HOW TO DEVELOP SUCCESSFUL REAL ESTATE PROJECTS IN THE MEKONG REGION? THAILAND, CAMBODIA, MYANMAR, LAOS & VIETNAM Presented by: Marc Townsend,

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1 HOW TO DEVELOP SUCCESSFUL REAL ESTATE PROJECTS IN THE MEKONG REGION? THAILAND, CAMBODIA, MYANMAR, LAOS & VIETNAM Presented by: Marc Townsend, Managing Director, CBRE Vietnam May 15,

2 EMERGING MARKETS 1. Risk profile 2. Foreign ownership restrictions 3. Licensing and zoning 4. Land prices, comparables, FARs and Accommodation Value 5. Land clearance and vacant possession 6. Funding 7. Construction costs 8. Pre-commitment 9. Pre sales and the secondary market 10. Yield 2

3 THE GREATER MEKONG SUBREGION (GMS) 2013 Myanmar Land area: 677 thou sq.km Population: 61.8 M e GDP per capita: US$869 People s Republic of China Land area: 9,597 thou sq.km Population: 1,354 M GDP per capita: US$6,726** (*) GMS only covers two provinces of China: Yunnan and Guangxi ** National Bureau Statistics of China Thailand Land area: 513 thou sq.km Population: 69.5 M GDP per capita: US$5,674 EAST SEA Vietnam Land area: 331 thou sq.km Population: 89.7 M GDP per capita: US$1,960* ***Vietnamese General Statistics Office Cambodia Land area: 181 thou sq.km Population: 15.3 M e GDP per capita: US$1,036 Laos Land area: 237 thou sq.km Population: 6.7 M GDP per capita: US$1,476 3

4 GDP PER CAPITA China 7,298 Japan 5,867 India 2011 GDP (USDbn) 1,827 Australia Korea, Rep. 1,487 China 7,298 Japan 1,116 5,867 Pearl River Delta India 917 1,827 Indonesia Australia 846 1,487 ter Mekong Cluster Korea, Rep ,116 Taiwan Pearl River Delta Malaysia 288 Indonesia 846 Singapore 260 #7 Greater Mekong Cluster 541 Philippines 225 Taiwan 466 New Zealand 159 Malaysia 288 Greater Mekong Asian countries Non-Asian or Asian sub-region Singapore Philippines New Zealand Notes: Pearl River Delta s GDP as per 2010 Source: IMF, CIA Factsheet Greater Mekong GMS economies have experienced strong growth over the Asian countries last 10 years, Non-Asian ranking or Asian sub-region as Asia s 7th largest. This growth is projected to continue at ~6% pa, with a young working population of over 235 million 4

5 GROWTH DRIVER: DEMOGRAPHICS & URBANISATION with the familiar themes of Demographics and Urbanisation provide continued support for growth in the region Support Ratios Urbanisation Rates Japan Thailand China % in urban areas 80.0% 70.0% Vietnam Laos 60.0% 50.0% 0.7 Cambodia 40.0% 30.0% % ** Support Ratios = Effective Worker/Effective Consumer Effective labor/ consumer is weighted sum of pop using labor, income, age profile. Demographic Dividend is generated when the support ratio is on an upward trend 10.0% C ambodia Indonesia Laos Thailand Vietnam 5

6 GROWTH DRIVER Switching from China to G3 (US, EU and Japan) Greater Mekong GDP Correlation Coefficients (10 year correlations 2002 versus 2012) Greater Mekong Exposure to G3 and China* GMS stands to benefit from a cyclical upswing in US and Japan. 6

7 GROWTH DRIVER: TOURIST ARRIVALS City Top-tier hotel keys Bangkok 7,581 HCMC 954 Hanoi 3,065 Tourist Arrivals (million persons) Phnom Penh 3,935 Yangon 962 * Downtown only *Estimate Source: Thailand Department of Tourism, Statistic and Tourism Information Department of Cambodia, Vietnam National Administration of Tourism, Lao National Tourism Administration, Ministry of Hotel and Tourism 7

8 OUTLOOK ON CONSUMER SPENDING Source: Wolfensohn Center for Development at Brookings 8

9 PUBLIC TRANSPORT Bangkok HCMC Vientiane Phnom Penh Yangon 9

10 GMS CONNECTIVITY ROAD NETWORK 1992 Source: ADB 10

11 GMS CONNECTIVITY ROAD NETWORK 2015 Source: ADB 11

12 FOREIGN BUYER RESTRICTIONS Foreign Companies can buy freehold land if sponsored by the country's investment boards THAILAND VIETNAM CAMBODIA MYANMAR LAOS Yes usually only for industrial Maximum Lease Term 30 Foreigner can own a condominium No No No 50 (Exception 70) Yes for stateowned land 50 (+50) 50 (+10+10) Yes Yes* Yes No N/A Foreign Ownership Limit of a Condominium Building National registered companies with majority national ownership can buy land 49% No 70% No N/A Yes Land Use Right Yes Lease/ Concession N/A * Subject to Restrictions Source: CBRE Research 12

13 BCI NUMBER Projects Under Construction HCMC Hanoi Da Nang 2013 Q Q Q Office Retail Hospitality and SA Resi Total All Future Projects ( HCMC Hanoi Da Nang 2013 Q Q Q Office Retail Hospitality and SA Resi Total Source:BCI Vietnam Retreived on May 5, 2014

14 RCA TRANSACTIONS deals 15 deals MYANMAR (Burma) LAOS VIETNAM 40 deals THAILAND 2 deals CAMBODIA Source: RCA 14

15 HAVE WE REACHED THE PEAK? *GMS includes Bangkok, HCMC, Hanoi, Phnom Penh and Myanmar Source: CBRE Research 15

16 REGIONAL COMPARISON Real Estate Market 16

17 CONDOMINIUM DOWNTOWN Accumulated Downtown Condominium Supply vs. Take-up, Q1/2014 Source: CBRE Research 17

18 Office Supply (sm) OFFICE SUPPLY AND DEMAND Bangkok Phnom Penh Hanoi HCMC, ,000, ,000, ,000, ,000,000 50, Take Occupied (sm) Take space up (sm) Vacancy Vacancy space Vacant (sm) space (sm) (sm) Source: CBRE Research Yangon Total supply: 40,443 sm Vacancy rate: 95% 18

19 OFFICE ASKING RENTS Sunwah Tower, HCMC *Phnom Penh: before 2011 calculated on Grade C buildings, on Grade B buildings and 2014 on the first real Grade A building. Source: CBRE Research Sakura Tower, Yangon 19

20 OFFICE OUTLOOK Moderate rental growth expected Leaders Laggards Myanmar Source: CBRE Research (As of Feb 2014) 20

21 BANGKOK OFFICE MARKET 21

22 BANGKOK OFFICE MARKET 22

23 BANGKOK OFFICE MARKET 23

24 BANGKOK OFFICE MARKET 24

25 BANGKOK OFFICE RENT 25

26 RETAIL SUPPLY (DOWNTOWN) Downtown Retail Supply Downtown Retail Occupancy (%) Source: CBRE Research Ho Chi Minh City s Recent Retail Openings Monthly household income, 2013 Starbucks: 4 existing+1 upcoming McDonald s: 1 existing+1 upcoming 26 Source: TNS VietCylce/TNS Cambodia Life/TNS Myanmar Life

27 RETAIL RENTS Siam Paragon, Bangkok Vincom Center A (Eden A), HCMC *Net rents on the ground floor and first floor locations only, excluding VAT and service charge. Source: CBRE Research 27

28 TOP-TIER HOTEL *Citywide Source: CBRE Research 28

29 SERVICED APARTMENT Take up and Vacancy of Downtown Grade A Serviced Apartment Units Bangkok Hanoi HCMC Phnom Penh Downtown Grade A Serviced Apartment Rents (US$/sm/month) Source: CBRE Research 29

30 CHANGE & OPPORTUNITY 30

31 VIETNAM CAMBODIA THAILAND MYANMAR REGIONAL COMPARISON Country Advantages Disadvantages Shortages in all sectors Strong demand in some sectors especially hotel, office and residential. Early bird with strong local relationships catches the worm Mature market and has a levelled supply demand mix in most sectors Strong GDP per capita. Good public transportation Flexible joint venture opportunities Anti-corruption laws Investor friendly Cheap labor and land cost Large and growing population Interest rates under control M & A opportunities Political stability In 2015, all restrictions to foreign F&B retailers will be removed complying with WTO obligations Difficult political environment at least up until elections in 2015 Difficult to obtain visa Poor infrastructure (road, telecom, etc) High office/hotel rents/rates Leasehold land (foreign ownership) Faces political uncertainty and prone to climate change Low population growth Poor infrastructure Lack of Transparency Difficult JV laws High land prices Investor unfriendly (tax, residence, transparency etc) 31

32 At CBRE, we live and breathe the business of real estate Every week NEWSPAPER UPDATES Every month DASHBOARD Every quarter QUARTERLY REPORT For more information regarding this presentation please contact: MARC TOWNSEND Managing Director T F marc.townsend@cbre.com CBRE Vietnam 2014 CBRE (Vietnam) Co., Ltd. This report has been prepared in good faith and with due care by CBRE (Vietnam) Co., Ltd. We obtained some of the information above from sources we believe to be reliable. However, we have not verified the accuracy of the information which we obtained from other sources and make no guarantee, warranty or representation about it. We include projections, opinions, assumptions or estimates which are made with careful consideration of factors known to us for example only, 32 and they may not represent current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.