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Crisis hits serviced apartment market
The serviced apartment market has begun tasting the bitter impacts of the economic crisis as a number of foreigners leave Viet Nam.
A quarterly report recently released by the real estate services provider CBRE Viet Nam showed that average rents at grade A serviced apartments in HCM City dropped 11 per cent quarter-on-quarter, to US$32.35 per square metre per month. Grade B and grade C fell respectively by 4 and 5 per cent. Meanwhile vacancies increased across all grades, with grade A posting the highest rate of 14 per cent.
"As rents are already significantly discounted, serviced apartments are competing based on age of property, facilities and decor," noted Rudolf Hever, CBRE Viet Nam senior manager for research and consultancy services.
Grade A buildings are also suffering as tenants are switching to cheaper serviced apartments to save costs, while tenants of grade B and C relocate to non-serviced ones for the same purpose.
While demand is declining, supply has tended to rise. 560 units of the Intercontinental Serviced Residences (grade A) in the Kumho Asiana Plaza, Dist. 1 and the Crescent (grade B) in Phu My Hung area will enter the market later this year. That is not to mention buy-to-let apartments around the city, which will create more competition for serviced apartments.
The residential market has had fresh additions of over 1,100 apartments from six projects. Sales have been slow but steady, mainly for the average ones.
For the retail market, rents remain stable at around $110 per square metre in the city’s downtown area. Several projects became operational in the second quarter, including Sai Gon Paragon in Dist. 7, Master Zone in Dist. 1, and the Kumho Asiana Plaza with almost 7,000sq.m expected to enter the market in September. Rates however are expected to soften this quarter for outlying retail locations though they’ve already come down 10 per cent quarter-on-quarter.
Grade A office space has increased by more than 34,000sq.m but new contracts have covered just 3,700 sq.m. An additional 195,000sq.m will join the market in 12 to 18 months, offering a much wider choice for tenants.
Looming bad debt problem
Non-performing loans (NPL) are posing a big challenge to commercial banks, especially in the context of the ongoing impacts of the global economic crisis. According to Alexandre Legendre, partner at the Ha Noi-headquartered legal firm Leadco, although the NPL ratio is officially listed at 5 per cent, the real figure may be higher.
At a seminar last week he cited a 2008 survey saying that around 20 per cent of small and medium-sized enterprises had been seriously affected by the crisis.
Philip Paterson, head of corporate and institutional banking for ANZ Viet Nam, said banks needed to act collectively in the case of a customer’s insolvency rather than individually as most of them have accounts with more than one bank.
"It you treat other banks unfairly on one deal, they are likely to do the same to you on the next," he said, adding that if all banks tried to exit at the same time, the debtor might go bankrupt and no bank would get repaid.
He also advised the lenders to join in helping the customer out of a serious situation, which requires them to make compromises to reduce the chance of a debtor company collapsing.
Local bankers however admitted that such collective practice was not yet popular in Viet Nam, except in syndicated loans.
Lenders could hire an independent advisor to help their customer avoid bankruptcy, advised Mathew Lourey of the accounting and consultancy firm Grant Thornton Viet Nam.
The advisor will, according to him, assess the viability of the corporate debtor and work out a restructuring plan.
Common causes of NPLs include customer being over-ambitious and going for "the big project", often in real estate and production sectors, or in unfamiliar industries, and money not being used for the intended purpose, for example trade finance going to securities investments. Poor documentation can also lead to NPLs, as can a shortage of experienced and potential executives in companies, according to the experts.
Funds eye Viet Nam
The global economic crisis has not dulled the interest of investment fund management companies in the Vietnamese market.
Koichi Hori, chairman of Japanese company Dream Incubator, said his company was co-operating with the Cayman Islands registered ORIX Corporation to launch a new fund for Viet Nam early next month.
The new fund, named DI Investment Partners Ltd, will have capital of US$50 million, which is expected to double later this year. The fund will target sustainable investment in Vietnamese companies with high prospects for growth and initially eight to ten companies will be selected for investments.
Joint ventures between Japan and Viet Nam will also be targeted.
Outlining the qualities that the fund is looking for, Hori said: they should be focused on domestic consumption and exports; be among the leaders in their industries and show high financial transparency; be working towards being globally competitive; and have a visionary, hard working and passionate management board.
The fund will have a term of eight years, and it will invest for about three to four years in each of the companies with the expected returns on investment of about 10-20 per cent.
Meanwhile, a local fund management company, Anpha Capital, announced last week it would begin raising capital early September from both Vietnamese and international sources for an investment fund.
This fund, which will cover listed equities, private equities and real estate assets, is expected to be launched early next year, according to Anpha Capital chairman Bui Cong Giang.
Giang, while not disclosing the target scale of the new fund, was confident about its success.
His company had raised two funds in 2007, which are listed on the Frankfurt Stock Exchange, but a management buy-out of the fund was completed last year.
Particularly, Anpha Capital will integrate environmental, social, and corporate governance (ESG) issues into investment analysis, decision-making processes, and ownership policies.
It will also seek appropriate disclosure on ESG issues by the entities in which it invests.
These actions are required by the United Nations Principles of Responsible Investment, which Anpha recently signed on to. Anpha Capital will be the first of its kind in Viet Nam to implement these principles.
Thuy Anh
vietnamnews
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