Indochina, VinaCapital seek Vietnam property deals amid crunch
21-NOV-2008 Intellasia | Bloomberg
Nov 21, 2008 - 7:07:00 AM
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Indochina Capital and VinaCapital Group, two of Vietnam's biggest investment managers, are raising funds to invest in the nation's property market as the credit crunch hurts local developers.
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| A construction site is seen in Hanoi, Vietnam, Friday, June 13, 2008. A year ago, Vietnam's stock market was one of the hottest on earth. But today, inflation has hit 25%, pinching incomes, and workers have been striking for higher wages. Property prices are falling and the stock market has plummeted to a two-year low, dashing the hopes of many people who expected to strike it rich. (AP Photo by Chitose Suzuki) |
VinaCapital, Vietnam's biggest fund manager, is in talks with investors to start its second real-estate fund early next year, said Chief Executive Officer Don Lam. Indochina Capital plans to increase the size of its property fund to between US$400 million and US$500 million when it closes in the first half of next year, from the US$155 million it raised in July, said Rick Mayo-Smith, co-chair of Vietnam's third-biggest investment firm.
High interest rates and limitations on bank lending have forced smaller developers to delay projects or sell assets to raise money. This has opened up opportunities for Vietnam's fund managers who say there is still demand for apartments, offices, hotels and malls as the country continues to grow at the fastest pace among Southeast Asia's six biggest economies.
"The opportunities have never been better," Mayo-Smith said in an interview yesterday. "A number of projects have halted in Vietnam due to lack of financing, we see people bringing us projects and land where they need investors or they want to sell to finance some of their other projects."
The central bank in April capped this year's credit growth at 30% and restricted lending to property and securities companies, after inflation rose at the fastest pace since at least 1992. Domestic banks remain hesitant to extend credit, growth slowed to 19.6% this year through October, from 37.7% over the same period in 2007, HSBC Holdings Plc said in a research report on November 5.
'Huge demand'
There is "a huge demand" for mid-level residential units as the credit crunch has "wiped out" small and medium-sized developers that were building them, Lam said. An apartment that's usually selling for about US$1,200 per square metre can probably fetch US$1,400 "because there's no supply," he said.
"Vietnamese still need a place to live in when they get married and move out of their family homes," he said. "Pent-up demand is still there."
VinaLand Ltd, the firm's US$790 million property fund, traded on the London Stock Exchange's Alternative Investment Market at a 31% discount to its net asset value as of November 18, according to data compiled by Bloomberg.
The firm's second real-estate fund will aim at private-equity investments and won't be listed, Lam said. The new fund will likely produce an internal rate of return of about 35%, he said.
'Especially vulnerable'
VinaCapital also favours the hospitality and retail sectors, Lam said in HCM City. The firm's real-estate portfolio includes investments in the Sofitel Metropole Hanoi and Hilton Hanoi Opera hotels.
The average daily rate for a five-star hotel room in Hanoi rose 19% to about US$150 from a year earlier, according to a CB Richard Ellis Group Inc. report dated October 23. The occupancy rate in the capital averaged almost 60% in the third quarter, compared with 85% last year.
While the hotel industry is "especially vulnerable" to a global economic slowdown, "the long-term fundamentals for hotels are still strong however, and supply growth is welcomed," the Los Angeles-based real estate brokerage said.
Condominium prices in HCM City and Hanoi have fallen between 20% and 50% in the secondary market from their peak a year ago and may be almost hitting a bottom, said Brett Ashton, managing director of London-based Savills Plc's Vietnam unit. Speculators accounted for about 80% of sales in the fourth quarter of 2007, fuelling the property bubble.
'Still stuck'
"Now most sales are going to the end-users," Ashton said. "The speculators are still stuck with the properties they bought last year, so it's hard for them to get back in the market."
Vietnam's central bank raised its benchmark interest rate three times earlier this year to as high as 14%, prompting banks' lending rates to rise to as high as 21%. The country's benchmark rate is the second-highest in Asia after Pakistan's, even after the State Bank of Vietnam cut it twice in the past month to 12% to blunt the impact of a global recession on the economy, Southeast Asia's sixth biggest.
Indochina Capital, which is managing 20 projects with a total development cost of about US$1.5 billion, said it's focusing on a few developments which it managed to secure financing for as banks loosened up again, Mayo-Smith said.
Construction costs, which almost doubled in the last two-years, have also started falling, Mayo-Smith said. The firm's third real-estate fund, which will also be its biggest, will invest in mixed-use projects in Hanoi and HCM City, which will comprise of residential, retail, office and hotel properties. The fund is expected to return 25% to 30%.
"If you have a good project, it will get funded," Savills's Ashton said in HCM City. "As I look out my office window, I can see seven construction cranes moving, so somebody is getting funding."
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