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From: <dtsang@uci.edu>
Date: Sat, May 31, 2008 at 12:22 AM
To: vsg@u.washington.edu
Article in Friday's San Jose Mercury News:
http://www.mercurynews.com/news/ci_9424848?nclick_check=1
Silicon Valley investors join in Vietnam's real estate frenzy
LAND PRICES SOAR AS INTEL, OTHERS POUR MONEY INTO A GROWING ECONOMY
By John Boudreau
Mercury News
Article Launched: 05/30/2008 01:30:19 AM PDT
HO CHI MINH CITY, Vietnam - A half a world away from Silicon Valley's anemic real estate market, agent Cindy Nguyen has little time for sleep while she sniffs out deals in one of the world's hottest property markets.
Last year, the president of San Jose's Lakami Professional Realty returned to Vietnam for the first time in 23 years. She was stunned by what she saw: instant wealth being created by land prices that have tripled, even quadrupled, in recent years.
"I saw the opportunity," said Nguyen, who now commutes regularly between the valley and Vietnam. "I saw the cha-ching, cha-ching. Your return on investment is at least 200 percent in one year."
The boom is fueled by intense optimism about Vietnam's future as multinational corporations like Intel funnel billions of dollars of investment into its economy. International developers are building everything from resorts to cities. Speculators are betting on undeveloped land on the outskirts of the big cities. And members of the new middle class are pushing up prices as they strive for their own Vietnam Dream: Buying a home. And another. And another.
"Because there is no supply, the prices are going up," said Matthew Koziora, associate director of commercial real estate services company CB Richard Ellis in Ho Chi Minh City.
The country's youthful population - 65 percent are under the age of 35 - adds to the buying frenzy. Many are cashing in on smart purchases made a year or two ago. "But
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they pour 98 percent of it back into property," Koziora said. "They are not frivolous. They want to reinvest straight-away."
Some home buyers sign papers for new $150,000 villas in Ho Chi Minh City's upscale Saigon South and then immediately sell them for $300,000 to willing buyers waiting outside, said Paul Hoang, managing partner of Milpitas-based Donnelley LT Group, which sells Saigon South units to overseas Vietnamese.
"It's unbelievable," he added.
Meanwhile, office rental rates in Ho Chi Minh City, Vietnam's commercial hub, spiked more than 90 percent from 2006 to 2007, according to CB Richard Ellis. Office rents in Ho Chi Minh City - which were $85.84 per square foot a year during the first quarter of 2008 - are nearly double the cost in San Jose.
In an effort to slow Vietnam's rampant inflation, the government recently increased reserve requirements for commercial banks and raised interest rates. This has caused the real estate market to slow in recent weeks, though experts expect it to heat up again after the summer.
"Demand is still high," Koziora said.
Bubble in the making?
Some economists worry about a bubble, but Koziora and others do not see significant slowdowns for at least three to five years. Property near the city's center will hold its value, he added.
Outlying areas may not be so fortunate. The axiom "location, location, location" hasn't taken hold among many Vietnamese. Some will suffer if a downturn hammers the value of projects "in the outlying areas built by average Vietnamese developers," Koziora said.
Hoang believes a bubble is in the making in certain areas. "The majority of the population is very poor," he said. "Assembly-line workers probably make $70 a month; the white-collar people, probably $150 a month; and some people working for foreign companies make $500 to $700 a month. So not too many people have money to buy land."
Vietnam's property market is mystifying in other ways. Valley real estate agent Nguyen said she had to develop new skills to cut deals in Ho Chi Minh City.
"If you don't have connections, you can't work here," she said. "It's the relationships you have with people that makes things happen."
Overseas investors
Ho Chi Minh City real estate tycoon Duong Thi Bach Diep has seen overseas Vietnamese struggle to succeed in the market. Government regulations virtually exclude individual overseas Vietnamese, whom locals refer to as Viet Kieu, from owning property if they are not part of a larger investment group. So some Viet Kieu give money to family to acquire property. There have been lawsuits between them and Vietnamese family members who cut out their overseas relatives as property values soar.
"Viet Kieu need to be careful," Duong said. "They don't understand the system in Vietnam."
Nonetheless, overseas Vietnamese continue to invest in real estate. It's impossible to know how much money they are sinking into land, but it's a good bet a healthy chunk of the $6 billion to $10 billion in annual remittances to Vietnam is funneled into real estate.
Nguyen represents a number of Vietnamese-Americans from the Bay Area. They insist on anonymity for fear of angering the San Jose Vietnamese community, some of whom remain strongly opposed to the communist government in Hanoi and those they perceive as helping it.
But Nguyen said the government is changing, at least when it comes to business. "They are making it safer and easier for the investor," she said one recent Sunday while touring upscale Phu My Hung. The 8,000-acre project, where homes range from $180,000 apartments to $2.5 million villas, is a section of Saigon South.
"Silicon Valley is dead right now," she added. "I need to survive."
Property developers like Duong are surviving in style. She likes to tool around town in a custom-made $1.3 million Rolls-Royce purchased earlier this year.
The demand for real estate is real, Duong said as she showed off one of her properties, a multilevel suite equipped with an elevator, lavish kitchen and numerous bedrooms.
"Vietnam is considered a poor country," she said. "But people are rich. They have cash in hand. So the trend is the market has to go up. Nothing can stop it."
Daniel Tsang
UC Irvine
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From: Hoang t. Dieu-Hien <dieuhien@u.washington.edu>
Date: 2008/5/31
To: Vietnam Studies Group <vsg@u.washington.edu>
Clicking on the link did not work for me either. So I tried going into San Jose Mercury News Home Page. Then search for the name of the article. I was able to read the article.
The address is exactly the same as below. Now that I've seen the article, the link works for me. I don't understand the reason behind this, but thought list members might be interested in the go around.
Wonder how all this boom affects the ability of the average local people to do business and make a living, besides the ones who are making money on the real estate profits? And how the average Saigonese lives will be affected when the bubble burst, like it did in the mid-1990s?
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From: Shawn McHale <mchale@gwu.edu>
Date: Sat, May 31, 2008 at 9:29 PM
To: Vietnam Studies Group <vsg@u.washington.edu>
Dear list,
I'm no economist (just the son of one), but it seems obvious to me that the real estate boom should not just be seen as a sign of economic health. It is partly caused by rampant speculation, leading to "bubble" prices. I am living in District 2, in Saigon. The prices of land here are absurd. I don't know if rents are falling, but I have heard rumors of foreigners paying $5,000 a MONTH for their top end villas in their gated communities. Never having been in one, I can't comment on how nice they are, but are they worth $60,000/ year in rent? Dubious. But such prices were being driven by a temporary shortage of high-quality housing driving prices up as well as by high land prices driven by speculators, who in turn were abetted by irresponsible banks lending out money at ridiculous rates. Land prices are now falling in Ho Chi Minh City, I understand, which is a good thing. But I wonder how many will lose their shirts.
Where was the government in all of this? Where was it acting in a responsible manner -- for example, reining in easy lending? Beats me.
I sound intemperate. On the one hand, I have some sympathy for individuals who speculated and are now losing money. I have no sympathy for banks that don't do what they are supposed to do: act in an economically reasonable manner where they minimize excessive risk. Not, it seems, many Vietnamese banks. My sense is they wanted to keep out foreign banks as long as possible, for fear of true competition. I can see an argument being made for making sure that Vietnamese banks have the time to "get up to speed" to face foreign competition, and thus keeping foreign banks out of important sectors of the Vietnamese economy. But this view assumes that Vietnamese banks would indeed spend their time "getting up to speed," strengthening themselves, instead of providing "easy money" to their customers.
There have been enough examples around the world (Japanese banks going under, Asian ones during the Asian financial crisis) for Vietnamese banks to learn some lessons from the past about the need to focus on fundamentals.
Banks and land prices aside, Vietnam is encountering big economic problems now. All the PR in the world can't hide that. The papers have been full of talk of inflation since January -- it has now reached the point that for many commodities, the consumer sees obvious price increases. This was clear earlier with rice prices, when Vietnam cut back exports in order to build up the rice supply and bring the price of rice down. But it is true across the board with all sorts of things, from mangoes to meals out. The average *city* consumer is getting hit hard by these commodity increases. It will be interesting to see, in contrast, how your average farmer does.
Vietnam's inflation rate for the first four months of this year was an astonishing 15.96 per cent. Many reports of the annual inflation rate set it at above 25%.
Well, I am no economist . . . :) But like all the other individuals on this list who are currently in Vietnam, we can see the palpable effects of inflation. Putting aside the better off, just think of how this is affecting your average worker in the cities. It has led to strikes for higher base wages in factories around this city.
It will be interesting to see how the government acquits itself in this difficult period. And, in the long run, it will be interesting to see if the government promotes economic growth that leads to widespread prosperity, or to growth that leads to greater and greater social inequality.
Shawn McHale
Associate Professor of History and International Affairs
George Washington University
Washington, DC 20052 USA
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From: Thomas Jandl <thjandl@yahoo.com>
Date: 2008/6/1
To: Vietnam Studies Group <vsg@u.washington.edu>
The link worked fine for me, but here is an observation in response to the obscene rent prices in HCMC.
I spent the fall semester of 1997 in Vietnam for fieldwork (where I ran into Shawn), and found a temporary "home" at a consulting firm in HCMC. They helped me with translation, logistics and office space and I am writing a report for them in return.
I shared an office with their real estate person. At one point, he got a phone call, started smiling and rolling his eyes. After he hung up, he told me he had just talked to a English lady living in Thailand and ready to move to HCMC with her family. She had asked him for a villa with pool and a small garden for her children for rent around $US3,000-4,000. She was willing to live in the outskirts, but he laughed and said she would have to move into the Mekong Delta to get a villa with pool and garden at THAT price.
So, Shawn, the $5,000 in District 2 doesn't even strike me as the high end of things.
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From: jkirk <jkirk@spro.net>
Date: Sun, Jun 1, 2008 at 9:00 AM
To: Vietnam Studies Group <vsg@u.washington.edu>
I just have a small comment to add to prof McHale's observations.
When I was in Danang last January (only briefly with a tour, to
have lunch and visit the Cham museum), we were driving along a
road next to the ocean (sorry I don't know the precise name of
this area), when our guide informed us that the lovely sand-duned
area between the road and the sea, which was also dotted with
small graveyards, was being sold off. The area was slated for
four star tourist hotel development. As is already known in the
development literature (the Caribbean islands offering some good
examples) such developments don't benefit most local citizens
whatsoever, they benefit the developers and hotel owners, and a
few merchants. The jobs created are low pay service jobs. Job pay
from the construction phase ends when the hotels are built.
And then I wondered also about the grave sites in the area---they
would obviously be removed. What would the ordinary people do
about removal of ancestor graves?
Joanna Kirkpatrick
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From: Jim Cobbe <jcobbe@fsu.edu>
Date: Sun, Jun 1, 2008 at 9:21 AM
To: Vietnam Studies Group <vsg@u.washington.edu>
I would absolutely agree that there is very likely to be overdevelopment along the coast between Da Nang and the provincial line, where almost every meter is supposedly earmarked for resort or golf course development. But I would make two points. I live in the redevelopment area behind My Khe beach -- the low quality housing and flower and market gardens are being replaced with new roads and luxury housing. The people I've spoken to who live in houses slated for demolition are happy about it -- the compensation they are getting they consider more than fair. Secondly, to call four star resort jobs in Viet Nam 'low pay service jobs' is not accurate in the reality of the Vietnamese labour market. Workers in those resorts have to speak foreign languages, and the pay and conditions in those resorts for employees make them very desirable jobs, even for college graduates. In fact, the TP Da Nang government is very concerned that there will not be enough workers with the requisite skills to fill all the tourist industry jobs they expect over the next decade, and are talking of supporting new training institutions. My guess is that many of the developments will be delayed, because many even now have very low occupancy rates most of the time. There are indeed real problems in over reliance on tourism as an engine of economic growth, but that doesn't mean it should be totally shunned either -- the Vietnamese look to Thailand's successes [and problems], and think they should be able to do at least as well. And they probably can.
On a not totally unrelated note, I nearly fell off my motorbike recently when I realized one of the new shops on the grounds of the new My Khe 3 Hotel is a condom shop, which makes the nature of its merchandise very clear in its signage.
Jim Cobbe
Professor Jim Cobbe
AY 2007-08: Fulbright Scholar, Đại Học Kinh Tế Đà Nẵng
71 Ngu Hanh Son, TP Đà Nẵng
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From: Thomas Jandl <thjandl@yahoo.com>
Date: 2008/6/1
To: jcobbe@fsu.edu, Vietnam Studies Group <vsg@u.washington.edu>
To add to this debate about tourism development:
I spent last fall semester interviewing provincial developmeng authorities about their strategies. One thing about tourism development is that it provides BOTH low-end jobs and jobs that require significant qualifications.
The low end jobs are needed -- lots of people in central Vietnam don't have the qualifications for anything else and are looking desperately for LOCAL low-end jobs outside farming. So these jobs are really important to these regions. (The alternative is migration to HCMC and surroundings with all the dislocation -- and benefits, of course -- that brings.)
The higher end jobs, those with language requirements, for example, actually pose serious problems for the developers and authorities. Most provinces will either honestly tell you that they don't know yet where to get all these English or Japanese speakers from (and thus how to keep salaries for a scarce resource reasonably low), or they will unconvincingly try to tell you how their local university is producing 3,000 highly qualified tourism-ready employees a year. (One DPI tried to tell me exactly that, but ironically through an interpreter who spoke decent English, yet couldn't understand much at all -- typical case of someone who learned English only by writing and reading without a language lab, tapes or qualified teacherslet alone native speakers or study abroad. And that was the DPI of one of the new mega-economic zones!)
So my take on this is that the low end jobs will be a boon for the provinces that so far haven't received much development. The Ministry of Finance told me that 11 out of 64 provinces run budget surpluses, while the rest routinely needs transfer payments. So development is sorely needed in those 53, and the bottleneck will not be the low end jobs, but the high end ones.
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From: Hue-Tam Ho Tai <hhtai@fas.harvard.edu>
Date: 2008/6/1
To: Vietnam Studies Group <vsg@u.washington.edu>
A couple of additions:
Tombs have been moved or otherwise built on for a long time in Vietnam as in many other countries (the PRC in particular). In 1975, the new authorities turned a major cemetry in Saigon into a park. The military cemetery in Go Vap was razed to make way for an industrial park. In Hanoi, the Hop Thien area which served as a mass grace for the dead of the Famine and of the bombings of 1945 was largely built over by illegal migrants. The woman who constituted herself into a self-styled guardian of the ossuary claimed that as people built their houses, they kept digging up corpses. A memorial to the dead was finally built in 1998, otherwise, the whole site would have been built over.
A reverse trend is occurring in the North especially as more and more farmers build tombs on their land rather than bury their dead in cemeteries, and the tombs, which had been simple earthen mounds become elaborate mausolea.
Manpower: the receptionists in hotels large and small are expected to be able to speak some foreign languages. In HCMC University, I was told that the most popular majors are foreign languages (English, Japanese, Korean in particular) because these lead to good jobs. I agree that the bottleneck will be at the high rather than low end.
Razing existing buildings: Things differ from place to place. When the street in front of my sister's house was widened, those whose houses had to be chopped off received adequate compensation for rebuilding the facades, though it took the city nearly ten years to accumulate the necessary funds. A more important issue for people who are displaced is whether their new housing is convenient for earning their livelihood.
I agree with Shawn about the real estate bubble in HCMC. Inflation is also hitting hard.
Hue-Tam Ho Tai
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