Real estate market and property consultancy in hanoi, some strategic solutions for vietnamese property consultancy companies

vietnam national university, HANOI school of business Nguyen Trung Dung REAL ESTATE MARKET AND PROPERTY CONSULTANCY IN HANOI, SOME STRATEGIC SOLUTIONS FOR VIETNAMESE PROPERTY CONSULTANCY COMPANIES master of business administration thesis Hanoi - 2007 vietnam national university, HANOI school of business Nguyen Trung Dung REAL ESTATE MARKET AND PROPERTY CONSULTANCY IN HANOI, SOME STRATEGIC SOLUTIONS FOR VIETNAMESE PROPERTY CONSULTANCY COMPANIES Major: Business Administration Code: 60 34 05 Master of business administration thesis Supervisor: dr TA NGOC CAU Hanoi - 2007 TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABSTRACT ii TÓM TẮT iv TABLE OF CONTENTS vi LIST OF ABBREVIATIONS viii LIST OF TABLES ix LIST OF FIGURES x APPENDIX xi INTRODUCTION 1 BACKGROUND OBJECTIVES OF THE STUDY SIGNIFICANCE OF THE STUDY .3 SCOPE AND LIMITATIONS OF THE STUDY METHODOLOGY 5.1 Research Method 5.2 Data Collection and Analysis Method THESIS’S LIMITATION .6 OUTLINE CHAPTER 1: LITERATURE REVIEW 1.1 REAL ESTATE MARKET .8 1.1.1 The Definition for Real Estate & Real Estate Market 1.1.2 The Main Participants in Real Estate Market 1.1.3 Demand 1.1.4 Supply 1.1.5 The Adjustment Mechanism 10 1.1.6 Line of Real Estate Related Business 11 1.2 THE PROPERTY CONSULTANCY 12 1.2.1 Why Property Consultancy? 12 1.2.2 Traditional and Modern View 13 1.2.3 Market Maturity .13 1.2.4 Services Offered .14 1.3 ENVIRONMENTAL ANALYSIS 14 1.3.1 Societal (Macro-environment) Analysis 15 1.3.2 Industry Analysis 15 1.3.3 Internal Analysis 16 1.3.4 SWOT 17 CHAPTER 2: HANOI REAL ESTATE MARKET 18 2.1 MACRO-ENVIRONMENTAL FACTORS 18 2.1.1 Introduction 18 2.1.2 Political Factor: 18 2.1.3 Population and Life Style 18 2.1.4 GDP 20 2.1.5 Foreign Investment 20 2.1.6 Legal and Policy 22 2.1.7 Financial Market 25 2.1.8 Master Urbanization Plan 26 vi 2.2 HANOI REAL ESTATE MARKET 28 2.2.1 Residential Market 28 2.2.2 Serviced Apartment Market .33 2.2.3 Office Market 38 2.2.4 Retail Market 42 2.2.5 Hotel&Tourism Market 47 2.2.6 Industrial Market 50 CHAPTER 3: PROPERTY CONSULTANCY IN HANOI .53 3.1 HISTORY 53 3.2 KEY SERVICES OFFERED IN HANOI .54 3.2.1 Exclusive Agency, Exclusive Right to Sell or Lease 54 3.2.2 Open Brokerage/Agency 55 3.2.3 Tenant Representation 56 3.2.4 Property Management 57 3.2.5 Research 59 3.2.6 Valuation 60 3.2.7 Investment Sales & Acquisition .61 3.2.8 Project Development 61 3.2.9 Legal Services 62 3.2.10 Financial Services 63 3.2.11 Real Estate Investment 64 3.3 DEMAND AND KEY CONSIDERATIONS IN SELECTING CONSULTANT 65 3.3.1 Demand and Key Clients 65 3.3.2 Key Factors In Determining Choice of Consultant 67 3.4 CONSULTING COMPANY 73 3.4.1 Market Share & Supplying Competence 73 3.4.2 Company Models .74 3.4.3 SWOT for Vietnamese Companies 78 CONCLUSIONS AND RECOMMENDATIONS .79 REFERENCES 87 APPENDIX A 88 APPENDIX B 93 vii LIST OF ABBREVIATIONS GDP: Gross Domestic Product FDI: Foreign Direct Investment WTO: World Trade Organization Colliers: Colliers International Savills: Savills Vietnam Ltd CBRE: CB Richard Ellis viii LIST OF TABLES Table 2.1: Hanoi’s population from 2003-2006……………………………………… Table 2.2: Hanoi’s GDP from 2003-2006…………………………………………… Table 2.3: Transaction Rate by Kind of Property………………………………… 29 Table 2.4: Price of Sales by Grade…………………………………………………… Table 2.5: Rental of Apartments Including Tax (Not serviced apartments)……… Table 2.6: Supply of Hanoi Serviced Apartment Market………………………… 36 Table 2.7: Classifying Office Buildings……………………………………………… 38 Table 2.8: Standard Area & Average Rental Rate for Retail Models In Hanoi… 44 Table 2.9: The Rate of Retail Format by Area Use………………………………… Table 2.10: List of Markets Will Be Converted Into Shopping Centers…………… Table 2.11: Hotels in Hanoi 2006…………………………………………………… 48 Table 2.12: Average Rental of Industrial Zones…………………………………… 51 Table 3.1: Reasons for Using a Consultant………………………………………… 65 Table 3.2: The Type of Clients That the Consultants Deal With the Most……… 66 Table 3.3: The Way Clients Got Real Estate Consultant…………………………… 67 Table 3.4: Evaluate the Performance of Current Consultant……………………… 68 ix LIST OF FIGURES Figure 1: Thesis Outline Figure 1.1: The Adjustment Mechanism of Real Estate Market Figure 1.2: Traditional and Modern View of the Real Estate Market Figure 1.3: Porter’s Five Forces Model Figure 1.4: Another Model of Industry Analysis Figure 1.5: SWOT Analysis Figure 2.1: Housing Supply Vs Actual Demand in Hanoi Figure 2.2: Hanoi New Stock For 2008-2010: 7,634 units Figure 2.3: Trend of Apartment & Villa Supply 2007-2020 Figure 2.4: Demand and Rentals of Hanoi Serviced Apartment Market Figure 2.5: Limited Supply during Period 1998-2007 Figure 2.6: Future Supply of Hanoi Serviced Apartment Market Figure 2.7: Monthly Take-up and Occupancy Rate of A&B Office Figure 2.8: Hanoi’s New Supply of Grade A&B Office Figure 2.9: Average Rental (Net) of Grade A&B Office Figure 2.10: New Stock of Grade A, B&C Office (2007-2010) Figure 2.11: INCOME GROWTH (PER CAPITA PER MONTH) Figure 2.12: RETAIL SALES & YEAR ON YEAR GROWTH RATE DURING 1996-2007 Figure 2.13: Hanoi’s GDP per capita & Population Figure 2.14: Leaseable Area and Rental Rates of Shopping Centers in Hanoi Figure 2.15: Significant Future Shopping Center in Hanoi Figure 2.16: Comulative Stock and New Supply of 4, Star Hotel Room Figure 2.17: Requirement for Hotel Room (2005-2010) Figure 3.1: The Consultant with Best Reputation for Exclusive Agency Figure 3.2: The Consultant with Best Reputation for Open Brokerage/Agency Figure 3.3: The Consultant with Best Reputation for Tenant Representation Figure 3.4: The Consultant with Best Reputation for Property Management Figure 3.5: The Consultant with Best Reputation for Research Figure 3.6: The Consultant with Best Reputation for Valuation Figure 3.7 the Consultant with Best Reputation for Investment Sales&Acquisition Figure 3.8: The Consultant with Best Reputation for Project Development Figure 3.9: The Consultant with Best Reputation for Legal issues x Figure 3.10: The Consultant with Best Reputation for Financial Services Figure 3.11: The Consultant with Best Reputation for Real Estate Investment Figure 3.12: Most Common Complaint from Clients Figure 3.13: Importance of Factors Determining Choice of Consultant Figure 3.14: How Well Consultants Understand Their Clients Figure 3.15: Fee Structure Preferred by Clients Figure 3.16: Market Share by Turnover Figure 3.17: Recognition of the Consulting Companies APPENDIX APPENDIX B: Questions for Clients APPENDIX B: Questions for Consultants xi INTRODUCTION BACKGROUND Hanoi is an important center of real estate industry in Vietnam and Asia as well Due to great potential, Hanoi real estate market is becoming a favoured destination for domestic and foreign investment During the end of the year 2007, real estate market in Hanoi has recovered from a long time of freezing and showed new fever “It is the third fever” It is easy to see that price of all properties is rising strongly In order to explain the situation and give out the forecast for the upcoming years, it is necessary to analyze the market deeply and carefully based on mix-factors Although, it has fluctuated strongly in the pass, Hanoi real estate market is still been seen as a primary market “Boom” demand and positive policies that make Hanoi real estate market more attractive for investment, especially foreign investment Hanoi real estate market will continue to boom in many years upcoming that brings great opportunities and threats Hanoi real estate market is always a center public discussion especially for problems such as: Shortage of supply, escalation of price, speculation, unclearness of market, and effects of new policies…However, practical and theoretical researches on Hanoi real estate market are few, immaterial and unsystematic The property consultant is an important factor of real estate market that leads or plays the role of conductor in real estate market Thanks to the real estate market, property consultancy in Hanoi has become a profitable business Today, the demand for property consultancy in Hanoi is diversified and increasing very fast that put a strong pressure on consultants Key clients those who are users of real estate related consultant services including property developers, property companies, domestic institutional investors, international investors and larger domestic corporations The foreign consultancy firms with their good reputation and brand, high professionalism that become market leaders Foreign consultants can provider a diversified list of services or highly specific services Vietnamese consultancy companies are also improving their competence to hold the market share However, Vietnamese consultancy companies still haven’t clear strategies that help them to win in an environment of full opportunities and challenges So far there aren’t still any professional researches on the subject of property consultancy in Vietnam or Hanoi OBJECTIVES OF THE STUDY The objectives of this thesis focus on: For Hanoi real estate market, the general objective of the thesis is to present and analyse key issues of market at this present time and make some forecast about the trend of market in the near future In order to get the general objective, the thesis focuses on the following specific objectives:  Analyse the effect of macro-environmental factors such as: Political, economic, social, legal and policy  Analyse the characteristics of demand and supply as well as factors which affect demand, supply and price of Hanoi real estate market at this present time The analyses also provide some forecast for some upcoming years, especially for the period of 2007-2012 For property consultancy in Hanoi, the general objective of the thesis is to present and analyse key issues of property consultancy market and the comparison between foreign and Vietnamese consultancy companies In order to get the general objective, the thesis focuses on the following specific objectives:  Analyze the development of property consultancy in Hanoi  Present and analyze key services which are offered in Hanoi  Strategic alliance, merge & acquisition: Today in Hanoi, there is a contradiction between the demand of market and the supplying competence of consultants The demand for property consultancy is too high; the clients require not only quality of particular services but also full services Vietnamese companies severally can’t meet the demand of clients perfectly by limited competence; however a close alliance among appropriate companies can help improve the supply competence Improving the competence by partnership maybe is a good solution for Vietnamese consultants in a market of demand overload at this time The partners need to be considered carefully before setting up long term cooperation because the company can be lost clients, information or adverse effect for brand and reputation Some big Vietnamese companies can apply the M&A strategy into smaller companies But M&A strategy is the most effective model between a big Vietnamese consultancy company and an international consultancy firm Big Vietnamese Consultancy Company has good market experience, knowledge, reputation, and brand for local clients as well as good relationship with local partners International consultancy firm has great advantages of management, finance and especially international investors’ network A successful model is the case of Tai Tam Domus and Colliers Getting outsourcing order from foreign firms is also a good way help Vietnamese consultants improve their competence step by step This strategic solution can be applied by the following steps: Step Defining Strong and Weak Points 84 • Focusing on niche market: Demand overloads and limited competence that is a common problem for Vietnamese consultants at this time In order to solve this problem for more effective business, the Vietnamese consultancy companies should apply focus strategy The company concentrates on an appropriate narrow segment by filtering its potential clients and within that segment attempts to achieve either a cost advantage or differentiation The entire focus on an appropriate narrow segment that helps provide better services and often enjoys a high degree of customer loyalty and this entrenched loyalty discourages other firms from competing directly Some models of focus applied for Vietnamese companies as follows: s Depending on the current clients, consultants will filter appropriate target clients At present Vietnamese consultants should focus on some services such: agency, tenant representation, investment sales & acquisition and step by step expand their services for research, valuation, property management, project development, and investment advice… At this present time, focus strategy combined with strategic alliance is a good solution for Vietnamese companies • Other strategic solutions With low business cost, high flexibility, Vietnamese consultancy companies should apply the cost leadership strategy in the combination with focus strategy to improve their competitive competence in the fight of market share with foreign consultancy firms Figure 3.15 show the client preference for the fee structure of case by case driven that is a strong point of Vietnamese companies 85 Some big Vietnamese companies with advantages of relationship, market experience and knowledge, professional and diversified services, and wide network of clients can apply market follower strategy This strategy helps Vietnamese companies expand very fast and narrow the gap with foreign companies 86 REFERENCES Antony Pastiroff, “the Swedish real estate consultancy market”, Department of infrastructure, Division of Building and Real Estate Economics, Royal Institute of Technology, Stockholm “Real Estate Economics”, Fall 2002, University of Wisconsin “Strategic Management and Business Policy” by Tom Wheelen and David Hunger “Buying & Investing in Vietnam Presentation”, CB Richard Ellis “Overview of Vietnam Property Market”, Oct 2007 at Pacific Place Conference Centre, Hong Kong, CB Richard Ellis “Hanoi Property Market Update Q3/2007”, CB Richard Ellis “Press Conference Retail 7” Novemmber 2007, CB Richard Ellis “Press Conference Residential Leasing” 14 December 2007, CB Richard Ellis “CBRE Vietnam Newsletter October 2007”, CB Richard Ellis “Vietnam's Property Market Presentation” on 18 Sep 07 at Singapore, CB Richard Ellis “Hanoi Real Estate Market Research in 2007”, Megaland 87 APPENDIX APPENDIX A Questions for Clients What is your company name? What is your job title?…………………………………………………………… How long have you worked within a real estate related business area? ………………… Years How long have you had your current consultant? ………………… Years Rank the performance of your current consultant on the scale: Poor Needs Improvement Average Good Excellent Please list two property consultancy firms you know have the best overall reputation? (All areas) 1st 2nd Please list two property consultancy firms you know have the best overall reputation in the following fields: (The same company may be stated more than once)? Exclusive Agency, Exclusive Right to Sell or Lease………………… Open Brokerage/Agency……………………………………………… Valuation ……………………………………………………………… Research………………………………………………………………… 88 Tenant Representation…………………………………………………… Property Management…………………………………………………… Financial services………………………………………………………… Legal Services…………………………………………………………… Investment Sales & Acquisition………………………………………… Project Development …………………………………………………… Real Estate Investment………………………………………………… Do you know the main business area of the following companies’? Y or N Megaland………………………………………… E-Homes………………………………………… CBRE……………………………………………… Tai Tam Colliers…………………………………… Savills……………………………………………… ReCentury………………………………………… Houselink………………………………………… Golden Key……………………………………… Indochina………………………………………… Vina Housing…………………………………… VinaCapital……………………………………… TigerInvest……………………………………… IDJ……………………………………………… HanoiLand……………………………………… Keppel Land…………………………………… SAS-CTAMAD………………………………………………………… Valuation Center – Ministry of Finance………………………………… Baker & McKenzie Investconsult………………………………………… 89 Pham & Associates……………………………………… VILAF-Hong Duc……………………………………… PricewaterhouseCoopers………………………………… How did you get your present real estate consultant? Established relationship They approached you They were recommended Actively searched Other What is your main reason for using a real estate consultant? (Mark only ONE) Cost effective Less problems Security for decision To concentrate on core business How important are the following factors when deciding on which real estate consultant to use? (Please mark using 1,2,3 or on the scale) 1=extremely important, 2=Important, 3=slightly important, 4=Not important Fee structure/levels Range of services Consultant’s network Market knowledge Track record In your view, does your existing real estate consultant provide all the services you require? Yes No Have you ever asked your consultant for additional real estate related services? Yes No If yes, which services? …………………………………………………………………………… 90 …………………………………………………………………………… …………………………………………………………………………… b) If yes, did they provide those services or recommend someone else? Provided Recommended Have you ever been approached by another real estate consultant, offering you their services? Yes No If yes, did you choose them? Yes No Why or why not? ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… Does your consultant understand your; position in the industry, financial situation, corporate strategy and business philosophy? Particular requirement Position in the industry Financial situation Corporate strategy Business philosophy Would you be willing to release more of the above listed information to them, if you knew it would help your business? Yes No What is the most common complaint that you have regarding your consultants? (Mark ONE only) a) Communication problems b) Fee levels too high c) Delays, deadlines not met d) Did not show an interest in the assignment 91 e) It was difficult to contact staff f) Did not deliver what was required g) Did not have the technical skill h) Other How would you prefer your real estate consultant to charge you (fees)? a) b) c) d) e) f) Hourly rate Fixed rate for whole assignment Percentage of savings made Percentage of profit Fixed rate plus a percentage of any savings made Other (please specify) What general advice would you personally give to real estate consultants, to improve their service? ………………………………………………………………………………… ………………………………………………………………………………… ………………………………………………………………………………… 92 APPENDIX B Questions for Consultants What is your company name? What is your job title?…………………………………………………………… How long have you worked within a real estate related business area? ………………… Years What type of clients you mainly deal with? (Mark one) Real estate companies Real estate developer’s Institutional investors Private investors ・ Other (specify) Please list two property consultancy firms you know have the best overall reputation? (All areas) 1st 2nd Please list two property consultancy firms you know have the best overall reputation in the following fields: (The same company may be stated more than once)? Exclusive Agency, Exclusive Right to Sell or Lease……………………… Open Brokerage/Agency……………………………………………… Valuation ………………………………………………………………… Research…………………………………………………………………… Tenant Representation…………………………………………………… Property Management…………………………………………………… Financial services………………………………………………………… 93 Legal Services………………………………………………………… Investment Sales & Acquisition……………………………………… Project Development ………………………………………………… Real Estate Investment……………………………………………… Do you know the main business area of the following companies’? Y or N Megaland………………………………………… E-Homes………………………………………… CBRE……………………………………………… Tai Tam Colliers…………………………………… Savills……………………………………………… ReCentury………………………………………… Houselink………………………………………… Golden Key……………………………………… Indochina………………………………………… Vina Housing…………………………………… VinaCapital……………………………………… TigerInvest……………………………………… IDJ……………………………………………… HanoiLand……………………………………… Keppel Land…………………………………… SAS-CTAMAD………………………………………………………… Valuation Center – Ministry of Finance………………………………… Baker & McKenzie Investconsult………………………………………… Pham & Associates……………………………………… VILAF-Hong Duc……………………………………… PricewaterhouseCoopers………………………………… 94 What, in your view, is the future direction for the consultancy business? There will be more: Specialised/focused Companies Full service provider Alliance or Partnerships between firms How much your company been reduced or increased in size last year? Increase…………% Reduce…………% How much your company been reduced or increased in turnover last year? Increase…………% Reduce…………% Have your clients ever asked you for additional real estate related consultancy services? Yes No If yes, which services? Could you provide those services or did you recommend someone else? Provided Recommended What extra services, that are not currently core business, you think should be offered by real estate consultants? …………………………………………………………… …………………………………………………………… …………………………………………………………… Do you regularly approach potential clients that you would like to get business from? Yes No In the future, which services you think that clients will demand the most? (Mark only two) Exclusive Agency, Exclusive Right to Sell or Lease…………………… 95 Open Brokerage/Agency………………………………………………… Valuation ………………………………………………………………… Research…………………………………………………………………… Tenant Representation…………………………………………………… Property Management………………………………………………………… Financial services………………………………………………………………… Legal Services…………………………………………………………………… Investment Sales & Acquisition……………………………………………………… Project Development …………………………………………………………………… Real Estate Investment……………………………………………………… What you think is the most profitable area of consultancy at present and future? Present ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… Future ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… What services you offer your international clients that you not (need to) offer your Vietnamese ones? ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… Which clients generate the most fees for the company? Vietnamese International 50%/50% 96 What you feel is the main restriction (if any) with regard to your company’s growth in the real estate consultancy market? Lack of client’s Lack of capital/resources Lack of qualified employees Other …………………………………………………………… Do you feel that the co-operation between the real estate consultants is: Excellent Good Poor Does not exist What is the single most common complaint that you receive from clients? a) Communication problems b) Fee levels too high c) Delays, deadlines not met d) Did not show an interest in the assignment e) It was difficult to contact staff f) Did not deliver what was required g) Did not have the technical skill h) Other ………………………………………………………… 97 ... analysis for key and basic issues of Hanoi real estate market and property consultancy in Hanoi and making some strategic solutions for Vietnamese consultancy companies to improve their business in. .. for real estate investment are DHB, BIDV, MB Big real estate investments funds are Vinaland, Indochina Land Holdings… At present, in Hanoi, there are some financial companies participating in real. .. school of business Nguyen Trung Dung REAL ESTATE MARKET AND PROPERTY CONSULTANCY IN HANOI, SOME STRATEGIC SOLUTIONS FOR VIETNAMESE PROPERTY CONSULTANCY COMPANIES Major: Business Administration