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Course: Urban Planning and Real Estate Markets Lecturer: Prof. Karl Kluegel Student Name: Nguyen Ngoc Anh Student Number: 2010-UDP-M-02
CLASS ASSIGNMENT
Individual Essay: Real Estate Market and Developments
Due date: August 30, 2011
LIM TOWER 9-11 Ton Duc Thang
District 1
Ho Chi Minh City
Nguyen Ngoc Anh – LIM TOWER – 1 | 16
Table of Contents I. INTRODUCTION ................................................................................................................... 3
II. BUILDING OVERVIEW/DESCRIPTION ................................................................................ 3
III. METHOD OF EVALUATION .............................................................................................. 4
IV. EVALUATION .................................................................................................................... 5
1. Design ................................................................................................................................ 5
2. Parking Capacity ................................................................................................................ 6
3. Traffic ................................................................................................................................. 7
4. Market Analysis .................................................................................................................. 8
5. Economic Analysis ............................................................................................................. 9
6. Social Impact .................................................................................................................... 14
7. Environmental friendly ...................................................................................................... 14
V. CONCLUSION ..................................................................................................................... 15
REFERENCES ........................................................................................................................... 16
Nguyen Ngoc Anh – LIM TOWER – 2 | 16
I. INTRODUCTION This paper is an individual part of the UDP2010-2012 class assignment. The objectives of the
class assignment are to analyze the impacts of a number of real estate projects on District 1
and on HCMC as a whole. To begin with, fifteen (15) projects are selected from the pending
project building presented in Vietnam Real Estate Update and Market Overview; Indigestion in
the Property Market by Townsend, M (2011). To the extent of this paper, the evaluation of the
LIM TOWER will be presented.
II. BUILDING OVERVIEW The LIM TOWER is located at 9-11 Ton Duc Thang Street, at the conjunction of Ton Duc Thang
St, Nguyenn Huu Canh St, and Le Thanh Ton St, District 1, Ho Chi Minh City. The investment
capital is 37 million USD, and the developer is Mai Thanh Limited Company. The Tower will has
02 basements, 34 storey, with total building floor area is 33.300 m2, functioning as serviced
office building. It is estimated that The LIM TOWER project will completed in 24 months by
Quarter IV 2012.
Figure 1: Location map of the LIM TOWER
Summary information about the project is provided below:
- Investment Capital: 37 million US$
- Design: CASA Vietnam LTD.
- Management: APAVE Vietnam & ASIAN
- Constructor: COTECCONS Group
- Monitor: COTEBA (France)
Nguyen Ngoc Anh – LIM TOWER – 3 | 16
III. METHOD OF EVALUATION A set of criteria was discussed and finalized in class, when all 15 members agreed on the
relevance and effectiveness of these criteria. Moreover, the availability of information also affect
the selection of criteria for analysis. Seven (7) criteria were selected, showed in Table 1.
Methodologies to assess the LIM TOWER with the selected criteria are flexible for each
criterion. Literature reviews, current market reviews for critical comments is mostly used for all
criteria. Field observation is also applied for criteria: Design, Traffic, and Social Impact. For
criteria Parking capacity and economic analysis, the paper uses some technical calculation for
assessment.
Table 1: List of criteria No. Criteria Notes on method Applied Ranking
Good Bad 1 Design & image Social harmony
Social status 1 2 3 4 5
2 Parking capacity Calculation: Motorbikes Cars
1 2 3 4 5
3 Traffic Accessibility Mobility
1 2 3 4 5
4 Market analysis Rental rate, occupancy rate forecast
1 2 3 4 5
5 Economic analysis Calculation ROR, ROI, IRR
1 2 3 4 5
6 Social impact At 500m radius 1 2 3 4 5
7 Environmental friendly Presence or not any environmental standards
1 2 3 4 5
Each criterion, after being analyzed, is then given a ranking score, based on ranking of 5. This
will be one section of the general assessment of combined 15 projects.
Nguyen Ngoc Anh – LIM TOWER – 4 | 16
IV. EVALUATION
Table 2: General information1
Items Value
Land area 1,917 m2
Plot ratio 16 GFA 33,300 m2 Parking - base 3,044 m2 Parking- upper 3,300 m2 Leasable GFA 30,000 m2 Office-1 17,000 m2– secured leased by Techcombank Office -2 13,000 m2– open to market Total development cost (including land cost)
37,000,000 m2
Owner Equity 11,100,000 Million US$ Bank loan 25,900,000 Million US$ Interest rate per annum (2011) 20%
1. Design & Image The fist assessment is social harmony, including
harmony with close environment, culture
representation, and general likeliness. The LIM
TOWER is located in the boundary of the CBD of Ho
Chi Minh Center. With the height of 126m and glassy
design, it is a very typical office building. Together
with a number of other high buildings in the area, the
LIM TOWER contributes to the business and finance
cultural representation.
However, there have been many critiques about the
emergence of many office buildings in Ho Chi Minh
City to the landscape and urban planning of the city.
Some architectural analysts expressed that these
buildings now constitute to the “cloning urban” (Binh,
1 Official letter No. 1893/SQHKT-QHKTT. Department of Planning and Architecture. July 15, 2010.
Nguyen Ngoc Anh – LIM TOWER – 5 | 16
2011). The Vietnamese characters are losing, when replacing by new skyscrapers. Architect
Chung (2011) criticized that rapid urbanization and no-clear-plan for high building, skyscrapers
has destroyed the architectural landscape of Ho Chi Minh City, which are critically valuable.
Finally, I believe that the LIM TOWER itself is not the only one building to blame, but together
nearby skyscrapers are responsible to break down the landscape harmony and historical value
of the area including the Ba Son Port, Bach Dang Quay, and the riversides.
Score: 4
2. Parking Capacity According to the building design, LIM TOWER will have two basements for car parking and four
storey for motorbike parking. Moreover, the construction of car parking will have technology for
two layers for each basement. The total area available for parking is summarized in table 3.
Table 3: Parking capacity at LIM TOWER
Type Number of storey
Area Capacity (Car equivalent)
Car parking 2 6,088 m2 195
Motorbike parking 4 3,300 m2 128
Total 365
According to the TCVN 276:2003, Office Building-Design Standard2 requires 300 car parking
plots for 30,000m2 office floor area. For that calculation, the LIM TOWER will provide efficient
parking area, for both the use of the building and surrounding area.
In 2011, it is reported that in HCMC there are approximately 500,000 cars (30% of total in
Vietnam) and 4.5 million motorbikes (15% of total in Vietnam). Furthermore, there are about
60,000 cars and 1 million motorbikes form other provinces travelling in HCMC. The need for
parking is essential important, and the construction of new buildings can contribute to the
parking area, while the existing area for parking can supply only 0.6% of the demand (Dung,
2011). Therefore, the LIM TOWER is one of a few office buildings in HCMC provide good
parking service.
Score: 2 2 TCVN 276:2003 requires 1 car parking plot per 100m2 floor area
Nguyen Ngoc Anh – LIM TOWER – 6 | 16
3. Traffic The LIM TOWER is located at the conjunction of Ton Duc Thang St, Nguyenn Huu Canh St,
and Le Thanh Ton St. The building has great advantages for its locations. Because the tower is
located at the boundary of CBD, it is at the hub of transportation to travel to other
districts/provinces (Figure 2).
The most significant point is that the LIM TOWER is only 200m away from the Station 3 of Metro
Line 2: Ben Thanh-Suoi Tien. Metro Line 1 has total 14 stations, and Station 3 is one in 3
underground stations on this line.
Secondly, from this location, it is only short distances to the Thu Thiem tunnel (completed by
end of 2011), and to Khanh Hoi bridge in order to travel to District 2 and District 4. Therefore,
the accessibility to LIM TOWER is relatively good.
The “bottle neck” conjunction at Le Thanh Ton and Ton Duc Thang is slightly a negative point
for LIM TOWER. There are usually congestion at this conjunction during rush hours. People
believe that with better traffic design and better driving behavior is the most effective solution.
Finally, Ton Duc Thang, Nguyen Huu Canh are big road used for trucks and containers to travel
out of town, however, this may not affect to the accessibility and mobility of the LIM TOWER as
these large vehicles are not allowed in city during office hours.
Score: 2
Figure 2: Traffic map from LIM TOWER
Nguyen Ngoc Anh – LIM TOWER – 7 | 16
4. Market Analysis The LIM TOWER is classified as office building Grade B. Currently, from CBRE July 2011
report3, the average rent for Office building B is $18.72 per spm per month. This section will
analyze both pros and cons measures to evaluate the rent and the trend for leasing this project.
Pros: As presented in the development plan4, the building will
provide 30 floors with 30,000 m2 for office leasing.
Among these, 17 floors (equivalent to 17,000m2) are
secured by contract with Techcombank, and the
remaining 13 floors are open to market. Therefore, the
LIM TOWER’s occupancy rate is always secured at
minimum 57%.
CBRE, Market View HCMC July 201
Another advantage of the LIM TOWER is its location
and parking capacity. These are presented in Section 2
& 3 (Parking capacity and Traffic). These criteria are
the plus for the rental rate for the LIM TOWER,
compared to some other buildings at the same grade (Green Builidng, A&B Building).
While vacancy rate of Grade A is 34.2%, vacancy rate of Grade B is lower at 15.8%. Moreover,
it is forecasted that there will be new promising tenants for Grade B from State own enterprises
and local enterprises upgrading from Grade C or below. Therefore, given the lower vacancy rate
and larger tenant opportunities, the LIM TOWER can be assumed to have rental rate at 20 US$.
Cons:
CBRE, Mid Year Market Review, July 2011
It is forecasted that by the 2013, new office
supply in HCMC will be 540,752m2, in which
202,655m2 will be Grade B. There will be
more competition among these new building
for their tenants.
Although leasing rental at the LIM TOWER
is forecasted to moderately higher than the
average rent rate of Grade B office, the
rental will still follow to the trend of the
3 CBRE Market View Ho Chi Minh City July 2011 4 Official letter No. 1893/SQHKT-QHKTT. Department of Planning and Architecture. July 15, 2010.
Nguyen Ngoc Anh – LIM TOWER – 8 | 16
Nguyen Ngoc Anh – LIM TOWER – 9 | 16
market. The rental rate for Grade B are now at level not seen since 20035, and there is no
promising view for the substantial increase in price in the coming years, given the large market
supply and economic situation. As the changes in rental rate has been reducing since 2008, the
escalation rate would be slowly increased only if the recovery of the economy.
Study from CBRE also shows that the “new trend” for a tenant requirement is now moving from
“location” to “sustainable”, “design”, and “management”6. Therefore, having the advantages in
location and traffic do not necessarily provide the LIM TOWER from having a better rental rate
and an escalation rate in the long run.
Score: 2
5. Economic Analysis The LIM TOWER construction started in 2011 and it is expected to complete by Quarter IV
2013. With that plan, leasing will start in 2013. The calculations for evaluation are presented
from Table 4 to Table 9 as the following:
Table 4: Construction schedule and Capital structure
Year 2011 2012 Construction schedule 50% 50% Capital structure (US$) Total development cost (including land cost) 18,500,000 18,500,000 Owner Equity 30% 11,100,000 Bank loan 70% 7,400,000 18,500,000
Table 5: Rough Estimate of Economic Feasibility
Items Amount Project Cost (US$) 37,000,000 Gross Rental Revenue at 100% Occupancy 8,316,000
- 5% Vacancy Rate (415,800)- 20% Operate Cost (1,663,200)
Net Operate Income 6,237,000 Break Even ROR 17%
From the rough estimate of economic feasibility, the project is only economically feasible if the investors require ROR ≤ 17%. However, the fact that the interest rate for loan is extremely high at the last 4 months, from 20-26% per annum; thus with the break even ROR at 17%, the project is not economically feasible. However, this calculation is taken for rough estimation at one year, the more in-depth calculation throughout project years are as below.
5 CBRE Market View Ho Chi Minh City, July 2011 6 Smith, N (2011) What if you build it and they don’t come?, March 17, 2011
Table 6: Bank loan during the construction period and repayment
Total 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Loan at the beginning
7,400,000
27,380,000
32,856,000
34,915,200
29,169,600
23,424,000
17,391,120
11,358,240
5,023,716
-
Interest rate7 20% 20% 20% 20% 20% 20% 20% 20% 20%
Interest
1,480,000
5,476,000
6,571,200
6,983,040
5,833,920
4,684,800
3,478,224
2,271,648
1,004,743
-
Total payable
32,856,000
-
-
4,512,000
5,745,600
5,745,600
6,032,880
6,032,880
6,334,524
5,023,716
-
Interest payable 21,615,792
4,512,000
5,745,600
5,745,600
4,684,800
3,478,224 2271648 1004743.2 0
Principal repayment 11,240,208
-
-
-
1,348,080
2,554,656 4062876 4018972.8 0
Loan at the end
8,880,000
32,856,000
34,915,200
29,169,600
23,424,000
17,391,120
11,358,240 5023716 0 0
7 Assume that with the secure contract with Techcombank, the LIM TOWER project can achieve compatible interest rate at 20% per annum
Nguyen Ngoc Anh – LIM TOWER – 10 | 16
Table 7: Revenue and expenses
2013 2014 2015 2016 2017 2018 2019 2020
Leasable area (m2) 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Escalation rate 0.00% 1% 1% 2% 2% 3% 3% 3%
Rent (US$ psm per month)8
20.0
20.0
20.2
20.4
20.8
21.2
21.9
22.5
Occupancy rate9 78% 90% 90% 95% 95% 95% 95% 95%
Total revenue
5,640,000
6,908,400
6,977,484
7,117,034
7,259,374
7,477,156
7,701,470
7,932,514
Operating expenses10 (20% of Total Revenue)
1,128,000
1,381,680
1,395,497
1,423,407
1,451,875
1,495,431
1,540,294
1,586,503
BTCFs from property operation
4,512,000
5,745,600
5,745,600
6,032,880
6,032,880
6,334,524
6,334,524
6,334,524
BTCFs from selling property11
63,345,240
8 From Section 4. Market analysis 9 Assume that occupancy rate will achieve 90% in year 2, and increasing to 95% in year 4, due to its advantages in office market 10 According to CBRE assumption and calculation 11 Calculation for selling property at year 8 of operation at 10%
Nguyen Ngoc Anh – LIM TOWER – 11 | 16
Table 8: Profit and loss
Note 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 BTCFs fr. property operation
-
-
4,512,000
5,745,600
5,745,600
6,032,880
6,032,880
6,334,524
6,334,524
6,334,524
Depreciation and amortization
1,924,000
1,924,000
1,924,000
1,924,000
1,924,000
1,924,000
1,924,000
1,924,000
1,924,000
1,924,000
Finishing and facilities 10 years
1,480,000
1,480,000
1,480,000
1,480,000
1,480,000
1,480,000
1,480,000
1,480,000
1,480,000
1,480,000
Building and equipment 50 years
444,000
444,000
444,000
444,000
444,000
444,000
444,000
444,000
444,000
444,000
EBIT
(1,924,000)
(1,924,000)
2,588,000
3,821,600
3,821,600
4,108,880
4,108,880
4,410,524
4,410,524
4,410,524
Interest repayment
1,480,000
5,476,000
6,571,200
6,983,040
5,833,920
4,684,800
3,478,224
2,271,648
1,004,743
-
EBT
(3,404,000)
(7,400,000)
(3,983,200)
(3,161,440)
(2,012,320)
(575,920)
630,656
2,138,876
3,405,781
4,410,524
Cooperate Income Tax12 25%
-
-
-
-
-
-
157,664
534,719
851,445
1,102,631
Net profit
(3,404,000)
(7,400,000)
(3,983,200)
(3,161,440)
(2,012,320)
(575,920)
472,992
1,604,157
2,554,336
3,307,893
12 Vietnam’s Cooperate Income Tax
Nguyen Ngoc Anh – LIM TOWER – 12 | 16
Nguyen Ngoc Anh – LIM TOWER – 13 | 16
Table 9: Cashflow and Internal Rate of Return (IRR)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash inflows
7,400,000
18,500,000
4,512,000
5,745,600
5,745,600
6,032,880
6,032,880
6,334,524
6,334,524
69,679,764
Bank loan
7,400,000
18,500,000
BTCFs fr. property operation
-
-
4,512,000
5,745,600
5,745,600
6,032,880
6,032,880
6,334,524
6,334,524
6,334,524
BTCFs fr. selling property
-
-
-
-
-
-
-
-
-
63,345,240
Cash outflows
18,500,000
18,500,000
4,512,000
5,745,600
5,745,600
6,032,880
6,190,544
6,869,243
5,875,161
1,102,631
Development cost
18,500,000
18,500,000
Loan repayment
-
-
4,512,000
5,745,600
5,745,600
6,032,880
6,032,880
6,334,524
5,023,716
-
Cooperate Income Tax
-
-
-
-
-
-
157,664
534,719
851,445
1,102,631
Net cashflows (11,100,000)
-
-
-
-
-
(157,664)
(534,719)
459,363
68,577,133
Return of Investment (ROI) 12.2% 15.5% 15.5% 16.3% 16.3% 17.1% 17.1% 17.1%
IRR = 22.32%
The more in depth analysis show the Internal Rate of Return of the LIM TOWER project is at
22.32%, which is a relatively risk for the efficiency of the project, given the assumed interest rate
is at 20%.
Reports show that real estate market has been cold since last year, and has been going down
since May this year. When the Decision No.11 of Vietnam Government is strictly implemented,
inflation will come down in early 2012, following the decrease in interest rate. However, “the
fund from the bank may not be the miracle for the real estate market” (Lan, 2011). Loan for real
estate is reported at 9.94% of the bank outstanding loan, and this figure can get to 30-40% at
some small banks, which is very dangerous for the economy and the real estate market.
Moreover, the gold fever these months may also affect to the economy when the input money
are less in the market, slowing the decrease of the interest rate (VNExpress reporters, 2011).
Therefore, the strict monetary policy in bank credit is needed, ensure that the bank will only
untie credit to projects that are secure and liquidity.
Score: 4
6. Social Impact This section will assess the social impact by the LIM TOWER to the radius of 500m. The LIM
TOWER is located in the conjunction between three main streets: Ton Duc Thang, Nguyen Huu
Canh, and Le Thanh Ton.
Food/restaurants and other services are the main possibility for the impact to the surrounding
residence. The fact that Ton Duc Thang and Nguyen Huu Canh are the main big streets, closing
to Ba Son Port, with very few residential ling. Therefore the social impact is expected to very
low. Lastly, at the other direction, Le Thanh Ton and other small streets nearby are already the
center for food and restaurants for the existing surrounding office building. In conclusion, there
may be no negative social impact from the LIM TOWER.
Score: 3
7. Environmental friendly Whether the building is built with an “environmental friendly” rating system is a key assessment
for this criterion. At first review, the LIM TOWER does not apply any “green construction” or
“sustainable building” standards such as LEED or Lotus.
Energy is now a critical issue for Ho Chi Minh City. Generally, the emergence of this 34 storey
building will require a large energy consumption, which would increase the short of energy for
Nguyen Ngoc Anh – LIM TOWER – 14 | 16
the City. There is no information available showing clearly the construction of the LIM TOWER
achieves any significant figures in sustainable materials, energy and water conservation, etc.
This would be the limitation in information access in order to make a stronger assessment for
this criterion.
Score: 3
V. CONCLUSION The paper has analyze the LIM TOWER, to the extent of seven criteria selected by the group
exercise. Table 10 presents the summary results of the analysis.
Table 10: Summary results of the evaluation No. Criteria Ranking 1 2 3 4 5
Good Bad Applied
1 Design 1 2 3 4 5 2 Parking Capacity 1 2 3 4 5 3 Traffic 1 2 3 4 5 4 Market analysis 1 2 3 4 5 5 Economic analysis 1 2 3 4 5 6 Social impact 1 2 3 4 5 7 Environmental friendly 1 2 3 4 5 8 Total Score 20
In conclusion, the LIM TOWER accounts for some advantages in their project, i.e. location,
traffic, car-parking capacity, secured occupancy rate. However, with the condition of current
economy, such as high interest rate, this project still faces many challenges. Understanding the
market, the economy, improving the quality of the building (sustainable design and/or
management) can help the LIM TOWER become more competitive in the office building market.
Nguyen Ngoc Anh – LIM TOWER – 15 | 16
Nguyen Ngoc Anh – LIM TOWER – 16 | 16
REFERENCES Binh, X. (2011) Đô thị vô tính (Cloning Urban). The Sai Gon Times Online. http://www.thesaigontimes.vn/Home/diendan/ykien/57171/Do-thi-vo-tinh.html. July 19, 2011.
CBRE (2011) Market View Ho Chi Minh City. July 2011.
CBRE (2011) Mid Year Market Review, July 5, 2011.
Smith, N. (2011) What if you build it and they don’t come?. CBRE report. March 17, 2011.
Chung, Q. (2011) Nâng cấp đô thị và chuyện bản sắc (Urban upgrading and the issue of urban characteristics). The Sai Gon Times Online. http://www.thesaigontimes.vn/Home/xahoi/sukien /57168/Nang-cap-do-thi-va-chuyen-ban-sac.html. July 15, 2011.
Currie, C (2011) CBRE HCMC Market Q2 2011, June 28, 2011.
Lan, H. (2011) Vốn ngân hàng không là phép tiên với bất động sản (Bank loan may not be miracle for real estate). VNExpress. http://vnexpress.net/gl/kinh-doanh/bat-dong-san /2011/08/von-ngan-hang-khong-la-phep-tien-voi-bat-dong-san/. August 21, 2011. Reporter group (2011) Cơn sốt vàng và những thử thách đồi với nền kinh tế (Gold fever and challenges to the economy). VNExpress. http://vnexpress.net/gl/kinh-doanh/2011/08/con-sot-vang-va-nhung-thu-thach-doi-voi-nen-kinh-te/. August 24, 2011. Si Dung (2011) “Khát” bãi đậu xe (Thirsty for car parking). Vietnam News.
http://www.baomoi.com/Home/DauTu-QuyHoach/baotintuc.vn/Khat-bai-dau-xe/6416173.epi.
June 9, 2011.
Townsend, M. (2011) Vietnam Real Estate Update and Market Overview; Indigestion in the Property Market. April 4, 2011.
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