VIETNAM REPORTCONSTRUCTION MARKET UPDATE

JUNE 2016

VIETNAMREPORT

MARKET TRENDS

The consumer price index (CPI) rose 2.28% y-o-y in May, following a 1.89% rise y-o-y in April on the back of rising fuel prices, drought and pollution, higher budget deficit and rising healthcare costs. This is the highest CPI rate since November 2014.

The new five-year socio-economic plan (2016-2020) was unveiled in April 2016. The average GDP growth over the next five years is targeted at between 6.5% to 7.0% per annum assuming stable global conditions. The plan commits to sustain inflation below 5.0% and cap the budget deficit at 4.0% of GDP in 2020. It also aims to lift the GDP per capita to US$3,200-US$3,500 by 2020.

In addition, the plan endeavours to upgrade the education system and vocational training to boost productivity in order to address the challenges that local small and medium enterprises (SMEs) in the industrial sector face in sourcing highly skilled labour. The Ministry of Investment and Planning aims for an annual economic growth rate of 6.8% for 2017 through higher labour productivity and competitive capacity. Further measures are also in place to shift the agricultural sector to help local farmers create a more open market and increase exports.

For the whole of 2016, the Asian Development Bank (ADB) expects Vietnam to achieve 6.47%, notwithstanding downside risks from the ongoing severe drought. The year’s inflation rate is projected to rise to 3.0% from 0.6% last year. Growth for 2017 is forecast to rise slightly to 6.5%.

VIETNAM ECONOMY

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JUNE 2016|

Vietnam concluded its socio-economic plan for 2011-2015 positively. Driven by its industrial and construction sectors, the gross domestic product (GDP) expanded 6.7% year-on-year (y-o-y) in 2015, surpassing the target growth rate of 6.2%. The Vietnamese economy emerged the third fastest growing in Asia in 2015, only behind India (7.3%) and China (6.8%). Riding on past year’s good results, the official growth target for 2016 is set ambitiously at 6.7%.

The GDP in 2Q 2016 dropped to 5.52%, a slight improvement from the preceding quarter’s growth of 5.48%, but still short of the achievement of 6.32% in the same period last year, the General Statistics Office (GSO) reported. Climate change is now a serious threat to the country’s agricultural sector after its central and southwestern regions suffered their worst drought in 90 years during 1H 2016. Along with the saltwater intrusion, these calamities caused the agriculture sector to record a negative growth of 0.18% y-o-y during 1H 2016. The agriculture sector reportely lost US$681 million in GDP turnover in this period.

While manufacturing sectors in competing Southeast Asian economies remain stressed due to China’s slowdown and weak global demand, the Nikkei manufacturing Purchasing Managers’ Index (PMI) for Vietnam inched up from 52.3 points in April 2016 to 52.7 points in May 2016, showing off its economic expansion. The inflation rate rose from 0.8% to 2.4% within a span of six months from January to June this year.

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MARKET TRENDS

PROPERTY MARKET

VIETNAMREPORT | JUNE 2016

Vietnam looks poised to lead the regional real estate markets in Southeast Asia over the next two to three years among the weak regional economies. The country attracted US$240 million in FDI for real estate in 1Q 2016, spread across 11 property projects, ac-cording to the General Statistics Office (GSO). For real estate, ac-cording to Ministry of Planning and Investment, Vietnam wel-comed 596 new businesses in the first three months of 2016, an in-crease of 146% y-o-y.

The Department of Housing and Real Estate Market Management under the Ministry of Construc-tion (MOC) warned of a shortage of mid-tier housing supply in the domestic property market and an abundant supply at the high-end segment, which could happen by late 2016.

In order to ensure a balance be-tween the supply and demand and to stabilise the market, the localities of Ho Chi Minh City and Hanoi are reassessing housing de-mand before approving housing development projects. The gov-ernment is keen to avoid an im-balance situation which had previ-ously contributed to the property market’s freeze in 2008. Localities must now submit housing devel-opment plans that comply with the Housing Law and be in line with infrastructure development. Such plans would serve as a basis for licensing housing projects.

The passing of the Housing Law and Law on Real Estate Business helped the country’s property market to be perceived as more transparent and open to foreign in-vestors. The recent legal disputes

between developer and the resi-dents, ranging from using their units as collateral, handing over the unfinished building to land dispute between the land owner and the developer, posed many risks for property buyers. To pre-vent this and to further promote transparency in the property mar-ket, the Ho Chi Minh City Depart-ment of Natural Resources and Environment recently mandated that all legal status and progress of projects be made available to the public.

A growing young and middle-class demography is expected to be the key demand driver for qual-ity homes and investment-grade offices. There were not many new residential projects in the mar-ket during 1H 2016 as the supply mainly came from sales openings of existing projects, resulting in a rise in housing prices, the Vietnam Real Estate Association reported.

The office market observed no new building in 2Q 2016 but the CBD office market is expected to stay robust in 2H 2016 as the mod-erate pace of new supply will help to support rental growth across all grades, Rental rates for offices are projected to grow 4.0% y-o-y in 2016 and 9.0% in 2017.

More foreign retailers are expect-ed to enter the retail market to take advantage of opportunities presented by recent free trade deals. Domestic consumption is also projected to rise among the middle-class with higher dispos-able income. However, the retail market stock in Ho Chi Minh City currently lacks unique catalysts to attract retail tourism, as pointed out by market observers.

MARKET TRENDS

CONSTRUCTION INDUSTRY

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VIETNAMREPORT | JUNE 2016

The construction sector expanded 10.8% y-o-y in 2015. This was the highest rate of growth achieved in the past five years. The govern-ment expects domestic construc-tion demand in the country to re-main stable for the rest of 2016.

Similar to 1Q 2016, the real estate received 5.0% of total FDI in 2Q 2016. There is great potential for infrastructure and cheap housing projects since connectivity within and between cities in the country lags behind the development of the real estate market, which falls short of the requirements of ur-ban dwellers whose demographics are increasingly made up of young middle-class people.

The largest infrastructure build-ing project undertaken by the Ho Chi Minh City locality this year is the anti-flooding master plan cost-ing VND 10 trillion (approximately US$444 million). This project will help to solve chronic tiding flood-ing and urban flooding but will dis-place about 300 households with 1,500 people. Construction is slat-ed to be completed within three years in 2018.

The construction industry benefits from the prospering real estate market, Vietnam is currently the biggest steel importer in ASEAN, according to the World Steel As-sociation (WSA). In 2015, Vietnam imported 11.3 million tonnes, mostly from China, the Vietnam Steel As-sociation reported. The country in-creased its steel imports from China in May 2016 after having imported

3.7 million tonnes of steel in the preceding four months. The Minis-try of Industry and Trade revealed that steel imports in May 2016 in-creased by 32.4% in volume and 7.2% in value.

On the other hand, the local ce-ment industry is facing an over-supply. With no dedicated ports and logistics systems to serve ce-ment exports in Vietnam, there is no ease of quality and efficient transport logistics to revive the country’s slack export results.

According to Ministry of Construc-tion (MOC), only around 74 to 75 million tonnes of cement is expect-ed to be sold in 2016, merely about 3 million tonnes more than in 2015. The MOC expects even more com-petition from foreign cement com-panies, in particular Chinese firms.Domestic cement companies are therefore expected to struggle with a prolonged production over-supply in both local and overseas markets.

The Asian Development Bank (ADB) recently pledged its sup-port to Vietnam, especially in the fields of transport infrastructure construction, recycled energy de-velopment and climate change re-silience projects through sovereign lending of about US$1 billion an-nually via the 2016-2020 Country Partnership Strategy.

Barring any unforeseen market conditions, building tender prices in Ho Chi Minh City are anticipated to increase by 3.0% - 6.0% in 2016.

Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16

Copper 5,833 5,456 5,088 5,207 5,221 4,807 4,628 4,462 4,594 4,947 4,850 4,707 4,630

Aluminum 1,683 1,637 1,539 1,588 1,523 1,465 1,494 1,479 1,535 1,530 1,564 1,556 1,591

Steel 124 100 100 108 167 170 185 170 170 61 50 50 222

0

500

1,000

1,500

2,000

2,500

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

USD/Tonne USD/Tonne

Aluminium (RHS)

Copper (LHS)Steel (RHS)

CURRENCYUNITS PER USD

3Q2015 4Q2015 1Q2016 2Q2016p

Vietnamese Dong (VND) 22,195 22,675 22,590 22,430

METAL PRICES

Data Source: London Metal Exchange (LME)

CONSTRUCTION MATERIAL

PRICES

Data Source: Ho Chi Minh City Construction Departmentp: preliminary

Exclusions:• Plant and Equipment • Transport • Wastage • Overheads and Profit • Tax Expenses (VAT)

Notes: All supply prices stated above are only applicable for building construction projects in Ho Chi Minh City. Specific cost consultancy should be sought for your particular factual situation prior to utilising this information.

CURRENCY EXCHANGE

Data Source: Oandap: preliminary

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VIETNAMREPORT | JUNE 2016

MATERIAL UNITAVERAGE SUPPLY RATE (VND)

3Q2015 4Q2015 1Q2016 2Q2016p

Concreting Sand m3 209,091 172,727 218,182 224,700

Stone Aggregate (20mm) m3 159,091 159,091 159,091 163,900

Ordinary Portland Cement (PCB40) kg 1,550 1,550 1,550 1,600

Reinforced Concrete (Grade 30 MPA) m3 1,090,000 1,090,000 1,090,000 1,122,600

Reinforced Concrete (Grade 40 MPA) m3 1,200,000 1,200,000 1,200,000 1,235,900

High Tensile Steel Bars (10 - 40mm) kg 13,655 12,281 13,450 13,860

Mild Steel Round Bars (6 - 20mm) kg 13,800 12,281 13,203 13,600

Structural Steelwork (U-beam, stanchions) tonne 14,870,000 14,280,000 14,280,000 14,707,000

Timber Sawn Formwork m2 120,000 120,000 120,000 123,600

Clay Bricks (100mm thick wall) m2 192,200 221,400 220,800 227,400

LHS: Left Hand-Side axisRHS: Right Hand-Side axis

HO CHI MINH CITY CONSTRUCTION

PRICES

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Notes:Construction Floor Area (CFA) - The area of all building enclosed covered spaces measured to the outside face of external walls including covered basement and above ground car park areas.

All Ho Chi Minh City construction prices stated herein are as at 1st Quarter 2016, and include a general allowance for preliminaries, foundation and external works. The price ranges herein are indicative and due consideration should be given to the different specification, size, location and nature of each project when utilising this information. The prices here may not fully reflect the extent of current market forces and tendering conditions.

Exchange Rate Used: USD 1.00 = 22,590

Exclusions:• Land cost • Legal and professional fees • Development charges • Authority fees • Finance costs • Site infrastructure work • Diversion of existing services • Models and prototypes • Future cost escalation• Loose furniture, fittings and works of art • Tenancy work • Resident site staff cost • Value-Added Tax (VAT)

Disclaimer: While Rider Levett Bucknall Co. Ltd (“RLB”) has endeavoured to ensure the accuracy of the information and materials in this report (the “Materials”), it does not warrant its accuracy, adequacy, completeness or reasonableness and expressly disclaims liability for any errors in, or omissions therefrom. RLB shall not be liable for any damage, loss or expense whatsoever arising out of or in connection with the use or reliance on the Materials. The Materials are provided for general information only. Professional advice should be obtained for your particular factual situation before making any decision. The Materials may not, in any medium, be reproduced, published, adapted, altered or otherwise used in whole or in part in any manner without the prior written consent of RLB.

VIETNAM REPORT | JUNE 2016

DEVELOPMENT TYPE COST PER CFA VND (’000) / m2

COST PER CFA USD / m2

OFFICE

Good Quality, 10 to 25 storeys 22,030 - 24,840 980 - 1,100

Good Quality, 26 to 40 storeys 23,120 - 24,910 1,020 - 1,100

Prestige, 10 to 25 storeys 23,330 - 28,890 1,030 - 1,280

Prestige, 26 to 40 storeys 24,470 - 30,150 1,080 - 1,330

HOTEL (Excluding FF&E)

Three Star 23,040 - 29,800 1,020 - 1,320

Four Star 29,520 - 34,990 1,310 - 1,550

Five Star 32,800 - 39,360 1,450 - 1,740

COMMERCIAL

Retail 19,020 - 25,320 840 - 1,120

RESIDENTIAL

Good Quality Condominium 15,100 - 18,080 670 - 800

Luxury Condominium 16,360 - 22,890 720 - 1,010

INDUSTRIAL

Warehouse 5,890 - 8,210 260 - 360

Factory 6,120 - 9,270 270 - 410

CAR PARK

Multi Storey 8,510 - 12,710 380 - 560

Basement, outside CBD 15,780 - 21,930 700 - 970

Basement, CBD 17,490 - 23,900 770 - 1,060

PROFESSIONAL SERVICES

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RLB Research’s expertise in economic and market studies, industry participation and research publications position us as the choice consultant for advice on construction cost trends and market updates for the regional construction markets.

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