No signs of recovery
20-09-2012
 Marc Townsend |
* Are you optimistic about the current situation of the real estate market in Vietnam?
- Marc Townsend: Obviously, most of us, when we saw at the beginning of the year that inflation and interest rates where they were and to see where they’ve come down to feel a little bit of optimism. We felt that the strengthening of the Vietnamese dong gave us some optimism for the future. But I was much more optimistic at the beginning of the year than I am now.
* What is the connection between the real estate market and the “Darwinian process” you’ve talked about?
- The “Darwinian process” has started that evolution and the change within companies, and to sell is better than to hold but it is still very deeply entrenched. Some projects have one or two people visiting their showrooms but the vast majority has virtually no traffic on the weekend. Only one or two have learned the lesson that pricing is relevant.
* Can you think of any other explanation or comparison for this process?
- My German car was the only German car in the car park. Four years ago, it would have been the cheapest car in the car park. In the meantime, everything has changed. The people that go and buy now use motorbikes, so Mercedes probably is not going to be doing much business with Nam Long Apartments, but Suzuki and Yamaha are.
That is the way the market has changed. Even for the banker in the corner for units of fifty, sixty, seventy thousand dollars. Now the banker is a busy man. Four or five years ago the banker would sit at the back of the room and hardly do any business at all because the buyers didn’t need finance. “I don’t need to borrow to buy a US$250,000 apartment.” Well, they probably did and wish they had looked at it in a different way, because they probably have to hand back the keys now.
* So what is the situation of the projects in the real estate sector in Vietnam, at the moment?
- We heard a little bit before about Bangkok. Normally in a city as under-supplied the real estate logic would be the rich are always rich, it doesn’t matter which market they are in. If you build condominiums downtown, the rich will always want to live there because they don’t want to spend too long in their cars. Today even that logic has stopped and only one or two projects are actually still able to sell at a price of over US$3,500 to maybe US$4,500 (per square meter) in Hanoi or HCMC. The slowdown has now been completely across the board in every district and in almost every sector.
* Who are affected by this slowdown?
- Everyone that touches real estate, including investment bankers, has been hurt by the slowdown. We can go through some of those groups. Obviously, the list of companies, we have had a good rundown of where they are hurting, some of them clearly acknowledge that and some don’t. The non-listed ones, again a lot less transparency, but I would say that of the five or ten meetings I’ve had so far, most of the non-listed companies are still telling me that they are trying to buy assets and not trying to cut back. They are trying to carry on with as many of their projects and their land bankers as they can. There are very few groups that are saying, “Well, enough is enough. I can do one at a time.” It is a bit like having a wife. One at a time is good. You tend to survive and everything is a lot more comfortable.
* So is it wise to invest in real estate nowadays?
- I have spoken at a couple of foreign conferences here. Investors normally buy in August, mid-August. I may have spoken to ten, maybe fifteen conferences. Now I get invited to one or two a year and the mood regarding Vietnam is toxic, it is absolutely toxic. Very few people will even bother to listen to the story of the wise, the wave force, where it has come, where it is going to.
We’re talking at a conference in a couple of weeks’ time in Las Vegas. I have got to go half way around the world before anybody actually wants to hear what is going on in Vietnam. We are actually talking about “gaming”. I believe it is called “gaming” now, not “gambling” but it is going to go a long way, certainly out of South-East Asia, for people to really feel comfortable with the Vietnam story.
The funds, the on shore-off shore funds, again only one or two are looking at yields of double digits. The Japanese that bought earlier this year and the Singaporean groups at the end of the year before, they are looking now certainly on two or three of those as if they paid a very high price. The yields between eight, eight and a half, nine percent, historically now look very expensive.
* Anyway, is there still any good asset on the real estate market, at present?
- There are a few assets out there that have been finished with a very high standard, that are managed very well, that are delivering, 9%, 10% or 11% yields. Maybe the buyers and of course the multinationals that have found Vietnam to be so expensive to do business in, they are the winners.
* Who are really these winners?
- The multinationals and the big space users are actually enjoying this downturn. They are enjoying it and hoping it will last a long time. They are able to lock in very good deals. Crocodile tear is not for everybody. The owners of individual apartments, some of them are just praying that they get another six months from their developer before they get keys, so the keys get handed over. Two or three of the big developments in District 2 of HCMC will be handing over the keys in the next few weeks. I am sure people are changing their email and their hand phones quickly so they don’t get a call from the developer to come and pick the keys up and pay the last thirty percent.
* Who will be surviving then?
- Obviously, the lawyers, the accountants and maybe the investment bankers are the survivors. The people that had been pushing for transparency are now probably rather smug and sitting in the corner saying, “We told you so!” I think for the size of the two convertible bonds this year, the issue was not just down to size but also transparency. You can’t possibly raise money offshore unless you are transparent first and size and scale second. There are certainly in any group of people first movers and the people that realize they have made a mistake, but there are also the vast majority of us that see what happened and take a long time to make a decision.
The people that traveled to Bangkok, Kuala Lumpur and Singapore, and went to see what was happening in other markets, the people that stayed humble, they are the survivors. People that realize there isn’t necessarily a big queue at the door but there is definitely a queue and obviously the people that play golf, they are the successful ones. The people that stood still are now stuck in their headlights. There are tenants and buyers out there, I assure you. There are buyers of apartments and town houses and row houses out there. You just have to be humble.
* Is the real estate market about timing or is it about location?
- This market is all about timing. It has got very little to do with location. Without a BTS and MRT and MTR, this city, certainly for the next five years, is about timing. Even when this market that is as challenging as it is at the moment, there are going to be periods within it where you are able to trade, where investors are able to come in and buy and certainly make money.
However, it takes speed and it takes guts and it probably takes a very good investment banker. There is nothing wrong with leasing your building. You will not find tenants until you finish your building unless you are very lucky. It is very difficult to find a tenant that will pre-commit to a building until it is finished. If you’ve got one, hold on to him, cherish him, love him, send him flowers, play golf with him, because there aren’t many of those people around that will commit to a building before you finish it. Property is a pretty commoditized item.
* What is the greatest challenge for the real estate business in the years to come?
- In the ten years I’ve been here, we have only ever had one CBRE sign up on a site that we have sold. There seems to be a huge amount of inertia and I don’t necessarily think it is just with my own company.
The coat hanger buildings in KL and Bangkok hang around for nearly ten years. It wasn’t just the fact that rents didn’t go up. These buildings took a very long time to clear. Only the lawyers really made money out of them. We are beginning to see some recalibration. Our values are as busy as they have been but we are certainly the most unpopular men in the room when the numbers come out and we don’t necessarily get asked to come back.
There is a recalibration of it as capital values, of rents, of yields, of prices, but there is still a reluctance to sell at a double digit yield, especially into a market where we all know certainly for the moment that in most buildings office rents are still going down.
