Selling Luxury Apartments to Frugal Vietnamese
Pham Nhat Vuong, the billionaire chairman and founder of Vietnam’s largest property developer, Vingroup, is spending more than $4 billion to develop luxury apartments in Ho Chi Minh City, Hanoi, and several of Vietnam’s coastal and provincial cities. “If you give me $10 billion now, I would spend it all on construction because there’s so much more to build,” says Vuong, who with his wife owns about 50 percent of Vingroup, the country’s fifth-largest company by market value, $2.6 billion as of Oct. 29. “There is tremendous demand in Vietnam.”
That’s an optimistic take on the country’s urban real estate market, which is currently suffering from a glut of available apartments partly because mortgage financing is rare—most purchases are cash transactions. Vuong says the lure of a better “living experience” is part of his sales pitch to potential buyers. “They just can’t sit on gold bars underneath their beds,” he says of Vietnam’s famously conservative investment culture. “Eventually they will pull out their gold bars and invest.”
Vuong left Vietnam to study at Moscow Geology University. After graduating in 1992 he moved to Ukraine and launched Technocom, a food producer he sold to Nestlé in 2010. He founded resort developer Vinpearl back in Vietnam in 2001, and set up the luxury real estate developer Vincom in 2002. Vinpearl and Vincom merged this year to form Vingroup, which has controlling interests in 18 mixed-use and resort projects it is building.
Vingroup has acquired land from factories that are relocating from central districts to the outskirts of Hanoi as the city pushes through an urban renewal plan. The company’s scale and financial resources have enabled it to buy land in unique locations, build quickly, and sell its properties at a premium even during the downturn, says Viet Capital Securities analyst Phuong Ton, who recommends holding Vingroup stock.
Another plus, she says, are the quality amenities at Vingroup properties. Its Royal City project, near Hanoi’s central business district, will include the country’s first indoor water park and ice skating rink when finished next year. Buyers of the high-end apartments, which are being sold at $1,800 to $2,500 per square meter, can adapt the design of their units to suit their feng shui. Nearby, Vingroup’s Times City development includes Vietnam’s first hospital to offer single-patient rooms and presidential suites. That project, slated for completion in 2014, will also have residential blocks, a mall, and an international school. “[Vuong] always tells management to continue learning every day, that you can’t be happy, content with what you already have,” says Le Thi Thu Thuy, Vingroup’s chief executive officer and a former Lehman Brothers investment banker.
To fund its Vietnamese expansion, Vingroup is seeking to raise about $300 million by August in a share sale in Singapore. The company sold $300 million of convertible bonds to international investors this year but shelved plans for a Singapore listing last year after the city-state’s benchmark index fell 17 percent. Vuong says he plans to build properties in Singapore or Hong Kong, where some of Asia’s largest developers are based, “when there’s a good opportunity.” He travels to other countries for ideas, once dismantling and reassembling hotel room fittings on the Thai island of Phuket to better understand how they were put together. Vuong hired McKinsey this year to advise Vingroup on its future expansion plans.
Whether there are enough well-heeled buyers for Vuong’s properties is uncertain. Vietnam’s urban population is expanding 3.4 percent per year, with growth concentrated in Ho Chi Minh City and Hanoi, but only about 5 percent of city residents can afford the kind of home produced by large, upscale developers, according to the World Bank. The average monthly income for Vietnam’s urban residents was $102 in 2010, according to the latest data from the country’s general statistics office. Annual inflation spiraled to 23 percent in August 2011 before the government raised interest rates and restricted lending. Still, the apartment units at the Vincom Center in Ho Chi Minh City, which also boasts a spa and fitness center, were sold in 2010 at an average price of about $8,000 per square meter, a national record.