In parallel with this robust economic growth, Vietnam’s real estate market is undergoing a marked transformation, and in many cases, we believe, properties are poised to provide attractive current yields and capital appreciation. We see high yielding investment opportunities for experienced real estate investors who can employ a sophisticated blend of foreign capital and financing expertise with local execution ability to source, acquire, finance, or re-position and exit property investments opportunistically across all major property types. We believe that attractive investment opportunities exist in particularly because of the inefficiencies which exist due to a lack of domain knowledge on the part of local real estate companies. For example, many local property companies still price land on land area and do not take into account floor area ratio, zoning, and other important variables. This can enable a seasoned investor to buy underlying land at a relatively inexpensive price relative to the potential value realized from the rentable or sellable area of a multi-level building built on that land.

A. Residential Market

We believe that residential real estate, in particular residential for sale, will perform well for the foreseeable future and has therefore adopted a base strategy of acquiring and positioning properties that have a residential component, particularly a “for sale” residential component. Thus, the Fund will target (1) urban and suburban residential developments; (2) major urban mixed-use properties with retail, office, and/or hotel elements with associated condominium apartments; and (3) resort hotels and urban hotels with associated condominium or villa units. Given the nature of Vietnam’s 20th century history and the growth of its economic, coupled with the increase in wealth and consumer spending power, rapid urbanization, availability of mortgage financing and deferred payment, we believe that there exists today significant pent-up demand for equality residential property that will generate and sustain long-term gains in Vietnamese real estate as an asset class during the life of the Fund.
 
Living space in Vietnam’s urban areas is approximately 11 sqm per capita compared with Bangkok where it is 17 sqm per capita. The housing shortage in the country’s urban areas is severe with a significant portion of the population living in sub-standard, narrow, and poor quality accommodations. Approximately 40% of households in the country’s urban areas occupy a usable housing area of less than 36 sqm as per a 2005 housing report prepared by the Prime Minister’s office. With the expected rapid growth of the population and increased urbanization and rural-urban migration, the imbalance in demand and supply of the housing stock in urban areas will increase. According to CBRE, the acute shortage of decent housing and the strong demand for quality condominiums among the middle class is illustrated by the success of apartment projects achieving pre-sale rates of 60-70% in the last two years, prior to commencement of construction.

Demand for serviced apartments is also robust given the growing number of expatriates employed by multinational corporations or temporarily in Vietnam on project and consultancy work. With WTO ascension and growing global trade, we expect the number of expatriates to continue to rise dramatically. The lack of quality serviced apartments accentuates the need for better serviced apartments to accommodate these expatriates.

B. Office Market

The office sector also provides opportunities for select investments. Vietnam has some of the highest occupancies and rental rates in Asia and yet the market is in its infancy, with significant yet to be addressed demand and substantial room for growth. Compared to larger cities in Asia, the office market in Vietnam is at a nascent stage. Asian cities such as Bangkok have a modern office stock of 200 sqm per population of 1,000, while HCMC has the lowest at 12 sqm per population of 1,000. Total Grade A office supply of 150,000 sqm in both HCMC and Hanoi represents one tenth that of Bangkok or Manila. At the same time, demand is growing rapidly as new companies are entering the market and as local as well as international companies are expanding and demanding better services and building features.

C. Retail Market

Vietnam is witnessing the emergence of a vibrant middle class and the rise of consumerism in the country. In 2005, Vietnam’s retail turnover was US$31 billion, representing more than two-thirds of the total GDP, according to the Government of Vietnam’s Statistics Office. International retailers are penetrating the Vietnamese retail market in parallel to the rising disposable income of the local population. However, there is a severe shortage of retail space with hypermarket and department stores being relatively new phenomena in Vietnam. HCMC and Hanoi combined currently only have 160,000 sqm retail space compared to 4,100,000 sqm in Bangkok. Adjusting for affordability, Vietnam’s retail space of 35 sqm/US$GDP per capita is only 7% that of Bangkok at 500 sqm/US$GDP per capital.
 

D. Hotel/Resort Market

The rising number of tourists and business visitors to Vietnam has spurred strong demand for hotels and resorts. The World Tourist Organization ranked Vietnam as one of the fastest growing tourism markets in 2005. Vietnam’s combined foreign visitors was approximately 3.5 million in 2005 and are expected to grow 15-20% over the next few years and top 5.0 million in 2008, as projected by Horwath Asia Pacific. Supply, on the other hand, is limited with only 12,000 international standard hotels in HCMC and Hanoi. The number of four and five star hotel rooms of 8,000 for HCMC is less than one-tenth that of Bangkok. These combined dynamics of tourism and business arrivals and supply shortage create a compelling case for hotel/resort market.