate. This should have a positive impact on retail real estate.
■
The State Bank continues to conduct a review of financing of the property market,
with a view to increasing crucially needed credit flows to the real estate sector which
has suffered due to a lack of financing options for new developments.
■
To source financing independently of banks, developers are seeking partners as joint
venture partners or for the sale of projects.
■
Improved relations with the US and increased US investment have shown promise as
the country attempts to balance its growing geopolitical tensions with China.
Threats ■
FDI remains dominated by Japan, with over 50% total share representing a
dependency risk should major economic changes occur with a new Japanese
government.
■
Tensions with China over maritime and territorial disputes continue to strain relations
between the two countries, though a recent meeting between leaders has improved
economic cooperation.

Political
SWOT Analysis
Strengths ■
The Communist Party of Vietnam remains committed to market-oriented reforms and
we do not expect major shifts in policy direction over the next five years. The one-
party system is generally conducive to short-term political stability.
■
Relations with the US have witnessed a marked improvement, and Washington sees
Hanoi as a potential geopolitical ally in South East Asia.
Weaknesses ■
Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party.
■
There is increasing (albeit still limited) public dissatisfaction with the leadership's tight
control over political dissent.
Opportunities ■
The government recognises the threat corruption poses to its legitimacy, and has
acted to clamp down on graft among party officials.
■
Vietnam has allowed legislators to become more vocal in criticising government
policies. This is opening up opportunities for more checks and balances within the
one-party system.
Threats ■
Macroeconomic instabilities continue to weigh on public acceptance of the one-party
system, and street demonstrations to protest economic conditions could develop into
a full-on challenge of undemocractic rule.
■
Although strong domestic control will ensure little change to Vietnam's political scene
in the next few years, over the longer term, the one-party-state will probably be
unsustainable.
■
Relations with China have deteriorated over recent years due to Beijing's more
assertive stance over disputed islands in the South China Sea and domestic criticism
of a large Chinese investment into a bauxite mining project in the central highlands,
which could potentially cause wide-scale environmental damage.

Economic
SWOT Analysis
Strengths ■
Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.1% annually between 2000 and 2012.
■
The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20.7% in 2012.
Weaknesses ■
Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy
vulnerable to global economic uncertainties. The fiscal deficit is dominated by
substantial spending on social subsidies that could be difficult to withdraw.
■
The heavily-managed and weak currency reduces incentives to improve quality of
exports, and also keeps import costs high, contributing to inflationary pressures.
Opportunities ■
WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam
greater access to both foreign markets and capital, while making Vietnamese
enterprises stronger through increased competition.
■
The government will in spite of the current macroeconomic woes, continue to move
forward with market reforms, including privatisation of state-owned enterprises, and
liberalising the banking sector.
■
Urbanisation will continue to be a long-term growth driver. The UN forecasts the
urban population rising from 29% of the population to more than 50% by the early
2040s.
Threats ■
Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government focuses too much on stimulating growth
and fails to root out inflationary pressure, it risks prolonging macroeconomic
instability, which could lead to a potential crisis.
■
Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold as they struggle to stabilise the economy.

Business Environment
SWOT Analysis
Strengths ■
Vietnam has a large, skilled and low-cost workforce, which has made the country
attractive to foreign investors.
■
Vietnam's location - its proximity to China and South East Asia, and its good sea links
- makes it a good base for foreign companies to export to the rest of Asia, and
beyond.
Weaknesses ■
Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.
■
Vietnam remains one of the world's most corrupt countries. According to
Transparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123
out of 176 countries.
Opportunities ■
Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech
skills and know-how.
■
Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
liberalisation of the banking sector. This should offer foreign investors new entry
points.
Threats ■
Ongoing trade disputes with the US, and the general threat of American
protectionism, which will remain a concern.
■
Labour unrest remains a lingering threat. A failure by the authorities to boost skills
levels could leave Vietnam a second-rate economy for an indefinite period.

Industry Forecast
BMI View: Accelerating economic growth and an increasingly supportive investment climate are set to
support growth in Vietnam's commercial real estate market in the medium term. However, while rental
rates are forecast to grow or remain stable across the majority of real estate landscape, heavy supply in
some areas of the market mean that contraction is still likely over the coming months.
A strong macroeconomic foundation provides the backdrop to growing demand for commercial real estate
space across the country. Real GDP growth came in at 5.4% in 2013, and we see this rate improving by half
a percentage point to 5.9% in 2014, boosted by improvements in employment and manufacturing output, as
well as increased foreign direct investment (FDI) and spending on infrastructure. Growth is set to accelerate
further to 6.4% year-on-year (y-o-y) in 2015, providing momentum for the key sectors that drive
commercial real estate demand including retail, financial services and manufacturing. Economic growth
over 2014-2015 will be partly driven by an increase in FDI inflows, which we believe will create new
investment opportunities for both foreign and local enterprises, including in the commercial real estate
sector. According to Vietnam's Ministry of Planning and Investment, Foreign capital inflows into the real
estate sector reached an impressive USD9.53bn during the first seven months of the year with government
efforts to create a more receptive and transparent environment for foreign real estate investment seemingly
paying dividends. A steady drip-feed of legislation is making it easier for foreigners and Vietnamese people
living overseas to invest in property in the country.

Economic Factors Combine To Support Growth

Vietnam: GDP, CPI, Interest Rates
10
7.5
2.5
0
2012 2013 2014f 2015f 2016f 2017f 2018f
Vietnam - Real GDP growth, % y-o-y
Vietnam - Consumer price inflation, % y-o-y, ave
Vietnam - Real lending rate, %, ave
National Sources/BMI
Meanwhile, the State Bank of Vietnam (SBV) has continued to rein in inflation, which, at 4.8% year-on-
year (y-o-y) in the first quarter, remains near record lows and well below the central bank's target of around
7.0%. The weak inflation data over the period prompted the SBV to cut its refinancing rate from 7.0% to
6.5% in March. Although we do not expect further cuts this year, the central bank has adopted a dovish
tone, and could step in again should it feel that the economy needs more stimuli. This should further
strengthen Vietnam's increasingly business-friendly business environment, leading to a further influx of
foreign capital into the market.

Stable Interest Rates

State Bank Of Vietnam's Policy Rate, 2008-2018 (end of period)
17.5
15
12.5
10
7.5
2014f
2015f
2016f
2017f
2018f
2008
2009
2010
2011
2012
2013
f = forecast. Source: State Bank of Vietnam, BMI
We expect the external sector (exports and foreign investment) to provide a tailwind to economic activity.
Exports rose by 14.1% y-o-y in Q114, bringing the trade surplus to USD1.0bn for the first three months of
the year and we expect this trend to remain in place with export growth to surpass 10% y-o-y both this year
and next.
Strong acceleration in the country's export performance should provide a welcome boost to the Vietnamese
manufacturing sector, which has seen its share of overall GDP usurped by growth in the services sector over
the past few years. Increased manufacturing activity should in turn support renewed demand for industrial
real estate space.
The government has been making substantial efforts to promote trade and investment ties with other
countries, and we believe this will help underpin exports over the coming months, as well as increase
investment into commercial real estate. The recent signing of the Trans-Pacific Partnership Agreement is a
case in point and will strengthen Vietnam's trade relationship with the US as well as a number of key Asian
partners. Meanwhile, Vietnam's government has also been working to forge stronger ties with the EU,
which is expected to become an increasingly important market for exports going forward.

Office
Office rents are set to see a moderate decline in Ho Chi Minh City (HCMC) in the short term, while we
expect rates in Hanoi and Da Nang to remain stable through 2014 and 2015. In HCMC we believe a decline
in rentals rates will be the result of less-than-stellar demand and high rates in central areas driving firms into
lower-cost locations away from the city centre.
Table: Forecast Office Rental Costs, 2014-2015 (USD per square metre per month)
April-September 2014 2015

Min Max Trend % change
Hanoi 17 38 Same 0
Da Nang 11 18 Same 0
Ho Chi Minh City (Saigon) 16 40 Decrease 2
Source: BMI
In Hanoi a degree of oversupply in the market means that we do not see room for growth in rental rates in
the short term. Also, a number of companies have moved out of Vietnam, leading to a 40% vacancy rate in
Hanoi towards the end of 2013.
We also note that in Hanoi, this issue is exacerbated by the fact that many companies only stay for short
periods, to work on a particular project or deal and then leave the country again. Our in-country sector
sources note that relatively few private companies and big corporations remain active in office markets over
a longer period.
Table: Forecast Short-Term Office Net Yields, 2014-2015 (%)

Hanoi 8-10 8-10
Da Nang 7-8 7-8
Ho Chi Minh City (Saigon) 8 8
Source: BMI

However, our longer-term forecasts are more optimistic, as the economic climate improves. We see stable
yield levels in all three cities to the end of our forecast period, in 2018.
Table: Forecast Long-Term Office Net Yields, 2011-2018 (%)
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Hanoi 8 - 10 4-8 4-6 4-6 4-6 4-6 4-6 4-6
Da Nang 4-5 13-14 13-14 13-14 13-14 13-14 13-14 13-14
Ho Chi Minh City (Saigon) 4.5 - 5 8-15 10-15 10-15 10-15 10-15 10-15 10-15
e/f = BMI estimate/forecast. Source: BMI
Retail
Vietnam's retail sector has been a strong performer as an increasing urban middle class and younger
generations with access to disposable income have stimulated demand, especially for international brands.
However, conditions for foreign investment remains somewhat depressed as low returns, in addition to
increased financing controls, have limited investment opportunity.
Favourable demographics and robust economic growth largely underpin our optimism in the Vietnamese
MGR growth story. According to our estimates, Vietnam's population is roughly 89mn and is forecast to
grow at a healthy clip of 0.9% a year to 2021. More importantly, the country's youthful demographic profile
implies attractive opportunities in the mass-market in the long term.
Vietnam's rapid economic development should assist the emergence of a new consumer class, in major
urban centres at least, which has an interest and can afford to participate in modern consumption methods
such as mass grocery retailing (MGR). GDP per capita in Vietnam is forecast to more than double from an
estimated level of USD1,517 in 2012 to USD4,348 by 2021. This rise in purchasing power will only trigger
a swathe of consumer spending across the country's retail scene.
Rising demand for large shopping complexes and designer boutiques is driving up rates in some areas. This
is particularly true in Hanoi, which will see rental rates rise by 5% over 2015.

Table: Forecast Retail Rental Costs, 2014-2015 (USD per sq m per month)

Hanoi 24 69 Increase 5
Da Nang 9 27 Same 0
Ho Chi Minh City (Saigon) 43 108 Same 0
e/f = BMI estimate/forecast. Source: BMI
Hanoi is affected by low demand, particularly in less prime locations, and high supply, according to our in-
country sources. However, the development pipeline in the city is small, and we thus see scope for rents to
continue moving upwards.
Table: Forecast Short-Term Retail Net Yields, 2014-2015 (%)

Hanoi 8-10 8-10
Da Nang 5-8 5-8
Source: BMI
A stronger long-term picture is painted for HCMC, Vietnam's economic hub and the city where rents are
already significantly higher than any other Vietnamese location, where our in-country sources note high
demand and supply. However, there is a significant variation in rental rates between prime and secondary
locations, which is keeping vacancy rates up in the centre of the city and acting as a brake on rental
increases. Our sources note particular opportunities for international retailers.
In Da Nang rental rates are significantly lower than for the other two cities. Although the city is buoyed by
good supply and demand dynamics, and growing international interest, our sources note that footfall in
luxury malls has been falling, which could preclude significant rental rises.

Table: Forecast Long-Term Retail Net Yields, 2011-2018 (%)
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Hanoi 8-10 4-8 8-10 8-10 8-10 8-10 8-10 8-10
Da Nang 7-10 8-14 5-8 5-8 5-8 5-8 5-8 5-8
Ho Chi Minh City (Saigon) 8-10 8-15 8.0 8.0 8.0 8.0 8.0 8.0
e/f = estimate/forecast. Source: BMI
Japanese mass grocery retailer (MGR) Aeon, which opened its first mall in Vietnam in early 2014, is
planning further expansion in the country. It is planning to build six more shopping centres. Aeon will be
able to establish its own-branded supermarkets, shopping malls, department stores and specialised stores.
With competition quickly heating up in the Vietnamese MGR market, Aeon's plans to establish shopping
malls should give it a greater control over its operating leases for its grocery retail outlets.
Other planned developments include Rose Rock Group and Vung Ro Petroleum's USD2bn Vung Ro Bay
mixed-use tourism, residential and retail development, which is expected to have 200,000 square metres (sq
m) of retail space, according to a January 2014 report in Travel Daily Media. Vung Ro is equidistant from
Da Nang and HCMC.
In Hanoi one of the few projects in the short-term pipeline is Orient Developers' 75,000sq m of retail
space, expected to be completed by the end of 2014.
Industrial
A poor 2012 and the resulting lack of FDI over 2013 hurt the industrial sector in Vietnam, resulting in the
suspension of many planned industrial parks and economic zones in 2012 and 2013. However, a sharp
increase in FDI inflows more recently bodes well for activity in the industrial construction sector.
The government is also increasing spending on infrastructure, which will make Vietnam more
manufacturing-friendly. We see particular opportunities in computer and electronics manufacturing and
carmaking, both of which require high-tech facilities.

Table: Forecast Industrial Rental Costs, 2014-2015 (USD per sq m per month)

Hanoi 3 10 Same 0
Da Nang 3 5 Same 0
Ho Chi Minh City (Saigon) 4 10 Same 0
Source: BMI
However, in the interim, these are more long-term opportunities and industrial rents will remain largely
unchanged from 2013 levels going into 2014 and 2015. In Hanoi our in-country sources note that although
there are currently nine industrial parks in the city, demand has remained static, so in the medium term new
projects may serve to create higher vacancy rates. In the longer term, though, we believe that demand will
increase as Vietnam's manufacturing base and exports grow.
Table: Forecast Short-Term Industrial Net Yields, 2014-2015 (%)

Hanoi 7-8 7-8
Da Nang 6-7 6-7
Source: BMI
HCMC in particular was highlighted by our in country sources as offering less opportunities for new build
developments than its peers as its industrial vacancy rates are already quite high, at around 30%.
Table: Forecast Long-Term Industrial Net Yields, 2011-2018 (%)
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Hanoi 8 - 10 4-8 4-6 4-6 4-6 4-6 4-6 4-6
Da Nang 4-5 13-14 13-14 13-14 13-14 13-14 13-14 13-14
Ho Chi Minh City (Saigon) 4.5 - 5 8-15 10-15 10-15 10-15 10-15 10-15 10-15
e/f = estimate/forecast. Source: BMI

We are seeing increasing FDI into industrial real estate. For example, according to a report in VietNamNet
Bridge in February 2014, China's Texhong Group is planning an industrial zone in Quang Ninh province,
while Thailand's Amata Group is planning a high-tech zone, also in Quang Ninh. Meanwhile, a high-tech
park developed with funding from the Vietnamese government and a grant from South Korea is being built
in Can Tho.
In Hanoi a numer of industrial parks are under construction. They include Phung Hiep, North Thuong Tin,
Dong Anh and Hanssip, and phase 1 of Hanssip industrial park, which is expected to be completed in
mid-2014.
Construction And Infrastructure Forecast Scenario
Table: Construction And Infrastructure Industry Data (Vietnam 2012-2017)
2012 2013e 2014f 2015f 2016f 2017f
Construction industry value, VNDbn 179301.00 191631.00 213886.44 238820.92 265730.38 295200.79
Construction industry value, USDbn 8.6 9.1 10.4 11.7 13.1 14.8
Construction Industry Value, Real 2.09 5.83 5.85 6.41 6.27 6.19
Growth, % y-o-y
Construction Industry Value, % of 5.5 5.3 5.3 5.3 5.3 5.3
GDP
Total capital investment, VNDbn 785337.34 856460.12 996418.55 1174578.19 1368970.88 1562422.89
Total capital investment, USDbn 37.62 40.73 48.45 57.78 67.72 78.12
Total capital investment, % of GDP 24.20 23.90 24.83 26.13 27.20 27.82
Capital investment per capita, USD 414.38 444.24 523.54 618.67 718.97 822.66
Real capital investment growth, % y- 1.87 4.10 10.00 12.00 11.00 8.80
o-y
Construction sector employment, '000 3183.5 3423.9 3679.0 3975.0 4283.0 4606.2
Construction industry employment, % 2.52 7.55 7.45 8.04 7.75 7.55
y-o-y
Active population, total, '000 64081.40 64820.11 65485.17 66093.66 66647.27 67144.29
Construction industry employees as 4.97 5.28 5.62 6.01 6.43 6.86
% of total labour force
Infrastructure industry value, % of 30.7 28.5 27.3 26.8 26.4 25.9
total construction
Infrastructure industry value, VNDbn 55131.75 54574.04 58451.40 64005.52 70061.67 76552.52
Infrastructure industry value, USDbn 2.64 2.60 2.84 3.15 3.47 3.83
Infrastructure industry value real 3.6 -7.6 1.3 4.3 4.5 4.4
growth, % y-o-y

Construction And Infrastructure Industry Data (Vietnam 2012-2017) - Continued
2012 2013e 2014f 2015f 2016f 2017f

GDP
Residential and Non-residential
Building Industry Value As % of Total 69.25 71.52 72.67 73.20 73.63 74.07
Construction
Residential and Non-residential 124169.25 137056.96 155435.04 174815.41 195668.72 218648.27
Building Industry Value, VNDbn
Building Industry Value, USDbn
Building Industry Value Real Growth -0.15 3.78 7.64 7.22 6.93 6.84
(%)
Building Industry Value as % of GDP
Cement production (including 61233901 63144746 66741970 70379277 73803700 76924761
imported clinker), tonnes
Cement production (including 2.4 3.1 5.7 5.4 4.9 4.2
imported clinker), tonnes, % y-o-y
Cement consumption, tonnes 60471131 62309059 65834233 69392688 72727696 75747458
Cement consumption, tonnes, % y-o- 2.1 3.0 5.7 5.4 4.8 4.2
y
Cement net exports, tonnes 762769 835687 907737 986588 1076004 1177302
Cement net exports, tonnes, % y-o-y 28.3 9.6 8.6 8.7 9.1 9.4
e/f = BMI estimate/forecast. Source: BMI, Vietnam General Statistics OfficeI

Table: Construction And Infrastructure Industry Data (Vietnam 2018-2023)
2018f 2019f 2020f 2021f 2022f 2023f
Construction industry value, 327445.49 362945.26 402190.89 445208.91 492766.23 544812.90

VNDbn
Construction industry value, 16.5 18.5 20.7 23.0 25.6 28.4
USDbn
Construction Industry Value, Real 6.02 6.04 6.01 6.00 5.98 5.96
Growth, % y-o-y
Construction Industry Value, % of 5.2 5.2 5.2 5.2 5.1 5.1
GDP
Total capital investment, VNDbn 1770100.14 1984919.49 2219568.73 2479588.99 2767474.23 3082938.62
Total capital investment, USDbn 89.40 101.27 114.12 128.14 143.76 160.99
Total capital investment, % of 28.23 28.42 28.57 28.73 28.89 29.05
GDP
Capital investment per capita, 934.19 1050.59 1175.77 1311.87 1463.04 1629.25
USD
Real capital investment growth, 8.00 7.00 6.70 6.70 6.60 6.50
% y-o-y
Construction sector employment, 4940.2 5295.4 5670.3 6066.6 6485.7 6928.3
'000
Construction industry 7.25 7.19 7.08 6.99 6.91 6.83
employment, % y-o-y
Active population, total, '000 67594.92 68011.07 68401.62 68772.11 69122.44 69448.57
Construction industry employees 7.31 7.79 8.29 8.82 9.38 9.98
as % of total labour force
total construction
Infrastructure industry value, 83508.30 91045.34 99253.03 108183.61 117924.92 128621.66
VNDbn
Infrastructure industry value, 4.22 4.65 5.10 5.59 6.13 6.72
USDbn
Infrastructure industry value real 4.2 4.2 4.2 4.3 4.3 4.5
growth, % y-o-y
GDP
Building Industry Value As % of 74.50 74.91 75.32 75.70 76.07 76.39
Total Construction
Building Industry Value, VNDbn
Building Industry Value, USDbn
Building Industry Value Real 6.67 6.66 6.62 6.55 6.52 6.43
Growth (%)

Construction And Infrastructure Industry Data (Vietnam 2018-2023) - Continued
2018f 2019f 2020f 2021f 2022f 2023f

Building Industry Value as % of 3.89 3.89 3.90 3.90 3.91 3.92
GDP
Cement production (including 80508825 83651087 86753892 90017762 93372288 96814345
imported clinker), tonnes
Cement production (including
imported clinker), tonnes, % y-o- 4.7 3.9 3.7 3.8 3.7 3.7
y
Cement consumption, tonnes 79220092 82236148 85203654 88262337 91521502 94727913
Cement consumption, tonnes, % 4.6 3.8 3.6 3.6 3.7 3.5
y-o-y
Cement net exports, tonnes 1288733 1414938 1550238 1755425 1850785 2086432
Cement net exports, tonnes, % y- 9.5 9.8 9.6 13.2 5.4 12.7
o-y
f = BMI forecast. Source: BMI, Vietnam General Statistics Office
BMI View: Latest data from Vietnam shows that the recovery in the country's infrastructure sector could
take longer than expected and we have reflected this in our forecasts with real growth for the sector revised
down to reach 1.3% in 2014 (previously 4.7%) and average 4.3% per annum between 2015 and 2018
(previously 5.0%). Our downward revision is due to the lack of upside in near-term spending from the
domestic public and private sectors, which is brought on by the dominance and excessiveness of the
country's state-owned enterprises.
Construction activity in Vietnam has made a slow start in 2014. Latest data from the Vietnam General
Statistics Office reveals that the construction sector grew by 3.4% year-on-year (y-o-y) in real terms in
Q114, slower than the 5.8% print in 2013.

Gradually Recovering
Vietnam - Quarterly Construction Industry Value, VNDbn
Source: General Statistics Office, State Bank of Vietnam
We believe the growth slowdown in Q114 is due to the lack of capital spending by the government and the
domestic private sector, the primary drivers of construction activity in Vietnam. According to the statistics
department, construction activity from the public sector only grew by 1.4% y-o-y in real terms in Q114,
while construction activity from the domestic private sector contracted by 1.9% y-o-y in the same quarter.

Domestic Driven, Domestic Capped

Vietnam - Construction Output, 2013, By Source, % of Total
Source: BMI, General Statistics Office
This lack of government spending was corroborated with data on Vietnam's public capital expenditure.
Vietnam's budget for capital investment, which we believe is heavily channelled towards infrastructure
development, experienced negligible growth in Q114 and actually contracted by 10.6% y-o-y in March
2014, a first since November 2013.

Limited By Debt
Vietnam - Capital Investment By State Budget, VNDbn And % chg y-o-y
Source: Bloomberg, General Statistics Office of Vietnam, BMI
In addition, latest data from the statistics department showed that work done in the infrastructure sector was
at a pace much slower than initially estimated, with most of the construction recovery in 2013 driven by the
residential and non-residential building sector. In our opinion, these figures suggest that infrastructure
activity continues to be dampened by the lack of capital spending and could over the coming years, recover
at a pace that is slower than we initially expected. Decades of preferential treatment, subsidies and weak
oversight from the government have not only allowed state-owned enterprises (SOEs) to propagate the
inefficient use of investment capital (for example, the oversupply of airports and ports in the country), but
also fostered a business environment that is uncompetitive and not driven by market forces. This has led to
mounting losses for SOEs that the government is obliged to pay, and a crowding out of the private sector.
Although the Vietnamese government plans to restructure these SOEs and raise funds by privatising several
SOEs, raising electricity prices as well as widening and streamlining its tax base, these measures would
require several years of implementation before they could have a material impact on project financing (see
'Fiscal Deficit To Be Slowly Reined In', February 28 2014). To be sure, Vietnam's fiscal deficit experienced
a slight deterioration in 2013, expanding from 4.5% of GDP in 2012 to an estimated 4.7% of GDP in 2013.

Fiscal Deficit To Narrow Gradually

Vietnam - Budget Balance % of GDP
e/f = BMI estimate/forecast. Source: BMI, Ministry of Finance
Recovery Still Expected
Therefore, given the factors above, we have revised down our forecasts for the infrastructure sector, with
infrastructure activity in Vietnam still recovering over the coming years, but at a slower pace. Real growth
for the sector is now forecast to reach 1.3% in 2014 (previously 4.7%) and average 4.3% per annum
between 2015 and 2018 (previously 5.0%).

Infrastructure Underperformance
Vietnam Construction (And Sum-Components) Industry Value Real Growth Forecasts
f = BMI forecast. Source: BMI, General Statistics Office, State Bank of Vietnam
We continue to expect real growth for Vietnam's infrastructure sector to recover over the coming years due
to the improving climate for infrastructure investment. This improvement is brought on by three main
factors.
Conducive Monetary Conditions
The government is seeking to boost economic growth and has cut its policy rate to 6.50% in March 2013,
the lowest policy rate in more than a decade. Given the lagged impact of monetary easing (the policy rate
was at 7.00% for the majority of 2013 and at the start of 2014), any positive effects of this easing could last
well into 2014 and in 2015. Moreover, inflation remains relatively benign (see 'Downside Risks To Interest
Rate Forecast', March 21 2014), leading us to expect the Vietnamese central bank to maintain an
accommodative policy stance throughout 2014 - we are forecasting the benchmark interest rate to remain at
6.00% by end-2014. This combination of lower price hikes for inputs and record-low borrowing costs
should be favourable for construction activity as construction companies operating in Vietnam would

benefit from a higher return on investment, making them more inclined to take up new projects or carry out
capital-intensive construction works.
Conducive Monetary Environment
Vietnam - Policy Rate, % & Headline CPI - Housing & Construction Materials, % y-o-y
Source: General Statistics Office, State Bank of Vietnam
Regulatory Reforms
The Vietnamese government has made some progress in implementing regulatory reforms that eliminate
existing hurdles to project execution such as permit approvals, environmental clearances and land
acquisition. In November 2013, the Vietnamese government approved an amendment in its land legislation
to limit the potential for land disputes - a perennial problem that has resulted in numerous infrastructure
projects being delayed and suffering cost blowouts (see 'Revised Land Law A Major Step In Tackling
Corruption', December 9 2013). Following that, the government introduced in February 2014 a new
resolution to eliminate unnecessary administration procedures for investment projects (see 'Reforms Needed
To Maximise Benefits Of Airport Privatisation', February 17 2014).

Table: Factbox - Key Elements Of Vietnam's Revised Land Law
• The revised Land Law is effective from July 1 2014.

• Land is owned by the people and managed by the state.
• Land prices are required to be valued by independent agencies based on market prices at the time of assessment as
well as land use purpose and duration.
• New provisions provided on issue relating to ownership and usage of land as well as on compensation and
resettlement of residents subject to relocation.
• The regulation requiring the release of the government's land price list on January 1 of every year is abolished.
• The concession for all types of farming land has been increased from 20 to 50 years.
Source: BMI
The government has also been making progress in reforming the regulatory framework for the use of
public-private partnerships (PPPs) for infrastructure development. The government launched the initial
tendering stage for its first road PPP project in September 2013 (see 'Skeptical Over Dau Giay-Phan Thiet
PPP Timeline', December 6 2013) and is set to pass a fourth draft on its decree on PPP investment in May
2014. During a recent seminar on PPP infrastructure projects held by Ho Chi Minh City officials, investors
had highlighted the absence of a complete legal framework for the lack of progress with Vietnam's PPP
pipeline, which numbered about 38 projects.
With a stronger regulatory environment for PPPs and project execution, Vietnam could secure sufficient
funds to meet its infrastructure needs. We have long highlighted that the Vietnamese government does not
have sufficient funds to meet the country's infrastructure needs and the use of PPPs could aid in meeting this
deficit (see 'Construction Recovery On Track', July 14 2013).
Restructuring of SOEs
Lastly, the Vietnamese government has also ramp up efforts to privatise more state-owned enterprises
(SOEs) and raise foreign ownership limits and voting rights on publicly listed companies. In a conference
on SOE restructuring held in February 2014, the government stated that it plans to privatise (fully and
partially) 432 SOEs within the 2014-2015 period. In addition, the government also ordered SOEs to speed
up the divestments of non-core businesses. For example, state-owned shipping company Vinalines is
required by the government to launch an initial public offering (IPO) in Q115 and has plans to divest a 25%
stake in its wholly-owned asset, the Haiphong Port (the largest port in northern Vietnam) in 2014.

Even though we believe this restructuring process could take several years and not be completed as fast as
the Vietnamese government expect, it is still crucial in unlocking investment for infrastructure development
in Vietnam over the long-term. It could not only allow the Vietnamese government to raise funds for
investment through the monetisation of these SOEs, but also attract greater domestic and foreign investment
into infrastructure due to a less protectionist investment climate (see 'Privatisation Of SOEs Highly Positive
For The Economy And Banking Sector', January 8 2014).
Near-Term Construction Recovery Driven By Buildings
Even though we expect Vietnamese infrastructure sector to take a longer time to recover, this has not
affected our outlook for the broader construction sector. We remain content to maintain our growth forecast
at 5.8% for 2014 and for growth to average 6.2% per annum between 2015 and 2018.
This is primarily because we believe there is greater scope for growth in the residential and non-residential
building sector over the coming years - we have revised up our forecasts for the building sector to reach
7.6% for 2014 (previously 6.4%) and to average 6.9% per annum between 2015 and 2018 (previously
6.8%). Latest data from the Vietnam General Statistics Office shows that the residential and non-residential
building sector has reacted quicker to the positive macro-fundamentals for construction growth in Vietnam -
rising economy activity and a record-low interest rate environment. The building sector had experienced
real growth in 2013, compared to a contraction in the infrastructure sector over the same period.
These positive macro-fundamentals for construction growth are set to persist over the near-term (see
'Economy Still On Track To Hit 2014 Growth Forecast of 5.9%', April 3 2014 and 'Downside Risks To
Interest Rate Forecast', March 21 2014). Combined with the improvements made in the regulatory
environment and competitive landscape of Vietnam's construction sector (see ' Infrastructure Recovery To
Take Longer', April 11 2014), there is significant scope for growth in the buildings sector over the near-
term.
FDI A Major Driver
Another major factor driving our positive outlook for Vietnam's building sector is the sizeable inflow of
foreign direct investment (FDI) into the sector. According to the Ministry of Planning and Investment
(MPI), total FDI inflows into Vietnam grew by 54.5% to reach USD21.6bn in 2013, significantly surpassing
the government's full-year target of USD13bn. We believe the majority of these inflows were channelled
into real estate, manufacturing and processing projects. According to the MPI, the real estate sector

achieved the third highest amount of FDI inflows amongst the 18 sectors between January and November
2013, while 84.1% of Japan's total investment capital into Vietnam, the country's largest foreign investor,
was channelled into manufacturing and processing projects, according to the Ministry of Planning and
Investment.
This trend persisted in Q1 2014. Although total FDI inflows into Vietnam fell by 49.6% y-o-y to reach
USD3.3bn in Q1 2014, processing and manufacturing projects accounted for 69.9% of FDI inflows in Q1
2014, while the real estate sector accounted for 8.6% in the same quarter.
This sizeable inflow of FDI bodes well for activity in the building sector over the near-term. Latest data
from the Vietnam General Statistics Office revealed construction activity from FDI grew by 162.5% y-o-y
in Q114 (though we do highlight that FDI only accounts for 4.4% of Vietnam's construction output in
Q114).
Non-Residential Sector: Rising Domestic Demand
There are also non-systematic factors that are driving our positive outlook for Vietnam's building sector. In
the non-residential building sector, we have seen a recovery in Vietnam's manufacturing production
activity, with the HSBC Purchasing Managers' Index above 50.0 levels since September 2013 (a signal of
expansion in the manufacturing sector). While we remained concerned about the potential for deterioration
in external trade activity (particularly the potential for a renewed downturn in the Chinese economy), the
growing domestic demand for manufacturing goods could increase demand for non-residential buildings to
support production activity.

Staying Strong
Vietnam - Purchasing Managers' Index
Source: BMI, Markit, HSBC
Residential Sector: Early Signs Of Recovery
The residential building sector is also showing early signs of improvement (see 'Early Signs Of A Recovery,
But No Property Market Boom In Sight', August 14 2013). Although the sector is still suffering from
significant oversupply (particularly at the high-end segment) and falling prices, unsold inventory of new
residential units have fallen back to more moderate levels by historical standards. According to data from
the Ministry of Construction, total real estate inventory value reached about VND93trn in February 2014, a
decline of 1.9% or VND1.8trn from December 2013 levels. This decline in total real estate inventory was
brought on by a decline in unsold housing stock in key cities - namely Ho Chi Minh City and Hanoi. The
value of unsold housing stock in Ho Chi Minh City fell by 4.3% to reach about VND17trn in February
2014, while unsold housing stock in Hanoi fell by 2.8% to reach about VND13trn in the same period.
In addition, the rate of decline in housing prices is slowing down, which could indicate growing demand for
property. As the accompanying chart shows, the Vietnam Real Estate Index, which tracks transaction prices

of highly liquid apartments in Hanoi and Ho Chi Minh City, fell by 8.2% y-o-y in August 2013,
significantly lower than the contraction of 15.2% y-o-y in August 2012.
Signs Of Bottoming
Vietnam - Real Estate Index
Source: BMI, Bloomberg
The government's plan to increase the supply of social housing to low-and middle-income groups is also
moving forward, with several large-scale social housing projects and programmes (such as the government's
VND30trn stimulus package for low-interest home loans) being implemented. In August 2013, the Ministry
of Construction announced that there were 50 projects, valued at around USD1bn, registered to convert
34,000 units of commercial houses to social houses.
Lastly, the government is planning to relax restrictions on foreign ownership of real estate in Vietnam,
which could spur additional demand for residential buildings. The proposal for these measures, submitted
by the Ministry of Construction, is currently being deliberated by the government and includes allowing
overseas Vietnamese to trade real estate properties under certain conditions and allowing foreigners to make
investment in the construction and leasing of properties (though they are not allowed to trade properties and
transfer land us rights.

Macroeconomic Forecasts
BMI View: Latest GDP figures show that the Vietnamese economy grew by 5.0% y-o-y in Q114, and we
believe that our 2014 real GDP growth forecast of 5.9% remains in sight. Indeed, we believe that increased
macroeconomic stability, combined with pro-growth policies will help the economy accelerate from 2013
levels. Key downside risks to this view include a faster-than-anticipated slowdown in China as well as the
stalling of the country's reform drive.
Latest data released by the General Statistics office of Vietnam (GSO) showed that real GDP accelerated by
5.0% year-on-year (y-o-y) in Q114, slightly faster than the 4.9% print registered in the Q113. Although it
showed a deceleration from 6.0% recorded in Q413, we believe that the economy is still on track to hit our
2014 growth forecast of 5.9% in 2014. This would mark a slight acceleration from the 5.4% registered in
2013, and is above estimates by the Asian Development Bank, which forecasts real GDP to reach 5.6% in
2014. We believe that the economy will be driven by a strengthening of private consumption, continued
foreign direct investment into key areas of the economy, a more robust external sector, and a rebound in
manufacturing activity over the coming quarters. That said, trend growth for the Vietnamese economy will
average a slower 6.2% over the next decade, compared to 6.5% recorded in the past 10 years.

Still-Strong Growth
Vietnam - Real GDP Growth, (% chg y-o-y)
Source: GSO, BMI
A breakdown of the data show that all sectors of the economy witnessed an acceleration in growth over the
quarter: agriculture, forestry and fisheries, which accounts for approximately 13% of GDP grew by 2.4% y-
o-y in Q114, while the industrial and construction sectors, which account for 40% of GDP expanded by
4.7% y-o-y. Importantly, the services sector which accounts for the lion's share of the economy at 47% of
GDP, accelerated by a stellar 6.0% in Q114, contributing a whopping 2.8 percentage points of the overall
growth figure. Going forward, we expect that the manufacturing, construction and service sectors will
continue to do well on the back of policy driven efforts to stimulate growth.

Services Taking The Lead

Vietnam - Breakdown of GDP By Component (% chg y-o-y) & Share % (RHS)
Source: GSO, BMI
Government Policy To Ensure Growth Remains Strong
We believe that government policies aimed at promoting balanced economic growth, improving the stability
of the banking system, diversifying exports, attracting foreign investment and attracting investment in
infrastructure bode well for the economic outlook. In terms of promoting balanced growth, we note that the
State Bank of Vietnam (SBV) has continued to rein in inflation, which, at 4.8% y-o-y in the first quarter,
remains near record lows and well below the central bank's target of around 7.0%. The slight deceleration in
economic activity in Q114, combined with the weak inflation data over the period prompted the SBV to cut
its refinancing rate from 7.0% to 6.5% in March. Although we do not expect further cuts this year (see:
Downside Risks To Interest Rate Forecast, March 21), the central bank has adopted a dovish tone, and
could step in again should it feel that the economy needs more stimulus. With regard to banking sector
reform, the SBV continues to push forward with reforms aimed at improving the stability of the sector and
increasing credit to the economy. Two key policies are the reduction in non-performing loans, which
according to Moody's, stands at approximately 15%, as well as offloading bad debt off of bank's balance
sheets and on to the newly created Vietnam Asset Management Company (VAMC). By the end of 2013 the
VAMC had purchased approximately US$1.9bn worth of bad debt, and it aims to increase the pace of
purchases over the coming months. Combined, these policies should help stimulate credit growth over the
coming quarters, which will help underpin broader economic activity.

External Sector To Boost Growth
Vietnam - Trade Balance (US$mn) & Three-Month Moving Average
Source: GSO, BMI
External Sector To Provide Tailwind
We expect the external sector (exports and foreign investment) to provide a tailwind to economic activity in
the coming quarters. From a trade perspective, exports rose by 14.1% y-o-y in the first quarter, which
helped bring the trade surplus to US1.0$bn for the first three months of the year and we expect this trend to
remain in place. Indeed, the Vietnamese government has been making substantial efforts to promote trade
and investment ties with other countries, and we believe it will help underpin exports over the coming
months. A case in point was the fourth round of negotiations between Vietnam and South Korea for a
bilateral free-trade agreement which took place in March, and officials are looking to conclude negotiations
by the end of 2014. Moreover, Vietnam has been forging very strong trade and investment ties with Japan in
order to attract funding and expertise to invest and develop the country's infrastructure and manufacturing
sectors.

Table: Foreign Direct Investment By Country Of Origin (Top Five)
Jan-Mar 2014 Jan-Mar 2013
Origin Projects Value US$mn Origin Projects Value US$mn
South Korea 76 534 Singapore 20 2,247
Hong Kong 21 265 Japan 50 299
British Virgin 6 239 Taiwan 5 84
Singapore 15 231 Korea 51 70
Canada has 2 226 Thailand 5 55
Total 252 2,046 Total 191 2,927
GSO, BMI
While foreign direct investment fell by 30% y-o-y in the first quarter of 2014, it was not all bearish in our
view. First, the number of projects increased by 32% y-o-y and second, the origin of the investments was
much more diversified, which could suggests that it is more sustainable (see table). Third, we believe that
foreign investment will continue to pick up as the business environment becomes increasingly attractive,
particularly as more State Owned Enterprises (SOEs) are restructured and the limits on foreign ownership
are raised. Moreover, Vietnam still boasts competitive wages compared to other manufacturing hubs such as
China, Indonesia and Malaysia, which bodes well for cost competitiveness.
Risks To Outlook
Although we believe that the Vietnamese economy is on track to hit our 5.9% growth target, we see
downside risks to this view. First, we still forecast an impending slowdown in China, which would weigh
on regional growth in general. Second, public sector capital investment and spending was flat y-o-y in Q114
and capital investment of the state budget actually contracted by 2.3% y-o-y over the period. While we do
not see this as a large risk, if public spending were to lag, it could act as a drag on headline growth. Lastly,
we highlight that the pace of reforms will be crucial to sustaining economic growth in 2014 and beyond.
Failure by the government to restructure SOE's and provide a framework for foreign investors to participate
in the equitisation of these companies in a timely manner could weigh on investment and growth.

Table: Vietnam - Economic Activity
2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Nominal
GDP,
VNDbn 3 1,809,149 2,157,829 2,779,880 3,245,419 3,584,261 4,012,848 4,494,845 5,033,220 5,616,366 6,269,265
Nominal
GDP,
USDbn 3 101.6 112.9 134.6 155.5 170.4 195.1 221.1 249.0 280.8 316.6
Real GDP
growth, %
y-o-y 3 5.4 6.4 6.2 5.2 5.4 5.9 6.4 6.6 6.4 6.4
GDP per
capita,
USD 3 1,152 1,267 1,497 1,712 1,859 2,108 2,368 2,643 2,957 3,309
Population
, mn 4 88.2 89.0 89.9 90.8 91.7 92.5 93.4 94.2 95 95.7
Industrial
production
, % y-o-y,
ave 1,5 6.7 14.1 10.9 7.0 5.9 7.7 8.4 8.6 8.6 8.5
Unemploy
ment, %
of labour
force, eop
2,6 4.6 4.3 3.6 3.2 3.7 3.5 3.5 3.6 3.5 3.5
Notes: e BMI estimates. f BMI forecasts. 1 at 1994 prices; 2 Urban Area Only. Sources: 3 Asian Development Bank,
General Statistics Office; 4 World Bank/UN/BMI; 5 General Statistics Office; 6 General Statistics Office/BMI.

Industry Risk Reward Ratings

Asia - Risk/Reward Ratings
The Real Estate Risk/Reward Ratings provide a regional country-by-country comparison of the risks and
rewards for the real estate market. They evaluate the industry's current size and growth potential, and take
into account issues that could affect the industry's development, such as commercial bank lending, financial
infrastructure, per capita GDP, urbanisation, real estate prices and lending rates. The score also covers
country- and industry-specific factors, such as political and economic stability, that could inhibit or
encourage development in the real estate sector.
Table: Asia - Real Estate Risk/Reward Ratings
Industry Country Industry Country Real estate

rewards rewards Rewards risks risks Risks rating Rank
South Korea 55.0 74.6 61.9 93.3 69.7 85.1 73.5 1
China 80.0 48.4 68.9 90.0 50.1 76.0 72.5 2
Australia 65.0 91.6 74.3 60.0 74.7 65.1 69.7 3
Hong Kong 52.5 91.7 66.2 63.3 74.6 67.3 66.7 4
Malaysia 55.0 59.5 56.6 83.3 60.1 75.2 65.9 5
India 87.5 37.2 69.9 73.3 38.4 61.1 65.5 6
Singapore 55.0 97.6 69.9 46.7 82.3 59.2 64.5 7
Taiwan 60.0 67.0 62.4 70.0 59.2 66.2 64.3 8
Japan 57.5 84.6 67.0 53.3 73.7 60.5 63.7 9
Indonesia 80.0 35.3 64.4 73.3 37.6 60.8 62.6 10
Philippines 65.0 37.4 55.4 73.3 51.3 65.6 60.5 11
Pakistan 70.0 29.3 55.8 76.7 43.4 65.0 60.4 12
Thailand 45.0 40.1 43.3 83.3 63.4 76.3 59.8 13
Vietnam 65.0 20.0 49.3 73.3 50.5 65.3 57.3 14
Scores out of 100, with 100 the best. Source: BMI

Vietnam - Risk/Reward Ratings
BMI View: Vietnam achieves a score of 57.3 out of 100 in BMI's Asia Pacific Real Estate Risk/Reward
Ratings (RRRs), unchanged from last quarter and last out of the 14 countries surveyed.
Despite this low score, and the mixed fortunes of the commercial real estate market over the recent past,
BMI believes that Vietnam's real estate market is actually one of the fastest-moving business environments
in the region. Rapid expansion has moved ahead of the regulatory environment and the country is a clear
outperformer among South East Asian countries in rewards analysis. However, prolonged instability in the
banking sector, corruption and delays to project development continue to represent significant downside
risks.
Rewards
Industry Rewards
Vietnam scores 65.0 in this category, the same as last quarter. This is indicative of a dynamic emergent
market and reflects our view that Vietnam will continue to be one of the most active and attractive
commercial real estate markets in the region. Demand for new developments, especially in the retail sector,
continues as the population becomes more urbanised and disposable incomes grow. While many projects
faced setbacks during the economic contraction, the government is working hard to attract additional
foreign investment, particularly promoting new industrial parks and economic zones, and is investing
heavily in infrastructure. Meanwhile, the booming tourism real estate market should have a positive impact
on retail real estate.
However, the real estate investment fund market is underdeveloped, and would need to develop further
before Vietnam can move higher up our rankings for this score.
Country Rewards
In terms of country structure components, which include financial and labour market infrastructure,
Vietnam scores well below the regional average, on only 20.0 out of 100. The main reason is a lack of
sufficient financial infrastructure. Lending in Vietnam is characterised by poor operating standards and
dominated by the four state-owned banks, further complicating access to foreign capital. Government
attempts to combat inflation saw interest rates rise to historic highs in 2012. Although this has since
subsided and rates have returned to normal, many banks remain unwilling to lend to foreign investors to

protect their interests. Sub-optimal lending standards have also resulted in very high loan to deposit ratios in
Vietnam's banking sector. In the event of a liquidity shortage, or insolvency triggered by economic stress, a
financial crisis would be a plausible scenario, further restricting funding to the construction sector. Despite
these challenges, the government recently introduced a proposal to remove foreign ownership restrictions
on publicly-traded companies, a move widely seen as an attempt to boost the country's stock market and
attract increased foreign direct investment (FDI) into a stabilising economy.
Risks
Industry Risks
After many projects stalled in 2012, optimism is returning to the real estate sector as economic conditions
steadily improve. A sluggish economy and weak demand across much of the market saw office and retail
rents fall to historic lows and increasingly favourable incentives were required to boost long-term
occupancy rates. Since then the sector appears to have turned a corner as FDI into the real estate market
reaches record levels and the country grows its trade links with the US as well as local partners. The
development pipeline is picking up, and in the medium term we see increased demand developing in all
three sub-sectors we cover. Vietnam scores 73.3 in this indicator.
Country Risk
Instability in the banking sector including prevalent debts and geopolitical tensions in the South China Sea
remain the most significant country risks. Corruption also remains an issue, contributing to the poor scores
within the country risk ratings. Investors see official corruption as one of the biggest hindrances to running
a business in Vietnam, with anecdotal evidence suggesting that 30% of a project's value is pocketed by the
contractor to pay bribes to relevant parties. However, the long-term economic outlook is improving and
legislative structure governing the infrastructure and real estate sectors is also improving, providing a higher
score for country risks than previously, at 50.5.

Market Overview
BMI View: Vietnam is establishing itself as one of Asia's most attractive real estate markets as the signing
of the recent Trans-Pacific Partnership Agreement combined with a relaxation of foreign ownership laws
leads to a surge foreign direct investment (FDI) and M&A activity.
H1 2014 has seen the real estate sector become the focal point of growing international investor interest in
Vietnam. According to Vietnam's Ministry of Planning and Investment, FDI in 2014 for both new and
expansion real estate projects totalled USD9.53bn, placing the real estate sector second to processing and
manufacturing as the largest recipients.
South Korea was listed as the leading source of FDI with USD 1.6bn invested in newly registered and
expanded capital, accounting for 22.6% of total FDI. Hong Kong, Japan and Singapore all recorded FDI of
more than USD700mn.
M&A activity was the main driver of FDI with more than USD5.7bn dispersed in Vietnam's real estate
market during H1 2014 according the Ministry of Planning and Investment and cited by property
consultancy Savills. The firm noted growing participation in M&A activity by Japanese and South Korean
investors, as well as increased demand from Singaporean and Taiwanese investment in commercial office
space.
Interest in Vietnam's commercial real estate sector is growing for a number of reasons. Existing laws
limiting foreign property ownership are in the process of being overhauled, creating a safer and more
transparent climate for real estate investment. A government circular regarding the extension of the payment
of land use charges took effect on June 10 2014 and will allow many developers to delay payment on land
use charges for up to 24 months.
At a meeting by the Vietnam National Congress on June 18 many members demonstrated approval for
the 12th Draft Law of Residential Housing, which aims to create more opportunities for foreign companies
to purchase housing in Vietnam. The passing of the law would make it easier for investors to participate in
mixed-use commercial-residential developments in the country.
Furthermore, the recent signing of the Trans-Pacific Partnership Agreement in July will create increased
opportunities for trade and investment between 12 states in the region. Singapore is among the countries
party to the agreement, which is significant as investors from the city-state have expressed growing interest

in obtaining increased access to the Vietnamese real estate sector. Increased trade volumes are likely to
support the country's industrial real estate segment in particular with the government having invested
heavily in the development of industrial parks (IPs) and economic zones (EZs) in the build-up to the signing
of the agreement.
Foreign investments in Vietnam's industrial parks (IPs) and economic zones (EZs) reached more than
USD110bn by the end of June 2013. Vietnam has 289 IPs, 15 coastal EZs and 28 border EZs. IPs attracted
around 4,665 foreign direct investment (FDI) projects totalling USD70bn, while coastal EZs and border EZs
had drawn around USD40bn and USD700mn investments respectively. Total aggregated registered capital
reached USD7.9bn in H113, representing more than 80% of the new investment capital. Vietnamese
investors invested more than USD713.9mn in the country's IPs and EZs in H113. IPs and EZs' contribution
to the state budget has increased 26% y-o-y to around USD1.4bn.
Economic Recovery Buoys Demand

% Growth: GDP, GDP Per Capita
7 16
6.5 14
6 12
5.5 10
5 8
2012 2013 2014f 2015f 2016f 2017f 2018f
Vietnam - Real GDP growth, % y-o-y (LHS)
Vietnam - GDP per capita, USD, % y-o-y (RHS)
Asian Development Bank/ General Statistics Office
In July SLP International, the country's leading real estate agency met with the Real Estate Association in
Vietnam to discuss opportunities business development and the relaxation on cross-border property

investment. SLP Managing Director Tricia Teo is quoted as saying that Singapore has the investment
sources and private funds requires for real estate projects in the country.
BMI identifies Vietnam's tourism sector as having the potential to flourish as a recipient of international
real estate investment. With Vietnam establishing itself as a tourist hub in Southeast Asia, growing overseas
arrivals and demand for hotel accommodation is already leading to significant investment in new hotel and
resort development.
In July local real estate developer Vingroup revealed plans to launch its Vinpearl Resort Phu Quoc on the
district island of Phu Quoc in November of the same year. The resort, which is currently under construction,
measures 300 hectares and will include a five-star hotel complex. Once completed, Vinpearl Resort Phu
Quoc will become the largest 5-star hotel on the island, offering 750 rooms to accommodate up to 2,000
people.
Israel has also been one of the frontrunners in the country's nascent tourist resort sector with the country's
Alma Group investing USD300mn in the development of the Alma Resort in Central Khanh Hoa Province
through its subsidiary Paradise Bay Resort Company Limited. As tourist numbers grow, there are
expected to be beneficial offshoots for other areas of the commercial real estate sector, particular the retail
segment as spending is channelled into the country's growing stock of Western-style shopping malls.

Tourism Provides Further Boost
Vietnam: Hotels, Tourist Arrivals
15 10,000
7,500
10
5,000
5
2,500
0 0
2012e 2013e 2014f 2015f 2016f 2017f 2018f
Vietnam - Number of hotels and establishments, '000 (LHS)
Vietnam - Total arrivals, '000 (RHS)
However, Vietnam's residential real estate market is not faring so well. The residential market is affected by
oversupply at the luxury end of the market, with developers increasingly interested in social housing.
Meanwhile, demand at the lower end of the market is high, and average selling prices have been falling in
the residential market. This may in turn drive investor interest in commercial real estate, which is in a more
healthy state across the country.
The government is taking steps to stop licensing new commercial housing projects in the country, in a bid to
cut the oversupply of luxury residences, while trying to stimulate the market for lower-income groups.
Hanoi
The capital of Vietnam, Hanoi, is the country's second largest city. Hanoi is set to be the fastest growing
city in terms of GDP when measured between 2008 and 2025. Industry and trade are important facets of
Hanoi's economic makeup, which has historically benefited the industrial rental sector.

The city's central business district (CBD) is centred on the Hoan Kiem neighbourhood, with Trung Hoa
Nhan Chinh emerging as a site for development in the south west of the city. According to Do Thi
magazine, the latter was named as the urban area most in demand in Vietnam before the property market
slump. At present, continued office construction in the city's outskirts, most notably the Cau Giay district,
may reduce demand for CBD space where rents are significantly higher.
Recently completed developments include the Keangnam Hanoi Landmark Tower in addition to the
recently renovated Trang Tien Plaza shopping mall, both located in Hanoi's CBD.
Ho Chi Minh City
HCMC is the largest economic centre in Vietnam with its primary industry being the services sector,
followed by the construction industry. In addition to being the most populous city in the country, HCMC is
a transport, trade and commercial hub both domestically and as a trade gateway to the international arena,
particularly South East Asia. In spite of the currently subdued real estate market, the city is well positioned
to weather the current tumult in the real estate market, with prime retail rents showing particular resilience.
Previously, it was reported that companies are returning to the centre of HCMC as office rentals continue to
plunge in value. However, companies that signed leases at the height of the property market boom in
Vietnam are now considering breaking their contracts and accepting the penalties in order to move to
downtown buildings with better facilities. The second half of 2013 continued to be a tenants market,
especially for large corporations looking to secure favourable long-term leases with upfront cash deals. As
with Hanoi, construction on the city outskirts have continued to suppress CBD rents as companies take
advantage of even lower rents in outer developments. However, much of the construction planned for
HCMC office developments was put on hold during 2012 and has yet to fully resume.
Da Nang
Da Nang is a major transport hub with important commercial links due to its port on the South China Sea,
and is the leading industrial area in Vietnam. Historically, the industrial real estate sector is particularly
vulnerable to rental depression when the export-led economy is suffering. Despite the country's first trade
surplus in 20 years, international demand is not forecast to improve in the near future, making it unlikely
that this sub-sector will see a dramatic recovery.
The Da Nang commercial property market remains a bright spot in the Vietnamese real estate sector as
growth, especially in the hospitality centre, continues as international hotel chains capitalise on Da Nang's

tourist friendly location and historically low rents. The city's central location and access to costal and
cultural landmarks has attracted increasing levels of foreign investment, especially from South Korea, Japan
and Singapore. The Da Phuoc International New Town, a USD250mn planned urban area on reclaimed
land, in addition to the recently completed Hyatt Regency Da Nang Resort and Spa, are prime examples of
this trend.
Because of its bright prospects, Da Nang is expected to draw people from Hanoi and HCMC. It has
relatively low real estate prices. It offers social stability and is a region of commercial growth.
Office
BMI View: Vietnam's office market is typified by low rents compared to other Asia-Pacific real estate
markets. While rental rates have fluctuated over the past quarters, a strong economic backdrop should help
drive demand for commercial space over the next few months.
Low occupancy rates and weak demand have set Vietnamese office rental rates at below average levels for
the Asia-Pacific region over the past few years. At USD38/m2 per month, average top end rents in Hanoi
are about 57% those of the Indonesian capital, Jakarta. Our in-house sources note that demand in the city is
fairly low compared to supply, putting the occupancy rate at 60% in late 2013, which is a familiar picture in
Ho Chi Minh City (HCMC) and other major commercial centres.
Demand for commercial real estate, and in particular office real estate is closely tied with the performance
of the economy as a whole and there are signs that an improving outlook for the Vietnamese economy has
helped stock new demand for commercial space.
Vietnam's GDP grew by 5% year-on-year in the first quarter of 2014, and we forecast 5.9% growth for the
year as a whole. Trend growth for the Vietnamese economy will average 6.2% over the next decade,
making it one of the faster growing economies in the Southeast Asia region.
Continued foreign direct investment (FDI), a more robust external sector and improved manufacturing
output are all boosting GDP growth while playing directly into new demand for office space. According to
consultancy Crushman and Wakefield, demand for commercial property will be underpinned primarily by
manufacturers basing their operations in Vietnam with the technology, insurance and pharmaceutical sectors
among those driving new leasing activity.

GDP Growth
Real GDP Growth, 2008-2018 (% change y-o-y)
6.5
5.5
2014f
2015f
2016f
2017f
2018f
2008
2009
2010
2011
2012
2013
f = BMI forecast. Source: Asian Development Bank, General Statistics Office
Supply And Demand
Oversupply remains the main threat to office rental rates over the coming quarters. In Hanoi an already
precarious supply-demand balance will come under further pressure from planned developments outside
city centres. Many of these projects, initially stalled due to financing issues, have now resumed
construction.
In Ho Chi Minh City (HCMC) we note the lack of new supply coming online or in the pipeline, which
should make the market turn more favourable to landlords, potentially driving rents up and vacancy rates
down in the longer term. However, our in-country sources note that high rental rates in the central business
district (CBD) are driving more firms to move to secondary locations. A significant chunk of demand in the
city, particularly for prime office space, comes from foreign firms, a result of increasing FDI into Vietnam.
In Da Nang, meanwhile, one of the main drivers of the office market has been companies looking to
downsize to smaller premises, which is holding up the lower end of that city's market. Our sources in that
city note that demand primarily comes from Vietnamese, not foreign, firms.

Table: Historic Rental Costs, 2012-2014 (USD per square metre per month)
July-December 2012 January-September 2013 October 2013-March 2014

Min Max Min Max Min Max
Hanoi 16 44 18 35 17 38
Da Nang 11 18 9 16 11 18
Ho Chi Minh City (Saigon) 14 45 19 45 17 44
Source: BMI
Rents And Yields
Rents in HCMC, the country's economic and financial hub, have held up best over the review period, with
top-end rents falling just USD1, from USD45 to USD44 per square metre per month, while bottom-end
rents rose from USD14 to USD17. Meanwhile, in the capital, Hanoi, top-end rental rates have fallen from
USD44 to USD38, a result of ongoing relatively low demand compared to supply in the city.
Da Nang's rents are the lowest of the cities we cover, and have remained stable over our review period, at
USD11-18, as the city is best known as a transport hub, and thus less developed in terms of office real
estate.
Table: Net Yields, 2012-2014 (%)

Hanoi 5-8 7-8 8-10
Da Nang 8-14 8-10 7-8
Ho Chi Minh City (Saigon) 8-15 8-10 8
Source: BMI

Recent Events
The falling rental rates and stalled real estate projects in Vietnam over the past few years have meant only
limited activity in the office real estate market, and only a small pipeline of developments, some of which
have been postponed. However, we do expect this picture to change over the rest of 2014 and into 2015,
with a number of projects currently under development.
Table: Terms Of Rental Contract/Leases, H213
Rent-free months,
Lease terms, years if any
Hanoi 1-5 2-3
Da Nang 2-5 1-2
Ho Chi Minh City (Saigon) 1-3 1-2
Source: BMI
Retail
BMI View: The retail real estate sector, which is supported to a larger extent by the consumer spending
habits of the local population, has been the highest performing area of Vietnam's commercial real estate
market over recent quarters.
The Vietnamese population is increasingly urbanised, as disposable incomes rise, so too does demand for
Western-style retail formats. Some of the most successful Vietnamese real estate companies, for example,
Vingroup, focus on retail real estate, and the number of shopping malls and other Western-style outlets has
risen dramatically.
With a robust economy supporting employment and rising income levels, strong consumer spending is
expected to remain a key driver of demand for retail space for the foreseeable future.
Mass grocery retail (MGR) continues to be a significant growth area, and we see sales in this area growing
significantly over our forecast period, to 2018, mirroring the rise we see in household incomes.

Spending Growth Drives Demand

Vietnam: Spending Per Capita, MGR Sales
16 4,000
3,000
14
2,000
12
1,000
10 0
2012e 2013e 2014f 2015f 2016f 2017f 2018f
Vietnam - Total mass grocery retail sales, USDbn, % y-o-y (LHS)
Vietnam - Total household spending, USD per capita (RHS)
Japanese chain Aeon opened its first Vietnamese store in early 2014, in Ho Chi Minh City (HCMC). The
AEON Mall Tan Phu Celadon has a total retail area of around 50,000 square metres (sq m). The latest
Western MGR to consider entering Vietnam is rumoured to be French major Auchan. Elsewhere in the
retail sector, there are significant levels of foreign investment, not only in terms of foreign real estate
companies, but also foreign retailers moving in to Vietnam. McDonald's opened its first Vietnamese
restaurant in HCMC in February 2014. Our in-country sources cited good supply levels for retail space,
offsetting high demand in some areas, particularly in prime areas. Our Hanoi source noted that supply
outstripped demand in that city, although the difference was less pronounced in the central business district
(CBD). However, our Da Nang source noted both high supply and high demand, particularly from foreign
retailer. Our HCMC source, meanwhile, noted that high rentals costs in central locations were keeping
demand in these areas down.

Table: Historic Rental Rates, 2012-2014 (USD per square metre per month)

Hanoi 24 68 28 50 24 73
Da Nang 10 30 9 27 9 27
Source: BMI
Rents And Yields
Rental rates have remained more or less stable over our review period. The highest rates are in HCMC,
Vietnam's economic centre, where top-end rents are USD108 per sq m per month, and bottom-end rents are
USD43 per month. In Hanoi they are USD73 and USD24, and in Da Nang USD27 and USD10. The big
difference in the rates, both between and within cities, shows how location can put a significant premium on
rental levels.
Over our review period yields moved in different directions in the three cities we cover, rising from 5-8% to
8-10% in Hanoi, and falling from 8-15% to 8% in HCMC and from 8-14% to 508% in Da Nang, another
sign of the increasing stability in the market in the latter two cities.

Hanoi 5-8 7-8 8-10
Da Nang 8-14 8-10 5-8
Source: BMI
Recent Events
In late 2013 Vingroup's Vincom Mega Mall Times City, in Hanoi, opened. The mall contains 300 stores,
almost 90 restaurants, a cinema, acquarium and other attractions.

Meanwhile, MGR expansions continued throughout 2013, with Son Ha and Ocean Retail among those
opening new stores, and Malaysia's Parkson and South Korea's Lotte opening new shopping centres. In
2014 Japanese MGR opened the AEON Mall Tan Phu Celadon, its first Vietnamese mall, in HCMC, and
Thailand's Central Group now has a Vietnamese presence, under its Robins Department Store brand, in
Hanoi.
Lease terms, years Rent-free months, if any

Hanoi 1-5 1
Da Nang 3-10 1-3
Source: BMI
Industrial
BMI View: The performance of the industrial sector throughout 2012 and 2013 was understandably
influenced by significant macroeconomic uncertainty, with disappointing growth amid already low rates in
all three cities that we cover. However, 2014 has seen increasing investment into Vietnam and the country's
growing status as a manufacturing export hub are having a positive effect on demand for warehousing and
other industrial space. The finalising of the Trans-Pacific Partnership Agreement in July should provide
further emphasis for growth over the next few years.
Demand for industrial real estate space follows a strong correlation with trade volumes with the latter
driving demand for warehousing, logistics parks and other industrial facilities. With Vietnam emerging as
an increasingly vital regional manufacturing and export hub, demand for industrial space has grown
considerably over the past decade. However, a decline in the country's economic growth and a deteriorating
investment climate have led to fluctuations in rental rates during the past two years as the manufacturing
sector, as a share of Vietnam's GDP, shrank from 20% in 2005 to 17-18% in 2012 and 2013. A decline in
manufacturing has been further impacted by the growth of Vietnam's services sector which now accounts
for the lion's share of the economy at 47% of GDP. However, it is now on an upswing, as the
macroeconomic and investment climates improve. Official data cites the computer and electronics segment
as having seen the largest growth, which bodes well for high-tech, modern industrial real estate.

Trade Recovery To Support Industrial Demand

Vietnam: % Real Growth Exports, Imports
20
15
10
5
2012 2013e 2014f 2015f 2016f 2017f 2018f
Vietnam - Real export growth, % y-o-y
Vietnam - Real import growth, % y-o-y
BMI Country Risk
Vietnam's trade sector should also benefit from the recent signing of the Trans-Pacific Partnership
Agreement which should strengthen the country's trade links with the US as well as solidifying its status as
an export hub for China as well as neighbouring Southeast Asian states. Further to this, the Vietnamese
government has been making substantial efforts to promote trade and investment ties with other countries,
and we believe it will help underpin exports over the coming months. A case in point was the fourth round
of negotiations between Vietnam and South Korea for a bilateral free-trade agreement which took place in
March, and officials are looking to conclude negotiations by the end of 2014. Moreover, Vietnam has been
forging very strong trade and investment ties with Japan in order to attract funding and expertise to invest
and develop the country's infrastructure and manufacturing sectors.
Exports rose by 14.1% y-o-y in Q1 2014 and we expect this trend to remain in place with our Country Risk
team forecasting shipments have to grown by 10% by the year's end and a further 11.5% in 2015.
A growing trade surplus should translate into increased rental rates across the industrial real estate segment,
though this will be offset against high levels of supply and relatively low vacancy levels at present. In Hanoi

our sources note that in the short term there has not been much of an increase in demand for industrial real
estate. According to our sources, there are a total of nine industrial parks in the city, with more under
construction.
Ho Chi Minh City is also witnessing growth in its supply of industrial space with US-based Terumo
BCT announcing the opening of a manufacturing facility near the city in August 2014 following a
USD100mn investment. The property covers 91,440 square metres and supports the expansion of Terumo
BCT's business on a global basis. The operations will begin in early 2015 and is likely to accommodate
more than 900 new associates.
Table: Historic Rental Costs, 2012-2014 (USD per square metre per month)

Hanoi 3 9 3 9 3 10
Da Nang 3 6 3 5 3 5
Source: BMI
Rents And Yields
Industrial rents are significantly lower than rents for the other two sub-sectors we cover. However, despite
the turbulence elsewhere in Vietnam's real estate industry over the past few years, industrial rents have
remained fairly flat at both the top and bottom ends of the market, and across all three cities that we survey,
rising slightly in Hanoi and Ho Chi Minh City (HCMC) and falling slightly in Da Nang. Rents are highest
in HCMC, at USD11 per square metre (sq m) per month at the top end and USD5 at the bottom end, and
lowest in Da Nang, at USD5 at the top end and USD3 at the bottom end. Meanwhile, yield variations have
narrowed considerably in all HCMC and Da Nang, and have widened in Hanoi.


Hanoi 5-8 7-8 7-8
Da Nang 13-14 10-14 6-7
Source: BMI
Recent Events
We note that improvements to the country's infrastructure should boost its industrial sector, making exports
easier and cementing its appeal for foreign firms seeking a manufacturing base in the region.
Recent announcements on new road projects include the Phap Van-Cau Gie highway build-operate-transfer
(BOT) project, the expansion of the NH-1A Cam Ranh City-Cam Lam District (Khanh Hoa province) BOT
project, the Danang-Quang Ngai expressway and the Ho Chi Minh City (HCMC)-Long Thanh-Dau Giay
Expressway. Meanwhile, a north-south high-speed railway line is also a possibility, as is a high-speed line
connecting Laos and Vietnam.
Meanwhile, although curtailed, port development is still underway. The Vietnam Maritime Administration
announced in early 2013 that it would focus on building large deep-sea ports in Hai Phong's Lach Huyen
and Ba Ria-Vung Tau's Cai Mep-Thi Vai port complexes, as well as converting the remaining ports in the
central region and the Mekong Delta into special-use ports to transport materials for thermo-power plants.
Construction at Lach Huyen port project started in April 2013. The port, due for completion in 2016, will
have modern cargo handling equipment. It will be capable of handling container ships of up to 8,000
twenty-foot equivalent units (TEUs).

Lease terms, years Rent-free months, if any

Hanoi 1-50 1- 6
Da Nang 40-50 1
Source: BMI

Competitive Landscape
BMI View: Vietnam's real estate sector has historically been dominated by state enterprises, but has been
opening up to private investment both from within Vietnam and internationally.
The real estate and construction markets consist of government-owned entities, listed corporations and
privately owned companies. Becamex IDC, Housing And Urban Development Corp (HUD) and the
Song Da Construction Corporation are state-owned. Private enterprise players include Vingroup,
COTECCONS Group, Nam Cuongm, Vinaconex and the Vietnam Construction And Machinery
Installation Corporation (Lilama).
After a period of loose lending standards in the real estate sector, the government, which aggressively
combated inflation throughout 2012, has tightened monetary policy and lending conditions, making it
increasingly difficult to fund real estate projects. As a result, developers have been forced to look beyond
banks to source funding. There is a trend for more mergers and acquisitions (M&A), and this is expected to
continue throughout 2014. Developers are also seeking joint venture (JV) partners or are looking to sell
property.
A significant amount of foreign direct investment (FDI) into Vietnam's real estate sector comes from
overseas, notably Japan, South Korea and regional real estate leaders Singapore and Hong Kong. FDI from
China, an increasingly important investor in Vietnam, is rising.
China's Texhong Group has won a contract for infrastructure in Hai Ha Industrial Park, Quang Ninh
province. Hong Kong-based Sunwah Group is active in residential and office real estate in Vietnam, and
also plans to build an industrial park and a resort in the country.
With a relatively modest growth outlook for most of the Western world, investors and companies are
increasingly looking to emerging markets for new opportunities, and we expect foreign investment into
Vietnam's real estate sector to increase. The fact that the cyclical real estate market continues to soften in
Vietnam means that the growth opportunities now available due to the low base of affairs and stalled
pipeline are dynamics that are investor-favourable for those with adequate capital and patience to await the
upturn in the market for almost guaranteed returns.
Real estate companies based in Singapore are showing sustained interest in investing in the Vietnamese
property market, according to the secretary-general of the Vietnam Real Estate Association, Phan Thanh

Mai. Singapore's CapitaLand, for example, is planning to boost its investments in Vietnamese real estate
projects to almost SGD2bn (USD1.55bn) from SGD400mn (USD310.3mn) over the next three to five years.
Investors from South Korea and Israel, among others, have shown particular interest while many domestic
investors are looking to partner those from overseas. In July 2014, Israeli developer Alma Group revealed
an investment of USD300mn in the development of the Alma Resort in Central Khanh Hoa Province
through its subsidiary Paradise Bay Resort Company Limited. As tourist numbers grow, there are expected
to be beneficial offshoots for other areas of the commercial real estate sector, particularly the retail segment
as spending is channelled into the country's growing stock of Western-style shopping malls. In June 2013
CBRE announced the acquisition of its Vietnamese affiliate, CBRE Vietnam, which has been affiliated with
CBRE for 10 years, will become a fully integrated part of CBRE's South East Asian operations.
A combination of push and pull factors are likely to see Chinese investment in Vietnam continue to rise
exponentially over the coming years. On the 'push' side, continued government support for outbound FDI by
the Chinese government will continue, while on the 'pull' side, Vietnam's infrastructure development will
allow companies to harness the country's improving relative competitiveness and strong economic growth
outlook.
In light of increasing potential for FDI, the authorities in Vietnam are looking to capitalise on any emergent
investor interest.
Real Estate Investment Funds
Since September 2012 real estate investments fund (REIF) activity has been permitted in Vietnam. REIFs
are allowed to invest in completed real estate developments, but are not allowed to develop or finance real
estate projects themselves.
HAGL Land, part of the HAGL Group, primarily develops apartment buildings, but also does some
commercial and office developments.
VinaCapital Real Estate Ltd is part of VinaCapital, and according to the company's website the company
provides real estate advisory, development and management services for the property investments of
VinaCapital funds. VinaCapital invests in a range of real estate sub-sectors, including hotels, residential and
office. VCRE has made real estate investments totaling over USD1.0 billion since 2003, primarily involving
the holdings of VinaCapital's flagship real estate fund, VinaLand Limited. VinaLand Ltd trades on the

Alternative Investment Market (AIM) in London, and invests in residential, office, retail, hospitality and
township projects.
Indochina Land is part of Indochina Capital, and it manages three private, closed-ended real estate funds.
These funds have around USD500 million of committed capital, which translates into over USD2 billion of
projects currently in operation and under development in Vietnam. The company operates in numerous real
estate areas, including office, retail, tourism and residential.
Son Kim Land, part of the Son Kim Group, is active in residential, office and retail real estate, and is
based in Ho Chi Minh City.
In terms of foreign investment in the sector, Japan Asia Vietnam, founded in 2008, operates in developing
and investing in real estate projects, including offices, hotels, residential projects. Singapore-based
Mapletree has a Vietnamese branch, It is active in logistics parks as well as office space.
Leading Vietnamese property developer Vingroup has five shopping malls in the country, Vincom Mega
Mall Times City (Hanoi), Vincom Mega Mall Royal Cityn (Hanoi), Vincom Center Long Bien, Vincom
Center Dong Khoi (Ho Chi Minh City) and Vincom Center Batrieu.
The Vietnam Infrastructure and Property Development Group is focus on Ho Chi Minh City, and has a real
estate portfolio that includes commercial, mixed-use, tourist and residential developments, mainly in Ho
Chi Minh City (HCMC), but also elsewhere in Vietnam.
Novaland focuses on residential and mixed-use developments. Projects with a retail component include
Sunrise City and Icon 56 in HCMC.
Tan Tao Investment and Industry Corp owns the Tan Tao Industrial Park, among other assets. The
company's main areas of interest are developing industrial parks and associated new urban areas,
developing infrastructure.
Amata, a Thailand-based company that develops and manages industrial real estate, runs Amata City, and
industrial park in Bien Hoa, near HCMC, and is planning a second, high-tech, park in Quang Ninh province,
in conjunction with Vietnamese company Tuan Chau An Lac Ltd.

Texhong is building a textile-focused industrial park, Hai Ha Industrial Park, in Quang Ninh province.
Construction of the park is set to begin in July 2014, with five factories and three warehouses due to be
finished by the end of 2014, according to a report in the Saigon Times.

Company Profile
Becamex IDC Corp
SWOT Analysis
Strengths ■
State financed.
■
Over 35 years experience in the industry.
■
Diverse operations across a variety of construction and real estate sub-sectors.
Weaknesses ■
Geographic limitations.
■
Business model and operations are subject to government reassignment or
modification.
Opportunities ■
Co-operation with BIDV for developments in Binh Duong.
■
Focus on the development of industrial and economic infrastructure.
■
Increasing regional partnerships with Japan and Singapore for investment and project
collaboration.
Threats ■
Susceptible to any vulnerability in the Vietnamese economy.
■
Structure may inhibit growth and increased foreign cooperation.
Company Overview State-owned Becamex IDC, officially Investment and Industrial Development
Corporation, is structured as a parent-subsidiary corporation. It was established in 1976
and has its headquarters in Binh Duong province. It has 28 subsidiaries involved in,
among other areas, securities, finance, insurance, banking, construction and real estate.
Major activities include the development of residential and industrial parks, real estate
trading, civil construction and project investment.
According to its website, the company and subsidiaries are currently investing in and
managing six industrial parks in Binh Duong province, one industrial park in Binh Phuoc
and two parks in north Vietnam.

It is also involved in residential developments, including Binh Duong New City and
Becamex City Centre.
Strategy Becamex focuses its developments on its home province of Bing Duong, but also
operates across Vietnam. Its strategy is to become a limited liability company, in order
to maximise its potential.
According to its website, it hopes to 'develop multiple business lines, focus on the
development of industrial infrastructure - transportation - urban areas to lay the
foundation for promoting the development of other business lines.'
Particular areas of investment will include industrial infrastructure, including centralised

and specialised industrial zones, construction of urban developments, as the
development of health and education facilities.
Company Details ■ Becamex IDC Corp
■ 230 Binh Duong Avenue

Thu Dau Mot City
Binh Duong Province
Vietnam
■ Tel: 84 650 382 2655
■ Fax: 84 650 382 2713
■ becamex.com.vn

Nam Cuong
SWOT Analysis
Strengths ■
Engages in business across a range of construction and infrastructure sub-sectors.
■
Leading company in the field of urban development.
■
Nearly 30 years of successful trading in the industry.
Weaknesses ■
Geographic limitations.
Opportunities ■
Expansion in the tourism sector.
■
Collaboration with international partners.
■
Modernisation and Industrialisation of Vietnam.
Threats ■
• Increasing competition in the urban development sector.
Company Overview Initially established in 1984 as a waterways transport company, Nam Cuong now
engages in residential, industrial and infrastructure construction, hotel management and
tourism, as well as trade and finance.
Nam Cuong has eight urban area projects in development, including several in Hanoi as
well as a major development in Hai Duong. It is also developing a number of new urban
areas in Hai Phong, Nam Dinh and Kien Giang.
Strategy Through the building of infrastructure, urban development, hospitality and tourism, the
Nam Cuong Group aims to deliver quality investment and exceptional services to
contribute to the sustainable industrialisation and modernisation of Vietnam. This is
achieved through the company's 'six pillars' scheme, which aims to:
■ Produce quality of the highest standards;

■ Provide exceptional professional service;
■ Become respected as a trusted and valued partner;
■ Create an encouraging and productive working environment;
■ Uphold and adhere to social responsibility;
■ Build secure foundations for sustainable growth.

Financial Data The company does not release financial statements.
Operational Data ■ The company is privately owned and is not listed.
Company Details ■ Nam Cuong
■ 70 Linh Lang St
Cong VI Ward
Ba Dinh District
Hanoi
Vietnam
■ Tel: +84 4 2766 4555
■ Fax: +84 4 3766 2438
■ www.namcuong.com.vn

Song Da Construction Corporation

SWOT Analysis
Strengths ■
Breadth of experience across a wide range of construction sectors.
■
Over 50 years of market experience.
■
The company has a dedicated financial arm to supervise the financial health of the
company.
Weaknesses ■
Lack of geographic diversification.
• Lack of timely financial reporting.
Opportunities ■
Modernisation and industrialisation of Vietnam.
■
Internationally funded opportunities such as the Truong Son Hydropower project
financed by the World Bank.
Threats ■
Company Overview The Song Da Construction Corporation is a state-owned company, founded in 1960,
which undertakes various construction activities. Its areas of expertise include trading
real estate, building hydro-power plants, transport engineering, civil and industrial
works, installing power transmission lines and substations, producing construction
materials such as steel and cement, providing consultancy services in construction,
import and export of materials such as steel and cement, and construction technology.
Strategy Song Da has set up a financial company to manage and enlarge its finances, which is
also responsible for listing the corporation's shares and for issuing corporate bonds.
The corporation has a number of power projects under way, including the 342-
megawatt (MW) Tuyen Quang Hydropower plant in Na Hang district. Total value of the
investment is around USD500mn. The project necessitates the resettling of up to 3,500
households.
Across the border in Laos, Song Da is heading the Viet-Lao Power Investment and
Development Joint Stock Company consortium to build the XE Kaman Power Plant. The
plant will have a capacity of 250MW, and is being developed under the build-operate-

transfer model with a 30-year lifespan, including construction time. More than 4,000
Vietnamese workers will be moved to Laos to build the project.
Recent In April 2014 Song Da Corporation was among firms to be awarded a contract by the
Developments Viet Nam Expressway Corporation to construct part of the Da Nang-Quang Ngai
expressway. Construction was set to last 35 months.
Company Details ■ Song Da Construction Corp
■ Song Da Tower
Pham Hung St
Tu Liem District
Hanoi
Vientnam
■ Tel: +84 4 3854 1164
■ Fax: +84 4 3854 1164
■ www.songda.vn

Vietnam Construction And Import-Export Corporation
SWOT Analysis
Strengths ■
One of the largest construction companies in Vietnam.
■
Experience across a breadth of industry sub-sectors.
■
Manages more than 40 subsidiaries.
Weaknesses ■
Relative newcomer to the market.
Opportunities ■
Modernisation and industrialisation of Vietnam.
■
Expansion into Africa and the Central and Eastern Europe to be further exploited.
■
Focus on two main business areas: property development and construction, which
are strengths and competitive advantages of the corporation.
Threats ■
■
Infrastructure project development was hard hit in 2012 by increased lending and
capital scarcity, with many projects yet to resume.
Company Overview Vinaconex, established in 1998, is one of the largest construction companies in
Vietnam. Its areas of operation include property development, construction, design and
industrial production. It works on both private and public sector projects, in Vietnam
and overseas, via a large number of subsidiaries.
Strategy The company's mission is to build up Vinaconex as a leading group in the fields of
construction and property development, with effective operation, sustainable
growth, high awareness of corporate society responsibility, and active contribution to
the country's development.

Company Details ■ Vinaconex
■ Vinaconex Tower
34 Lang Ha St
Dong Da District
Hanoi
Vietnam
■ Tel: +84 4 6284 9234
■ Fax: +84 4 6284 9208
■ www.vinaconex.com.vn

Vingroup
SWOT Analysis
Strengths ■
One of Vietnam's largest real estate developers, and the largest registered on the
country's stock market.
■
Diverse operations across a breadth of sub-sectors.
■
Strong financial capacity.
■
Board has two foreign directors.
Weaknesses ■
Comparative newcomer to the market.
■
Perception of concentrated wealth and shares among family and friends of the owner.
Opportunities ■
Increased international investment, especially from the US and Japan.
■
Plans for internationalising shares through an IPO on an international stock market.
■
Future adjustment of available room of foreign ownership to above 49%.
Threats ■
• Difficulties in the transition from domestic to international player.
Company Overview Vingroup Joint Stock Company (formerly Vincom Joint Stock Company and the
Vietnam General Commercial Joint Stock Company) was established in 2002 and is
headquartered in Hanoi. Vingroup is publicly listed. Its initial public offering (IPO) was
carried out in 2007.
Vingroup is one of Vietnam's largest real estate developers. It operates through

numerous subsidiaries to develop and construct offices, retail outlets and residential
projects, and to provide financial services. The company's key projects include the
Vincom Center in central Ho Chi Mih City (HCMC), the high-end Vincom Hai Phong
retail, office and residential complex in the heart of Hai Phong, the Vincom Financial
Tower in HCMH, which the company has touted as Vietnam's Wall Street, the Eco City
residential project in Hanoi and the upscale residential Royal City Project in Hanoi.

The company is involved in real estate, tourism and hotels, healthcare services, fitness
and beauty care and education. At the end of 2013 it had 44 subsidiaries.
Current real estate projects include Vincom Hai Phong, a mixed-use development
incorporating a shopping malls, office space and apartments. Vincom Hai Phong
consists of three towers, and will have a gross floor area of 28,020 square metres (sq m)
of retail space and 5,000sq m of office space.
In July 2014, the company revealed plans to launch its Vinpearl Resort Phu Quoc on the
district island of Phu Quoc in November of the same year. The resort, which is currently
under construction, measures 300 hectares and will include a five-star hotel complex.
Once completed, Vinpearl Resort Phu Quoc will become the largest 5-star hotel on the
island, offering 750 rooms to accommodate up to 2,000 people.
Strategy Vingroup has been striving to become the leading multisectoral business group in
Vietnam and in the region.
Vingroup aspires to establish a Vietnamese brand, demonstrating Vietnamese

intellectual stature and pride in the international arena.
The group is planning to list overseas in 2014.
Recent In April 2014 Vingroup subsidiary Xavinco Land Joint Stock Company sold 21.6mn
Developments Vingroup shares through an accelerated bookbuilt offering. The shares raised
USD70mn. According to Vingroup, the transaction 'marks a strategic step for Vingroup,
as it continues to expand its reach and diversify its shareholder base to a wider set of
investors'.
In December 2013 the Vincom Mega Mall Time City was officially opened. The Hanoi
shopping and entertainment complex has more than 300 shops and Vietnam's largest
cinema and an aquarium.
July 2013 saw the completion of Vincom Mega Mall Royal City, listed by Forbes
Magazine as Asia's biggest underground retail and entertainment complex, which
includes over 600 shops in roughly 230,000sqm. The mall is part of the larger Royal City
project within Hanoi, and upscale urban development centre which will feature retail,
residential and office space when completed. The company also announced plans for
an international finance and banking sector in the Thu Thiem zone of HCMC in late July.
Warburg Pincus, the private equity owner of Neiman Marcus, plans to invest up to
USD325mn into Vingroup, including acquiring a 20% stake in the Retail property unit.
The move comes as Vietnam's finance ministry continues to push for relaxed
regulations on foreign ownership of publicly traded companies.

Financial Data In Q114 the company had an operating profit of VND1.528.4bn, with net profit after tax
of VND1,068.3bn.
For 2013, the company reported net revenue of VND18,378bn, profit before tax of
VND9,740bn and earnings per share of VND7,896. The company's total assets were
worth VND75,773bn, and it had a market capitalisation of VND62,594bn.
Company Details ■ Vingroup
■ 7 Bang Lang 1 St
Viet Hung Ward
Long Bien District
Hanoi
Vietnam
■ Tel: +84 4 3974 9999
■ Fax: +84 4 3974 8888
■ www.vingroup.net

Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is
the total population of a country a key variable in consumer demand, but an understanding of the
demographic profile is key to understanding issues ranging from future population trends to productivity
growth and government spending requirements.
The accompanying charts detail Vietnam's population pyramid for 2013, the change in the structure of the
population between 2013 and 2050 and the total population between 1990 and 2050, as well as life
expectancy. The tables show key datapoints from all of these charts, in addition to important metrics
including the dependency ratio and the urban/rural split.
Population Pyramid
2013 (LHS) And 2013 Versus 2050 (RHS)
Source: World Bank, UN, BMI

Population Indicators
Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050
Source: World Bank, UN, BMI
Table: Vietnam's Population By Age Group, 1990-2020 ('000)
1990 1995 2000 2005 2010 2013e 2015f 2020f

Total 68,910 76,020 80,888 84,948 89,047 91,680 93,387 97,057
0-4 years 9,315 9,323 7,128 6,898 7,229 7,152 7,012 6,575
5-9 years 8,606 9,212 9,253 7,023 6,791 7,052 7,181 6,968
10-14 years 7,857 8,541 9,162 9,117 6,899 6,619 6,757 7,147
15-19 years 7,359 7,788 8,492 9,050 9,011 7,686 6,866 6,726
20-24 years 6,644 7,222 7,673 8,333 8,874 9,148 8,936 6,802
25-29 years 6,006 6,470 7,065 7,471 8,112 8,528 8,772 8,837
30-34 years 5,138 5,890 6,352 6,910 7,286 7,703 8,022 8,680
35-39 years 3,888 5,065 5,803 6,242 6,763 7,011 7,208 7,940
40-44 years 2,463 3,826 4,994 5,719 6,147 6,472 6,685 7,127
45-49 years 2,017 2,409 3,753 4,935 5,648 5,894 6,054 6,589
50-54 years 1,968 1,959 2,346 3,700 4,855 5,306 5,521 5,926
55-59 years 2,046 1,891 1,885 2,237 3,542 4,278 4,677 5,330
60-64 years 1,669 1,934 1,790 1,734 2,068 2,795 3,352 4,444
65-69 years 1,412 1,522 1,771 1,610 1,562 1,673 1,906 3,104
70-74 years 1,028 1,216 1,322 1,530 1,399 1,360 1,379 1,695

Vietnam's Population By Age Group, 1990-2020 ('000) - Continued
1990 1995 2000 2005 2010 2013e 2015f 2020f

75-79 years 752 819 984 1,080 1,263 1,219 1,167 1,160
80-84 years 430 536 597 732 815 919 964 900
85-89 years 224 261 336 385 483 517 546 654
90-94 years 71 108 132 177 210 245 268 306
95-99 years 16 25 41 53 74 83 89 115
100+ years 2 4 7 12 17 21 24 30
e/f = BMI estimate/forecast. Source: World Bank, UN, BMI
Table: Vietnam's Population By Age Group, 1990-2020 (% of total)
1990 1995 2000 2005 2010 2013e 2015f 2020f

0-4 years 13.52 12.26 8.81 8.12 8.12 7.80 7.51 6.77
5-9 years 12.49 12.12 11.44 8.27 7.63 7.69 7.69 7.18
10-14 years 11.40 11.23 11.33 10.73 7.75 7.22 7.24 7.36
15-19 years 10.68 10.25 10.50 10.65 10.12 8.38 7.35 6.93
20-24 years 9.64 9.50 9.49 9.81 9.97 9.98 9.57 7.01
25-29 years 8.72 8.51 8.73 8.79 9.11 9.30 9.39 9.11
30-34 years 7.46 7.75 7.85 8.13 8.18 8.40 8.59 8.94
35-39 years 5.64 6.66 7.17 7.35 7.60 7.65 7.72 8.18
40-44 years 3.57 5.03 6.17 6.73 6.90 7.06 7.16 7.34
45-49 years 2.93 3.17 4.64 5.81 6.34 6.43 6.48 6.79
50-54 years 2.86 2.58 2.90 4.36 5.45 5.79 5.91 6.11
55-59 years 2.97 2.49 2.33 2.63 3.98 4.67 5.01 5.49
60-64 years 2.42 2.54 2.21 2.04 2.32 3.05 3.59 4.58
65-69 years 2.05 2.00 2.19 1.89 1.75 1.83 2.04 3.20
70-74 years 1.49 1.60 1.63 1.80 1.57 1.48 1.48 1.75
75-79 years 1.09 1.08 1.22 1.27 1.42 1.33 1.25 1.19
80-84 years 0.62 0.70 0.74 0.86 0.91 1.00 1.03 0.93
85-89 years 0.32 0.34 0.42 0.45 0.54 0.56 0.58 0.67
90-94 years 0.10 0.14 0.16 0.21 0.24 0.27 0.29 0.32
95-99 years 0.02 0.03 0.05 0.06 0.08 0.09 0.10 0.12

Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued
1990 1995 2000 2005 2010 2013e 2015f 2020f

100+ years 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03
Table: Vietnam's Key Population Ratios, 1990-2020
1990 1995 2000 2005 2010 2013e 2015f 2020f

Dependent ratio, % of total working age 75.8 71.0 61.3 50.8 42.9 41.4 41.3 41.9
Dependent population, total, '000 29,712 31,567 30,734 28,617 26,741 26,860 27,293 28,655
Active population, % of total 56.9 58.5 62.0 66.3 70.0 70.7 70.8 70.5
Active population, total, '000 39,198 44,453 50,154 56,331 62,306 64,820 66,094 68,402
Youth population, % of total working age 65.8 60.9 50.9 40.9 33.6 32.1 31.7 30.2
Youth population, total, '000 25,778 27,076 25,544 23,038 20,918 20,822 20,950 20,690
Pensionable population, % of total working age 10.0 10.1 10.3 9.9 9.3 9.3 9.6 11.6
Pensionable population, total, '000 3,934 4,491 5,190 5,579 5,823 6,037 6,343 7,965
Table: Vietnam's Rural And Urban Population, 1990-2020
1990 1995 2000 2005 2010 2013e 2015f 2020f

Urban population, % of total 20.3 22.2 24.4 27.3 30.4 32.3 33.6 36.9
Rural population, % of total 79.7 77.8 75.6 72.7 69.6 67.7 66.4 63.1
Urban population, total, '000 13,958 16,867 19,716 23,175 27,064 29,632 31,384 35,771
Rural population, total, '000 54,952 59,153 61,172 61,773 61,983 62,048 62,003 61,286

Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined.
Common to our analysis of every industry is the use of vector autoregressions. Vector autoregressions allow
us to forecast a variable using more than the variable's own history as explanatory information. For
example, when forecasting oil prices, we can include information about oil consumption, supply and
capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality
is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for
analysis and forecasting.
BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use
of objective views, we use a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-
linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for
example poor weather conditions that affect agricultural output, dummy variables are used to determine the
level of impact.
Effective forecasting depends on appropriately selected regression models. We select the best model
according to various different criteria and tests, including but not exclusive to:
■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account;
■ Testing the directional movement and magnitude of coefficients;
■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);
■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.

BMI uses the selected best model to perform forecasting.
Human intervention plays a necessary and desirable role in all of our industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features where a purely mechanical forecasting process would not.
Sector-Specific Methodology
In each of the countries surveyed, we have made contact with local sources (typically major commercial
real estate agents) and asked them 10 questions in relation to three sub-sectors:
■ Office
■ Retail
■ Industrial
We have combined the answers into the data tables and text that form part of the market overviews and
industry forecast scenario. In taking this grass-roots approach, we believe we ensure that we identify, in a
timely fashion, key issues that will likely drive rents and yields over the short, medium and long term. We
have developed a framework that facilitates comparisons between cities and sub-sectors in different
countries.
In developing our long-term forecasts, we have focused on net yields. Our view is that as yields are driven
by both rentals and capital values, the movements in yields provide a convenient short-hand for what is and
is not expected to be happening in markets.
Sources
Sources used in real estate reports include UN statistics, national accounts, housing and economy ministries,
officially released company results and figures, trade bodies and associations and international and national
news agencies.
Risk/Reward Ratings Methodology
BMI's Risk/Reward Ratings provide a comparative regional ranking system evaluating the ease of doing
business and the industry-specific opportunities and limitations for potential investors in a given
market. The system divides into two distinct areas:

Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub categories:
■ Industry Rewards. This is an industry-specific category taking into account current industry size and
growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall
score for potential returns for investors.
■ Country Rewards. This is a country-specific category, and factors in favourable political and economic
conditions for the industry.
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period. This is further broken down into two sub categories:
■ Industry Risks. This is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry, and the relative maturity of a market.
■ Country Risks. This is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score.
We take a weighted average, combining industry and country risks, or country and industry rewards. These
two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
Risk/Reward Rating a weighted average of the total score. As most of the countries and territories evaluated
are considered by BMI to be 'emerging markets', our ratings are revised on a quarterly basis. This ensures
that we draw on the latest information and data across our broad range of sources, and the expertise of our
analysts.
Indicators
The following indicators have been used. Overall, the rating uses five subjectively measured indicators, and
over 20 separate indicators/datasets.

Table: Real Estate Risk/Reward Ratings Indicators
Rationale
Industry Rewards
Construction output, USDbn (previous Absolute size of construction sector used as proxy for size of real estate
year) sector.
Construction sector real growth, Indicates prospects for, and confidence in, the construction sector, and
compound annual growth rate (CAGR) hence a proxy for prospects/confidence for real estate sector.
(previous year to three years hence)
Total commercial bank lending, USDbn Real estate projects are long term and capital intensive, with most finance
(end previous year) obtained from commercial banks. Indicates funding availability.
Commercial bank lending, CAGR (previous This indicates prospects for the stability of finance and, implicitly, its cost. In
year to three years hence) times of crisis, this is likely to be the most volatile indicator.
Country Rewards
This captures the efficiency of the commercial banking sector and other
BMI's Business Environment Rating for elements of the financial services industry in making funding available to the
financial infrastructure real estate sector.
Higher per capita GDP correlates with the expansion of the middle classes,
Per capita GDP, USD which are the key market for residential real estate, and the users of
commercial and retail real estate.
Urbanised states tend to be more conducive markets for real estate
development, as they have deeper, more mature markets. That said, our
Urbanisation, % of total population living in scoring methodology views favourably less urban, or even predominantly
urban areas rural, states that are characterised by persistently strong construction sector
growth.
Risks
Industry Risks
It is assumed that lending volumes and nominal GDP should, generally,
Lending risks, ratio of the growth in grow at the same rate. If lending growth substantially exceeds nominal GDP
nominal lending (ie by commercial banks to expansion, this would suggest deterioration in risk standards by lending
non-bank customers) to the nominal institutions. Conversely, if nominal GDP rises substantially faster than bank
growth in GDP over a five-year period (last lending, the cost of finance for real estate ventures is likely to rise (affecting
year to current year plus three) profitability).
This is used as a proxy for the stability of finance. Thus, a rapid decline in
the ratio (ie a lending squeeze) is penalised. Conversely, we are more
Financial institution confidence, change in tolerant of a rise in lending, as in itself, this may be positive for the industry.
the loan to deposit ratio over a five-year High rates of lending growth are penalised as they could indicate an
period (last year to current year plus three) investment bubble unless the state's Country Risk Short-Term Economic
Rating, a proxy for vulnerability to an economic shock, is very high.
Where possible, we have identified a national index (usually for house
prices) and assess annual growth. The rating is symmetrical, in that high
Real estate prices, % change y-o-y growth (which indicates a bubble) is penalised, as is sharp price falls (which
indicates that bubbles have been burst). Where no real estate price index is
available, this indicator does not affect the overall score for this section.
Country Risks
BMI's long-term economic rating A measure of long-term economic stability.

Real Estate Risk/Reward Ratings Indicators - Continued
Rationale
BMI's business environment legal Denotes the strength of legal institutions in each state. Security of
framework rating investment can be a key risk in some emerging markets.
Source: BMI
Weighting
Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal
weight. Consequently, the following weight has been adopted.
Table: Weighting Of Indicators
Component Weighting (%)

Rewards 50, of which
Industry Rewards 65
Country Rewards 35
Risks 50, of which
Industry Risks 65
Country Risks 35
Source: BMI

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Q4 2014

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: August 2014

Business Monitor International © 2014 Business Monitor International

BMI Industry View ............................................................................................................... 7

Industry Forecast .............................................................................................................. 14

Macroeconomic Forecasts ............................................................................................... 37

Industry Risk Reward Ratings .......................................................................................... 43

Market Overview ............................................................................................................... 46

© Business Monitor International Page 4

Competitive Landscape .................................................................................................... 62

Company Profile ................................................................................................................ 66

Demographic Forecast ..................................................................................................... 77

© Business Monitor International Page 5

BMI Industry View

© Business Monitor International Page 7

Key BMI Forecasts

© Business Monitor International Page 8

Vietnam Real Estate SWOT

© Business Monitor International Page 9

Vietnam Real Estate SWOT - Continued

© Business Monitor International Page 10

© Business Monitor International Page 11

© Business Monitor International Page 12

© Business Monitor International Page 13

© Business Monitor International Page 14

Economic Factors Combine To Support Growth

© Business Monitor International Page 15

Stable Interest Rates

f = forecast. Source: State Bank of Vietnam, BMI

© Business Monitor International Page 16

April-September 2014 2015

Table: Forecast Short-Term Office Net Yields, 2014-2015 (%)

April-September 2014 2015

© Business Monitor International Page 17

Table: Forecast Long-Term Office Net Yields, 2011-2018 (%)

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

e/f = BMI estimate/forecast. Source: BMI

© Business Monitor International Page 18

April-September 2014 2015

e/f = BMI estimate/forecast. Source: BMI

Table: Forecast Short-Term Retail Net Yields, 2014-2015 (%)

April-September 2014 2015

© Business Monitor International Page 19

Table: Forecast Long-Term Retail Net Yields, 2011-2018 (%)

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

e/f = estimate/forecast. Source: BMI

© Business Monitor International Page 20

April-September 2014 2015

Table: Forecast Short-Term Industrial Net Yields, 2014-2015 (%)

April-September 2014 2015

Table: Forecast Long-Term Industrial Net Yields, 2011-2018 (%)

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

e/f = estimate/forecast. Source: BMI

© Business Monitor International Page 21

Construction And Infrastructure Forecast Scenario

Table: Construction And Infrastructure Industry Data (Vietnam 2012-2017)

2012 2013e 2014f 2015f 2016f 2017f

© Business Monitor International Page 22

Construction And Infrastructure Industry Data (Vietnam 2012-2017) - Continued

2012 2013e 2014f 2015f 2016f 2017f

Infrastructure industry value, % of 1.7 1.5 1.5 1.4 1.4 1.4