1. VIETNAMESE GERMAN UNIVERSITY
UDP_2010
Subject: Urban planning and Real estate markets
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Lecturer: Dr. Karl Kluegel
Student: Phan Thanh Binh
August 31th, 2011
REAL ESTATE MARKETS AND DEVELOPMENTS
(Case study: SJC Tower – District 1, Ho Chi Minh city)
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2. Abstracts
In the last decade, with the bubble growth of land and apartment price, real estate market was
a fertile land for capital investors and individual speculators. SJC Tower project is concerned
as whether investment of speculation when the project has been started since 2004. After 7
years, this project is still under procedure and there is no construction activity is implemented.
This paper will use criteria which is related to real estate market to evaluate the project of SJC
Tower in role of investors. Through the evaluation in this paper, the final conclusion will be
given to decide whether this project should be continued or stop investment. In conclusion
part, the final advice will be given to investors of the project.
INTRODUCTION
From the years of 1990s, Vietnam experienced significant increase of economy with high rate
of economic growth and urbanization tempo. There was hot increase of real estate market in
Vietnamese cities. Vietnam became a attractive destination of international property
corporations, which come from more advanced countries. In the last decade, real estate was
highly profitable industry, which brought huge profit to property corporations.
However, the development of real estate market in Vietnam was uncertain and unstable such
as land price and property price in Hanoi and Ho Chi Minh city, which rapidly increased in
the end of 1990s and beginning of 2000s. Especially, there was rocketed increase of estate
price in the years of 1997/98 and 2005 to 2007. The growth of the real estate sector has been
signed the presence of speculation. More building projects have been approved which were
not based on actual demands. Simultaneously, there have been discrepancies between the
growth of the real estate market and the urban development policies. Additionally, since 2008,
real estate market in Hanoi and Ho Chi Minh city has faced to challenges under economic
crisis and the two digits inflation in Vietnam. There have been signs of decreasing attraction
of real estate factor in these cities.
This paper will try to analyse the change of property market in the relation with urban
development through a specific case study, which is SJC tower in District 1 – Ho Chi Minh
city and also concern about the impacts of real estate factor to the macro economics and vice
versa. With this study, the paper would like to emphasize the importance of macro economic
orientations and issuing of urban development policies through real estate industry.
CASE OVERVIEW
SJC tower is planned to be built at the plot, which is covered by Le Loi – Nguyen Trung Truc
– Nam Ky Khoi Nghia – Le Thanh Ton streets, those are in Ben Nghe ward, District 1, Ho
Chi Minh city. Total land area is 3,792 sq.metres. Saigon Jewelry Corporation was adopted as
the investor of the project. This project was approved in principle in 2004. In 2007, Ho Chi
Minh city people’s committee regulated this project will be mixed functions tower, those are
office for rent, apartment, hotel, and shopping mall.
The initial scale of this project, which was given in 2007, was 45 levels and not included 6
basements. Since October of 2010, the scale have been proposed to justify up to 54 levels and
6 basement levels. Funding for the SJC tower is calculated up to US$137 million. At the
current time, the project is still under procedure for renting land.
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3. Main indicators of SJC tower 1:
- Commercial /Retail area: 17,150 sq.metres (including 2 basements)
- Hotel area: 8,575 sq.metres
- Living apartments area: 19,722 sq.metres
- Renting apartments area: 20,760 sq.metres
- Total building area: 65,563 sq.metres
- Land area: 3,792 sq.metres
- Coefficient of land use: 16.5.
METHOD OF EVALUATION
In order to draw consequences and impacts on economy that resulted by real estate market,
this paper try to look into and analyse factors that directly and indirectly influence to
construction and building market. Thus, the relative interactions between real estate and other
aspects of urban areas would be identified. Finally, on the standing of investors, should the
project be invested? Whether could the project bring profit?
To determine the efficiency of a invested project, the analysis of this paper will be based on
criteria, which will be given below. The criteria include internal indicators, which were
constituted from the design of the building, and external factors, which are brought from the
city and external impacts of the project to society. The data, which gave basic information
about functions and design of the building is collected from legal documents in Department of
Planning and Architecture. In the assessment of real estate market to determine social
demands and supply capacity of the project, the view of this paper will be based on research
and reports of CB Richard Ellis (Vietnam) Company (CBRE – Vietnam) about Ho Chi Minh
city’s real estate market.
Economic efficiency of this project will be calculated based on research data of CBRE and
some of assumption, which information can not collected accurately and adequately.
Table 1: List of criteria
No. Criteria Notes on method Applied
1 Design Social harmony
Social status
2 Infrastructure Drainage
Water supply
Electricity supply
3 Parking Capacity Motorbikes
Cars
4 Traffic Accessibility
Mobility
5 Market analysis
6 Internal Return Rate?? (IRR) Calculation
*NPV () Rent cost/total cost
7 Social impact Analyze at 500m radius
8 Environmental friendly
1
Document No 25/ CV – SGKC, June 15th, 2011 of Saigon Jewelry Corporation.
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4. EVALUATION
1. Design
The initial design of SJC tower was 45 level and 6 basements building, in the 4th quarter of
2010, Saigon Jewelry Corporation gave justified design with 54 levels and 6 basements.
Along Le Loi street, there are several projects, which are proposing as high rise building with
similar architecture style with SJC tower. Therefore, in general observation, the architectural
harmony along Le Loi street is relatively achieved. However, there is no green or open spaces
arranged between skyscrapers. It may reduce landscape value of this area. In another aspect
with wider view in District 1, where is considered harmonious landscape with old
architectural style. There are many historically valuable building around District 1 and
modern skyscrapers have been breaking the architectural and landscape harmony.
Figure 1: Panorama front view along Le Loi street
Source: Investor’s report of justified planning of SJC Tower
Independently, this building is still under procedure and the final design is unknown, so it is
really difficult to evaluate aesthetic and architectural value of this tower. Nevertheless,
according to subjective assessment, the idea of this paper is that the style of SJC tower is not
relevant to the style of other buildings around it and it is not really beautiful as expected.
Figure 2: Latest design of SJC Tower
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5. Source: Investor’s report of justified planning of SJC Tower
2. Infrastructure
This project is in District 1, therefore supply capacity of infrastructure such as water supply,
electricity, and drainage could be provided sufficiently. However, there is no adequate
information about infrastructure system around site of project, but, according to the current
transport system, which was set up decades ago, high rise buildings inside the centre will put
high pressure on old road network. The more skyscrapers are built, the more space needs for
transportation, but there is no space to widen streets, traffic system will suffer more trips,
which will be brought by skyscrapers, especially in the research area, the density of
skyscrapers will be relatively high.
3. Parking capacity
According to latest concept design, parking capacity inside the building was given including
three basements, with total number of seats for parking is equivalent to 272 seats for car,
otherwise, there is no spaces for parking around the building site.
There are 163 apartments, 5 floors for hotel with 150 rooms, and 9 floors for retail and
commercial purpose in the building2. By preliminary calculation, if the building is full rented,
there might be equivalent one seat of carpark for each apartment and about 1 seat for every 5
hotel rooms. There might be hopefully sufficient spaces for parking which serve for SJC
independently.
2
According to the design of KENT LUI TACTICS Limited, the date of 28th, September, 2010
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6. 4. Traffic
Traffic criterion should be measured by the two main indicators, those are accessibility and
mobility. The building is covered by the four streets as mentioned, in which Nam Ky Khoi
Nghia and Le Thanh Ton is one-way streets, therefore accessibility from these two sides is a
little limited and not very convenient. The front of the building at Le Loi street is narrow, so
access from this side also inconvenient. Only from the side of Nguyen Trung Truc street,
accessibility is relatively easy. However, this street is too narrow to serve a very big building
like SJC tower.
Traffic flow around this area is assessed rather well. Though, density of transportation means
at peak time is relatively high, particularly on Nam Ky Khoi Nghia street, but there is no
serious congestion within the radius of 500m. However, the situation might be worse when
this tower be built and full rented.
Figure 3: Location of SJC Tower
5. Market Analysis
According to the report of investor, SJC tower will bring apartments and shopping center into
real estate market. This project concerns about residential and retail market and ignores office
market in CBD. Market analysis in this paper will focus on residential, hotel, and retail
market, which was drawn from research and analysis of CBRE (Vietnam).
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7. Table 2: Change of classified residential segments
Source: CB Richard Ellis Vietnam – Market review Ho Chi Minh city, July 2011
There is a clear decrease of accommodation market in Ho Chi Minh city, while all grade of
apartment went down. The most significant grade, which went down more than a quarter, is
luxurious group compared to the same period of 2010. From the table above, residential
market in 2011 almost stay standing with only small units of mid-end accommodation were
brought into the market. The apartments price has almost unchanged during a year with price
slightly decreased.
Figure 4: Asking price on residential market
Source: CB Richard Ellis Vietnam – Market review Ho Chi Minh city, July 2011
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8. According to the chart, after dramatically increasing price in secondary market in the period
2005 - 2007, residential market still stayed and was not as a good field as before to invest of
real individual speculators.
Table 3: Change of retail market
Source: CB Richard Ellis Vietnam – Market review Ho Chi Minh city, July 2011
In retail market segment, the table 3 indicates that the real demands on department stores is
still available with vacancy rate at 0%. The growth of renting price compared to the same
period of 2010 with more than 13% can show that investment into shopping center, especially
retail stores is still feasible.
Table 4: Occupancy rate of exist building in District 1
Source: CB Richard Ellis Vietnam –Ho Chi Minh city tenants, June 2011
From table 4, except Bitexco Tower, which has just opened in October 2010, Vincom, Green
Power, and Maritime Bank Tower, other high rise building were occupied with dramatic rate
(more than 90%). It shows clearly that District 1, Ho Chi Minh city is a really good place for
investors in real estate business.
Hotel business in the last two years is shown on figure 5 based on CBRE research. The chart
shows an optimistic trend on hotel business with from more 55% to almost 70% of occupancy
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9. rate in first quarter. Especially, at upper grade in march of 2010, the occupancy rate went over
80%.
Figure 5: Asking price on residential market
Source: CB Richard Ellis Vietnam – HCMC hotel market, 2010
From the market research of CB Richard Ellis Vietnam, particularly focus on District 1, the
project are going on right way of investment.
6. Internal Return Rate – Economic Feasibility
Economic calculation for this project should be based on basic information, which was given
in Document No 25/ CV – SGKC, June 15th, 2011 of Saigon Jewelry Corporation. Otherwise,
the price of this calculation is based on the market research of CBRE. According to
information on internet, funding for SJC Tower project is around $137 millions. There is no
information about which grade of apartment this project concentrate, this paper will make an
assumption which is grade B apartments to calculate.
Table 5: Criteria for economic calculation
Type of business Units Price Total Occupancy
rate (%)
Retail area US$/sm/month 124.96 17,150 (sm) 95
Hotel US$/room/night 130.00 150 (rooms) 60
Renting Apartments US$/sm/month 12.00* 20,760 (sm) 95
Living Apartments US$/sm 1,016 19,722 (sm) 100
(*): This price is assumption.
Calculation do not include living apartment, which will be sold and have its operation fee.
- Thus, funding for commercial purpose in the SJC tower:
137,000,000 – (1,016 * 19,722) = 116,962,448 (US$)
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10. - Total annual revenue of commercial with 100% occupancy rate:
[(124.96 * 17,150) + (130 * 150 *30) + (12 * 20,760)] *12 = 35,726,208 (US$)
- Operation cost: 35% total annual revenue: 35% * 35,726,208 = 12,504,173 (US$).
- Net income with occupancy rate, which is given above:
[(124.96*17,150*95%) + (130*150*30*60%) + (12*20,760*95%)] *12 – 12,504,173 =
18,978,725 (US$)
- Break even ROR: 18,978,725 / 116,962,448 = 0.1622
The project will be feasible if ROR ≤ 16.22 %
Sustainable profit at 16% is: 18,978,725/16% - 116,962,448 = 1,654,582 (US$)
7. Social Impacts
The criteria social impacts should look at architectural style, congestion situation in the future,
and occupation.
The appearance of District 1 has been changing, with many financial and construction
projects are under investment. Modern architecture style is bringing new appearance to CBD
in Ho Chi Minh city. However, there are many old valuable building in District 1, many
valuable historic building are threatened by new skyscraper projects such as Vincom, Bitexco
Financial Tower etc.
In other aspect, skyscrapers like the SJC Tower with very high coefficient of land use (which
go up to 16.5) will put very high pressure on old network of streets in CBD. Number of
transportation means will significantly rise when more than 20 new projects within the radius
of 1000 metres around the SJC Tower. However, in the aspect of occupation generating, these
projects will generate thousands jobs inner District 1.
8. Environmental friendly
This criteria would like to evaluate the construction solutions, energy, and material which will
affect to micro climate around the building. There is no report and information about
construction solution will be implemented to construct this project. According to a forecast,
this building will not use materials which transfer solar energy in order to reduce energy
consumption. In addition, the building will use massive glass to cover the building, this will
trap the heat inside area. The micro climate in this are will be affected by environmental
unfriendly buildings like SJC Tower.
CONCLUSION
The SJC Tower is a big project with the funding go up to $137 millions. After seven years
since the project has started, it still under final procedure (according to the report of Saigon
Jewelry Corporation). Under economic crisis, this project has been delayed and there was a
transition of investors. Kinh Do Corporation drawn and transferred its shares to Saigon
Jewelry Corporation in 2010, which has affected to the process of the project.
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11. With this project as well as more than twenty other projects with in the radius of 1000 metres,
social problems such as traffic congestion, increase of energy consumption, and urban
landscape will be significantly affected. Additionally, strategies of Ho Chi Minh city, that is
to develop Thu Thiem to modern financial center of Ho Chi Minh city as well as Vietnam will
go inaccurately.
However, in the standing of investors, according to the assessment of CB Richard Ellis –
Vietnam and the orientation of Saigon Jewelry Corporation into real estate segments, there are
opportunities for investor to get profit from this project. With investor’s view, this project
should keep continue and speed up process of investment.
References
CB Richard Ellis (CBRE) Vietnam, (2011), Market View Ho Chi Minh city
CBRE Vietnam, (2011), Ho Chi Minh city Tenants Evening Q2
CBRE Vietnam, (2011), Inflation, Interest, and Investment Midyear review
CBRE Vietnam, (2010), Ho Chi Minh city Hotel Market – Past, Present, and Future
Saigon Jewelry Corporation (2010), Document No 103/CV-SGKC, 25 Oct, 2010
HCMc Department of Planning and Architecture (2011), Document No 479/SQHKT-
QHKTT, 23 Feb, 2011
Saigon Jewelry Corporation (2011), Document No 25/CV-SGKC, 15 June, 2011
Drawing Design of Kent Lui Tactics Limited (2010)
Saigon Jewelry Corporation (2010), Report of Justified Planning of SJC Tower
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