Ho Chi Minh City awaits


It was perhaps a logical step that the flow of money into London-listed property stocks would head towards Asia. Property markets in some Asian countries are expected to perform in line with their fast-growing economies, making them attractive to investors with an appetite for risk.

Vehicles have been launched in London to access markets including Hong Kong, China, India, Japan and Macau. Experts believe that this trend will only accelerate in the next two years.

Three funds have some or all their exposure to Vietnam, which is the second-fastest growing economy in Asia.

One is Vinaland, which invests solely in Vietnamese property. Another is JSM Indochina, which listed on Aim in July after raising £108m to invest in Vietnamese and Cambodian real estate.

The third is Aseana Properties, which won a main market listing on the London Stock Exchange in April, raising $162m.

The fund has been spun off by Ireka Corporation Berhad, a Malaysian construction company listed on Kuala Lumpur's stock exchange.

Aseana is managed by Ireka Development Management, a subsidiary of Ireka. It has an independent board, as is the norm for externally-managed vehicles. Directors include Lynton Jones, former European chief executive of Nasdaq, and Mohammed Azlan bin Hashim, former chairman of the Malaysian bourse.

IDM charges an annual fee of 2 per cent of net asset value with a performance fee on top at 20 per cent of excess over a 10 per cent total returns hurdle.

Ireka and related parties own 35 per cent of shares in the vehicle.

Aseana began life with a $128m portfolio of five Malaysian assets at various stages of development. They include a 605-unit residential project in Mont Kiara, an exclusive enclave of Kuala Lumpur, being developed jointly with CapitaLand, the Singapore-based group.

Also among the five assets is Sandakan Harbour Square, an urban redevelopment project in Sabah, east Malaysia.

Since the flotation, the group has bought another three pieces of land that will be developed in the coming years.

Despite this, Aseana's share price has fallen somewhat since flotation, from US$1.04 to $0.94. Total net asset value of $241.9m was reported for June 30.

Crucially, Aseana intends to expand in the coming months into Vietnam, where it has drawn up another $100m of majority investments in seven projects. These still need investment licenses from the Vietnamese government.

In time, the aim is to shift the balance of the fund so that Vietnam accounts for more than 60 per cent and Malaysia less than 40 per cent. This is due to occur through sales of completed developments in Malaysia and re-investment.

Vietnam has a young population with more than half its 84m people under 25. Gross domestic product rose by 8 per cent in 2006.

The country's main attraction to property investors is its lack of high-end real estate at a point where foreign direct investment (FDI) is accelerating. An estimated $12bn of FDI is expected this year.

Although the country is still controlled by a communist government, it joined the World Trade Organisation this year and has taken several steps to open up its economy to overseas capital. It has refined several laws relating to real estate. For example, its "decree 84" establishes a framework for relocating residents.

"There is a lack of real estate product right across the board, from housing to offices to hotels," says Lai Voon Hon, president and chief executive of Ireka Development Management.

The level of "Grade A" office space in Ho Chi Minh City is estimated at just over 2m sq ft - equivalent to two large towers in London's Canary Wharf. As more multinational companies set up national offices in Vietnam, demand looks set to soar.

Competitive bidding battles for land between developers from Japan, Korea, and Taiwan have already pushed up prices.

Aseana estimates that prices may have risen 30 per cent in the past year. But Mr Hon says: "Coming in at a very low base, there is tremendous growth potential." In such an opaque market it is hard to give precise figures for investment yields or rental growth. But Mr Hon estimates that yields on offices in Ho Chi Minh City are about 15 per cent.

Mr Hon dismisses the possibility that land ownership in Vietnam could prove uncertain given the country's political history. "It's not a real concern, what we have seen so far is that the law has been carried out very consistently."

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