Bao Cao Thi Truong Bds VN_Lehman Brothers_2007

GLOBAL EQUITY RESEARCH

Lehman Brothers does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

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PLEASE SEE IMPORTANT DISCLOSURES INCLUDING FOREIGN AFFILIATE DISCLOSURES BEGINNING ON PAGE 32

ASIA

Vietnam/Cambodia Property Primer Cap Rate Compression to Drive Total Return

After an initial building boom in the early 1990s, the Vietnam property market has seen little new development since the Asian Crisis. However, with Vietnam’s recent entry into the WTO opening up a number of key sectors to foreign participation and MNCs pursuing a ‘China plus-one’ strategy, demand for space is rising and has resulted in near full occupancy in the office, serviced apartment and retail markets. While the fundamental outlook is positive, the key challenge is that of market transparency. Going forward, we expect increasing foreign participation and market maturity to help compress the current 13-15% cap rates to lower levels and help boost total returns. We believe the imperative in this market should be to invest ahead of the eventual cap rate compression. This report serves as a primer to highlight the current: 1) supply and demand picture in Vietnam and Cambodia, 2) land ownership regulations, and 3) market participants.

Vietnam per capita GDP now at China’s 1996 level – Vietnam’s economy is expected to grow at 8.5% p.a. in the next few years. Vietnam’s per capita GDP currently stands at US$729, a similar level to China’s 1996 level.

Little available stock – In Ho Chi Minh City (HCMC), there are only 407,749sqm of offices, 124,000sqm of shopping malls and 2,669 serviced apartments. Grade-A office stock is even more limited at only 77,935sqm. This has resulted in full occupancy in offices and 97.5% occupancy for serviced apartments.

Yields at 12.8-14.8% – CBRE estimates that retail and residential yields stand at 14.8% and 12.8%, respectively, in HCMC. We believe cap rates should compress in the coming years as increasing foreign participation should help boost transparency and lower risk premium. Looking at Shanghai as guide, since 1994, residential yields have compressed from 10% to 7% while office yields have fallen from 15% to 8%.

Figure 1: GDP/Capita: Vietnam vs China vs Cambodia

Figure 2: Vietnam Yields vs its Asian Neighbours

-

500

1,000

1,500

2,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Cambodia (US$) Vietnam (US$)China (US$)

Vietnam's consumptionpow er at China's 1996

Cambodia's consumptionpow er at China's 1994

RetailYield

ResidentialYield

Risk FreeRate

RetailSpread

Res.Spread

HCMC 14.8% 12.8% 7.7% 7.1% 5.1%Hanoi 13.5% 13.0% 7.7% 5.8% 5.3%Phnom Penh 13.5% 13.0% NA NA NAIndochina Avg 13.9% 12.9% 7.7% 6.2% 5.2%Jakarta 15.0% 10.7% 9.2% 5.8% 1.5%Bangkok 11.9% 4.8% 3.6% 8.3% 1.2%Makati 11.5% 7.4% 6.6% 4.9% 0.8%Shanghai 11.3% 7.0% 3.7% 7.6% 3.3%Mumbai 11.0% 3.5% 8.1% 2.9% -4.6%Kuala Lumpur 10.3% 7.1% 3.2% 7.1% 3.9%Delhi 9.5% 3.0% 8.1% 1.4% -5.1%Beijing 7.8% 8.4% 3.7% 4.1% 4.7%Seoul 7.0% 4.5% 5.3% 1.7% -0.8%Macau 6.1% 3.6% NA NA NASingapore 5.8% 2.8% 2.7% 3.1% 0.1%Hong Kong 3.9% 3.2% 4.1% -0.2% -0.9%Tokyo 3.6% 5.1% 1.7% 1.9% 3.4%Ex-Indochina Asia Avg 8.8% 5.5% 5.0% 3.8% 0.5%

Source: CEIC Source: CB Richard Ellis (CBRE), Jones Lang LaSalle (JLL)

Paul Louie (LBAL, Hong Kong) 852.2252.6189

[email protected]

Jackie Choy (LBAL, Hong Kong) 852.2252.6226

[email protected]

REAL ESTATE Vietnam/Cambodia Property

Analyst Certification We, Paul Louie, Jackie Choy,

hereby certify (1) that the views expressed in this research report

accurately reflect our personal views about any or all of the

subject securities or issuers referred to in this report and (2)

that no part of our compensation was, is or will be directly or

indirectly related to the specific recommendations or views

contained in this report.

June 11, 2007

http://www.lehman.com

Vietnam/Cambodia Property Primer

2 June 11, 2007

Table of Contents

Executive Summary......................................................................................... 3 Key Risks...................................................................................................... 5

Low Transparency of Indochina Real Estate Market ............................................. 5 Foreign Enterprise Participation Risks ................................................................ 5 Taxes Regulations under Development .............................................................. 5

Industry Outlook............................................................................................. 6 Vietnam Economic and Regulatory Framework ................................................... 6 Cambodia Economy and Regulatory Framework ................................................ 8

Vietnam Property Market Outlook .................................................................... 11 Serviced Apartment Market.......................................................................... 12 Retail Market Outlook................................................................................. 13 Office Market Outlook................................................................................ 16 Residential Market Outlook .......................................................................... 18 Yields and Capitalization Rates .................................................................... 18

Cambodia Property Market Outlook................................................................. 20 Serviced Apartment Market.......................................................................... 20 Retail Market Outlook................................................................................. 22 Office Market ........................................................................................... 23

Appendix 1: Regulations on Land in Vietnam ..................................................... 24 Appendix 2: District of Ho Chi Minh City and Major Developments........................ 25 Appendix 3: Vietnam’s WTO Provisions ........................................................... 26


June 11, 2007 3

Executive Summary

Figure 3: Vietnam and Ho Chi Minh City

GULF OF THAILAND SOUTH CHINA SEA

CAMBODIA

LAOS

Phu QuocCan Tho

My ThoMui Ne

Nha Trang

HO CHI MINH

Tay NinhDalat

Hoi AnDa Nang

Hue

VinhGULF OF TONKIN

Halong BayHoa Lu

HANOIDien Bien Phu

Sapa BabeLang Son

CHINA

Buon Me Thuot

District 7

District 1

District 2

District 3

District 5

Binh Thanh District


CAMBODIA

LAOS

Phu QuocCan Tho

My ThoMui Ne

Nha Trang

HO CHI MINH

Tay NinhDalat

Hoi AnDa Nang

Hue

VinhGULF OF TONKIN

Halong BayHoa Lu

HANOIDien Bien Phu

Sapa BabeLang Son

CHINA

Buon Me Thuot

District 7

District 1

District 2

District 3

District 5

Binh Thanh District

Source: CBRE

Vietnam at Right Phase of Investment Cycle – Over the past five years, the Vietnamese economy has grown rapidly at 11.8% p.a. Vietnam’s GDP per capita is standing at the same level as China in 1996. With Vietnam’s entry into the World Trade Organization (WTO) in 2006, a number of sectors, such as retail and banking, will begin opening up to foreign investments and we expect Vietnam’s economy and incomes to continue to grow rapidly. The Asian Development Bank expects Vietnam’s economy to grow at 8.5% p.a., putting it just behind China and India for overall growth.

Figure 4: GDP/capita: Vietnam vs China vs Cambodia

Figure 5: HCMC Service Apt Rents and Occupancy

-

500

1,000

1,500

2,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Cambodia (US$) Vietnam (US$) China (US$)



-5.00

10.0015.0020.0025.0030.0035.0040.0045.00

Q4.

96

Q4.

97Q

4.98

Q4.

99Q

4.00

Q4.

01Q

4.02

Q4.

03

Q4.

04Q

4.05

Q4.

06

0

20

40

60

80

100

Rent (US$/sqm/mth) (LHS)Occupancy (%) (RHS)

Source: CEIC Source: CBRE


4 June 11, 2007

After an initial building boom in the early 1990s and until two years ago, there had been few new developments in Vietnam since the Asian Crisis. For instance, in Ho Chi Minh City, there are only 407,749sqm of offices (with only 77,935sqm considered to be Grade-A), 124,000sqm of shopping malls and 2,669 serviced apartments. Occupancy is very tight at 100% for offices and 97.5% for serviced apartments. While the fundamental outlook on Vietnam property is positive, in our view, investing in Vietnam real estate does have its challenges – the key one being market transparency.

Better Understanding Should Drive Cap Rate Compression and Boost Total Returns – Vietnam currently ranks last in Jones Lang LaSalle’s (JLL) Global Real Estate Transparency Index. It is precisely because of this lack of transparency that real estate investments in Vietnam offer high potential total returns. CB Richard Ellis (CBRE) estimates that current retail and residential yields stand at 14.8% and 12.8%, respectively, in HCMC. Similar to China’s development over the past decade, as the Vietnamese markets open to foreign investments and multinational corporations (MNCs), this should not only boost incomes and the demand for quality space, but it should also increase market transparency, in our view. As understanding of Vietnam’s real estate market matures, the removal of the current risk premiums should lead to cap rate compression, which should help boost total returns, in our view.

Figure 6: Vietnam Yields Versus Asia Countries

Figure 7: Shanghai Property Yields Show the Way

Retail YieldResidential

YieldRisk Free

RateRetail

SpreadResidential

SpreadHCMC 14.8% 12.8% 7.7% 7.1% 5.1%Hanoi 13.5% 13.0% 7.7% 5.8% 5.3%Phnom Penh 13.5% 13.0% NA NA NAIndochina Average 13.9% 12.9% 7.7% 6.2% 5.2%Jakarta 15.0% 10.7% 9.2% 5.8% 1.5%Bangkok 11.9% 4.8% 3.6% 8.3% 1.2%Makati 11.5% 7.4% 6.6% 4.9% 0.8%Shanghai 11.3% 7.0% 3.7% 7.6% 3.3%Mumbai 11.0% 3.5% 8.1% 2.9% -4.6%Kuala Lumpur 10.3% 7.1% 3.2% 7.1% 3.9%Delhi 9.5% 3.0% 8.1% 1.4% -5.1%Beijing 7.8% 8.4% 3.7% 4.1% 4.7%Seoul 7.0% 4.5% 5.3% 1.7% -0.8%Macau 6.1% 3.6% NA NA NASingapore 5.8% 2.8% 2.7% 3.1% 0.1%Hong Kong 3.9% 3.2% 4.1% -0.2% -0.9%Tokyo 3.6% 5.1% 1.7% 1.9% 3.4%Ex-Indochina Asia Average 8.8% 5.5% 5.0% 3.8% 0.5%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Residential (High-end) Of f ice - Puxi Of f ice - Lujiazui

Yield compresses as market matures

Source: CBRE, JLL Source: JLL

If we were to look at the Shanghai market as a guide, over the past ten years, residential yields have compressed from 10% to 7%, while office yields have compressed from 15% to 8%.

Cambodia: A Few Years Behind Vietnam – Compared to Vietnam, the Cambodian property market is at an even earlier stage of development. Its properties reflect the state of the Cambodian economy with segments such as hotels and serviced apartments for NGOs (non-governmental organizations) being the more developed segments. At present we are just starting to see some new offices and retail stock being built in Phnom Penh.


June 11, 2007 5

Key Risks

Low Transparency of Indochina Real Estate Market

According to Jones Lang LaSalles’ Global Real Estate Transparency Index for 2006, Vietnam ranked last out of the 56 countries surveyed, with an “opaque” transparency level. There is a risk of over-regulation and a lack of transparency. In Vietnam and Cambodia, current land and property laws are still unable to overcome fundamental issues related to the legal nature and rights of land ownership and usage, as well as to fully implement the mechanism and procedure for land distribution and transfer. Furthermore, new developments often require construction permits and other licenses from the city government before any structure can be built on land or a building can be substantially remodeled. We believe the low transparency of the Indochina real estate market is one reason behind the current high yields of properties in those markets. However, as more developments take place and transparency improves, we believe this is a potential plus as the reduction of the current risk premium could lead to cap rate compression.

Foreign Enterprise Participation Risks

In Vietnam, foreign entities are currently allowed to invest in up to 49% in listed enterprises. Under the Old Enterprise Law, foreign equity participation in domestic non-listed Vietnamese enterprises was limited to 30%.

In Cambodia, ownership of land is restricted only to Cambodian citizens and Cambodian legal entities. Foreign ownership is limited to 49%. Holding structures, whereby the company can enjoy 100% of the equity interest and effective management control whilst only owning 49% of a Cambodian’s company’s shares, may be held in breach of Cambodian law and may be required to be unwound.

Taxes Regulations under Development

Tax regulations in Vietnam and Cambodia are still under development. In Cambodia, unused land is subject to a 2% unused land tax, but the definition of unused land is still evolving and it varies by province. Ineffective enforcement and uncertainty created by this tax could mean that many plots of land might be subject to tax assessment on them for the past years, which could create uncertain tax liabilities on properties.

Similarly, there is also a 4% tax on the transfer of ownership of immovable property in Cambodia, which is based on the value of land assessed by the tax department. There is no mechanism to assure a fair valuation by the tax department. Buyers may face tax liabilities if the transferor of land pays an insufficient transfer tax: if the transfer tax is not paid by transferor, then the liability rests with the transferee.


6 June 11, 2007

Industry Outlook

Vietnam Economic and Regulatory Framework

According to 2005 statistics, Vietnam, with a population of 83mn, ranks as the 13th most populous country in the world. Vietnam has a young population, with 65% under the age of 35. The Vietnam Commerce and Industry Reports and the International Labor Organization estimate that between 2001 and 2010, 1.8 mn people would have reached the labor age with about 350,000 people retiring each year.

In 1986, the Vietnamese Government embarked on the Doi Moi (reform) policy and ever since it has gradually started to replace the centrally planned economy, bureaucracy and subsidy mechanism with a socialist-oriented market economy. Since 1991, the Vietnamese economy has grown at an average of 15.4% p.a. Vietnam’s per capita GDP now stands at US$729, roughly the same level as China in 1996. By 2010, the Vietnamese government expects Vietnam’s per capita GDP to rise to US$1,100.

Figure 8: GDP/Capita – Vietnam vs Cambodia vs China

Figure 9: Key Statistics Around Vietnam

-

500

1,000

1,500

2,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006




Vietnam HCMC HanoiArea (sq km) 329,600.0 2,093.0 921.0 Population (m) 83.1 7.0 3.2 GDP per capita (US$) 729.0 2,185.0 1,400.0 GDP growth rate (%) 8.20% 12.02% 11.16%

Source: CEIC, Lehman Brothers research Source: General Statistic Office

In addition to its labor force and stable political environment, another factor behind Vietnam’s attractiveness is the MNCs’ ‘China-plus-one’ strategy, in which they seek to reduce their dependence on China and spread their business risk. In 2006, Vietnam’s exports totaled US$39.6bn. Vietnam’s main export items are garments and textiles, footwear, seafood, wood products, coffee, rubber, coal and handicrafts, etc. In addition to exports, foreign direct investments (FDI) and overseas remittances are also key contributors to Vietnam’s GDP growth. In 2006, Vietnam received US$10.2bn in FDI, US$1.8bn in official development aid disbursements and US$4.7bn in overseas remittances.


June 11, 2007 7

Figure 10: Vietnam FDI, Development Aid and Overseas Remittance

-2.04.06.08.0

10.012.014.016.018.0

2000 2001 2002 2003 2004 2005 2006

Overseas remittance

Official development aid -disbursementsFDI

Source: General Statistic Office

On November 7, 2006, Vietnam joined the WTO and became its 150th member. In 2007 a number of industries will begin to open up to foreign investments, such as banking, telecoms, distribution retail services, electricity and finance. Vietnam’s entry into the WTO is expected to help sustain its economic growth and the Asian Development Bank expects Vietnam’s GDP to register growth of 8.3% and 8.5% in 2007 and 2008, respectively.

Inflation and Exchange Control

Driven by strong economic growth and rising incomes, inflation in Vietnam stood at 6.6% in 2006. Under current foreign exchange control regulations, any person, including offshore funds, are allowed to exchange Dong into foreign currency at the official rate provided that they declare the intended use of money. There are no restrictions on inward remittance of foreign currency in Vietnam, but outward remittance of foreign currency by domestic enterprises may only be made for imported goods and services, to repay registered offshore loans or to make overseas investments. Foreign companies are generally allowed to repatriate profits from their business operations in Vietnam. Upon termination of a business, investors may repatriate capital, but permission is required from the Ministry of Planning and Investment if the amount to be repatriated exceeds the original investment amount.


8 June 11, 2007

Figure 11: Inflation in Vietnam

Figure 12: Dong Exchange Rate Against USD

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Jul-2

002

Jan-

2003

Jul-2

003

Jan-

2004

Jul-2

004

Jan-

2005

Jul-2

005

Jan-

2006

Jul-2

006

Jan-

2007

13,500

14,000

14,500

15,000

15,500

16,000

16,500

Jan-

1999

Jul-1

999

Jan-

2000

Jul-2

000

Jan-

2001

Jul-2

001

Jan-

2002

Jul-2

002

Jan-

2003

Jul-2

003

Jan-

2004

Jul-2

004

Jan-

2005

Jul-2

005

Jan-

2006

Jul-2

006

Jan-

2007

Source: CEIC Source: CEIC

Land Ownership and Restrictions on Foreign Investments

All land in Vietnam is owned by the people and administered by the state. While all land theoretically belongs to the state, everyone (including foreign investors) is entitled to land-use rights. Vietnamese individuals are entitled to indefinite “freehold” of the land and property, while foreign individuals are only entitled to a 50-year leasehold ownership (in some cases up to 70 years).

For a foreign enterprise, the two main avenues to acquire land-use rights are: 1) getting a land lease from the state or other legitimate organization holding a land-use right for a maximum of 50 years (70 years in some cases) or 2) contribution of land use rights by a Vietnamese partner as their share of capital in a joint venture. In terms of land leases, if 100% of the land rental for the entire term was paid in one lump sum, the foreign enterprise would enjoy full rights over the land, in line with Vietnamese organizations, which include the right to assign, sell their land-use rights and sub-let their land-use rights and assets.

While foreign enterprises are allowed to acquire land-use rights, there are still foreign ownership limits for listed and unlisted companies. Generally, foreign equity participation in domestic non-listed Vietnamese enterprises established under the old Enterprise Law, as opposed to FIEs (Foreign Invested Enterprises) that are established under the Law on Foreign Investment, is limited to 30% for unlisted enterprises and 49% for listed enterprises.

Cambodia Economy and Regulatory Framework Cambodia’s economy has registered double-digit GDP growth over the past three years. Since Cambodia joined the ASEAN Free Trade Area in 1999 and signed numerous trade agreements with countries in the South-East Asia, Canada, South Korea, India and the US, its real GDP growth has been at 6-13%. Cambodia’s GDP per capita now stands at US$493, nearly the same as that of China in 1994. The IMF (International Monetary Fund) expects Cambodia’s GDP per capita to rise to US$594 by 2008.


June 11, 2007 9

Cambodia also enjoys favorable demographics as it has an extremely young population – 50% of its population is under 21 years of age, with a literacy rate of 74%. Wealth is on an upward trend with GDP per capita growing at 10% YoY, while deposit growth in the banking sector is estimated to have exceeded 45% in 2006.

Figure 13: GDP/Capita – Cambodia vs Vietnam vs China Figure 14: Real GDP Growth by Sector

-

500

1,000

1,500

2,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006




2001 2002 2003 2004 2005 2006EAgriculture 4.5% -2.1% 11.9% 1.1% 16.4% 4.0%Industry 11.7% 17.7% 12.5% 16.8% 12.3% 14.0%…Garments 28.4% 21.3% 16.8% 24.9% 10.3% 22.8%Services 8.7% 6.3% 4.4% 11.7% 12.1% 8.8%…Tourism 22.6% 18.8% -16.7% 23.4% 17.3% 11.9%Total GDP 7.7% 6.2% 8.6% 9.9% 13.4% 8.5%Non-Agriculture GDP 9.5% 10.7% 7.0% 14.5% 10.3% 10.6%

Source: CEIC, Lehman Brothers research Source: National Institute of Statistics for 2001-05, EIC Projection for 2006

While 75% of the labor force is involved in agriculture, it only contributes 31% of GDP. Tourism and garment/textiles are the other major industries driving Cambodia’s economic growth. Exports rose at a CAGR of 16% from 2001-06, while growth in tourist arrivals was strong at 20% YoY in 2006.

Figure 15: Cambodia Exports Up 16% YoY in 2006

Figure 16: Cambodia Tourist Growth Remains Strong

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000 2001 2002 2003 2004 2005 20060%

5%

10%

15%

20%

25%

30%

35%

40%

Exports (US$m) YoY Change (RHS)

900,0001,000,000

1,100,0001,200,0001,300,000

1,400,0001,500,0001,600,000

1,700,0001,800,000

Dec

-200

4

Feb

-200

5

Apr

-200

5

Jun-

2005

Aug-

2005

Oct

-200

5

Dec

-200

5

Feb

-200

6

Apr

-200

6

Jun-

2006

Aug-

2006

Oct

-200

6

Dec

-200

6

0%

10%

20%

30%

40%

50%

60%

12 mth moving total (person) YoY Change

Source: CEIC for 2000-05, EIC for 2006, Lehman Brothers research Source: CEIC, Lehman Brothers research

Garments and textiles are major export items for Cambodia, accounting for nearly all of its export revenues. With China and Vietnam’s rising costs, Cambodia is likely to be an increasingly popular sourcing destination for garments.


10 June 11, 2007

Despite Cambodia’s strong growth, inflation has been subdued. Inflation has moderated from 5.9% in March 2006 to 3.5% in March 2007. After hitting the year’s low in October 2006, the Cambodian Riel strengthened 2% against the dollar in the three months leading to January 2007

Figure 17: Cambodia Inflation – At 3.5% in March 2007 vs 5.9% in March 2006

Figure 18: Cambodia Riel Recovering Against US Dollars (1 USD to Reil)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Aug

-200

5

Oct

-200

5

Dec

-200

5

Feb-

2006

Apr-

2006

Jun-

2006

Aug

-200

6

Oct

-200

6

Dec

-200

6

Feb-

2007

3,700

3,750

3,800

3,850

3,900

3,950

4,000

4,050

4,100

4,150

4,200

Jan-

1999

Aug-

1999

Mar

-200

0

Oct

-200

0

May

-200

1

Dec

-200

1

Jul-2

002

Feb-

2003

Sep

-200

3

Apr-

2004

Nov

-200

4

Jun-

2005

Jan-

2006

Aug-

2006

Source: CEIC, Lehman Brothers research Source: CEIC, Lehman Brothers research

In 2004, Cambodia was admitted as the 148th member of the World Trade Organization. Although progress has been slow in enacting the remaining 28 laws in the WTO work program, many of the acts are at advanced stages in draft forms. Since 2002, Cambodia’s legal reform has been proceeding. Current work is focused on the creation of a new fundamental legal framework, which will form the basis for all legal arrangements and dispute resolutions.

Land and Property Ownership in Cambodia

Cambodia places restrictions only in a few business sectors for reasons of national security, social safety or necessity of the national economy. In 1989, the land reform legislation allowed each household to own up to five hectares of land for cultivation, which was the first step to the process of privatization and this almost brought an end to state or communal ownership of farmland. In 2001, the Cambodian Land Law was enacted, which clarifies various types of rights relating to land as well as the process by which land is transferred by sale or succession and the registration of the transfer. The Ministry of Land Management, Urban Planning & Constructions has set out in its Annual Workplan and Budget 2007 that its immediate objective is on ensuring titles to land, access rights to land and resources secured, through strengthening of land policy and legal and regulatory framework.

Under the current legislation, ownership of real property in Cambodia is limited to Cambodian citizens, or Cambodian entities which have 51% of voting shares owned by one or more Cambodian citizens, or by Cambodian legal entities.


June 11, 2007 11

Vietnam Property Market Outlook

The Vietnam property market is still in its infancy. After an initial build-out in the early 1990s, the Asian Crisis virtually put a stop to new developments in Vietnam. It is only in the past few years that new development has resumed. With Vietnam’s economy expected to grow at 8.5% p.a. and the influx of MNCs to Vietnam due to WTO and the China-plus-one strategy, there is rising demand for quality properties that meet international standards. Across the office, retail, serviced apartment markets, there is a general lack of available stock at present, which has resulted in very high occupancy rates and steady rental increases.

Figure 19: Vietnam and Ho Chi Minh City


CAMBODIA

LAOS

Phu QuocCan Tho

My ThoMui Ne

Nha Trang

HO CHI MINH

Tay NinhDalat

Hoi AnDa Nang

Hue

VinhGULF OF TONKIN

Halong Bay

Hoa Lu

HANOIDien Bien Phu

Sapa BabeLang Son

CHINA

Buon Me Thuot

District 7

District 1

District 2

District 3

District 5

Binh Thanh District


CAMBODIA

LAOS

Phu QuocCan Tho

My ThoMui Ne

Nha Trang

HO CHI MINH

Tay NinhDalat

Hoi AnDa Nang

Hue

VinhGULF OF TONKIN

Halong Bay

Hoa Lu

HANOIDien Bien Phu

Sapa BabeLang Son

CHINA

Buon Me Thuot

District 7

District 1

District 2

District 3

District 5

Binh Thanh District

Source: CBRE

While the current supply-demand imbalance has helped boost rental levels, demand is also evolving as Vietnam’s market begins to open up on its ascension to the WTO. The entry of MNCs should boost demand for both office space and serviced apartments, while the relaxation on foreign participation in retail should boost demand for organized retail space. CBRE expects that the amount of retail space should more than double in the coming three years, while the supply of serviced apartment market should also double. Although new supply is rising, we do not expect rentals to come under pressure as: (1) the current stock is at a low base and (2) demand is also rising quickly. We believe the demand for newer properties built with better specifications should be even stronger due to upgrading demand from local and foreign enterprises alike.


12 June 11, 2007

Serviced Apartment Market For expatriates in Vietnam, they usually find their accommodation in either: 1) locally developed and often substandard apartments, villas or townhouses that are locally owned and managed, or 2) international standard serviced apartments. The supply of Grade-A and B serviced apartments is very limited. For instance, as at 1Q07, CBRE estimates that there were only 1,290 serviced apartments in Hanoi and only 2,669 serviced apartments in HCMC. Occupancy is very tight at 97.56% in Hanoi and 95% in HCMC.

Figure 20: Service Apartment Stock in HCMC (units)

Figure 21: Service Apartment Stock in Hanoi City (units)

-

500

1,000

1,500

2,000

2,500

3,000

Q4.96

Q4.98

Q4.00

Q4.02

Q4.04

Q4.06

New Supply

Existing Supply

0

500

1000

1500

2000

2500

3000

1996

1997

1999

2000

2001

2002

2003

2004

2005

2006

2007

F20

08F

2009

F20

10F

Existing New

Source: CBRE Source: CBRE

In HCMC, the most marketable size serviced apartments are those between 60sqm and 80sqm. Achieved rentals per month have ranged from US$28psm to US$35psm for Grade--A serviced apartments and these are expected to fetch US$40psm in the next three years, according to CBRE. In the short term, due to limited supply, there should be continued upward pressure in serviced apartment rentals. However, as housing budgets remain low for some expatriates, CBRE does not expect the increase to be significant.

Figure 22: Current Service Apartment Rental Rates in HCMC and Hanoi (USD) Grade Rental (psm) 1-bedroom 2-bedroom 3-bedroom 4-bedroom 5-bedroomHCMC - A 28-35 1,700-2,500 2,500-4,500 3,000-6,700 4,000-9,000 NAHCMC - B 22-31 1,100-2,300 2,100-3,400 2,800-6,000 3,800-7,000 NAHCMC - C 15-23 800-1,800 1,300-3,100 2,100-3,000 3,800-4,300 NAHanoi-A&B NA 1,300-3,300 1,800-4,600 2,600-5,200 3,200-6,000 5,500-6,000

Source: CBRE

In terms of pure serviced apartment supply in the next three years, CBRE expects a total 700 apartments will come on stream in Hanoi City and some 1,200 will come on stream in HCMC. In addition to the supply of serviced apartments, as Vietnam’s residential market continues to develop, we believe the availability of better appointed rental stock should increase and may draw some demand away from serviced apartments. That said, serviced apartments under single ownership and management should still be attractive to new and existing expatriates. In the near term, we expect rental growth of 10% p.a., about 2% higher than Vietnam’s projected GDP growth rate due to supply-demand imbalance.


June 11, 2007 13

Figure 23: Serviced Apartments in HCMC – Saigon Sky Garden, District 1

Source: Lehman Brothers research

Retail Market Outlook

Since the economic reforms in the 1980s, the retail market has been one of the faster developing sectors in Vietnam. According to AT Kearney, retail trade in Vietnam reached US$23bn in 2005 and is expected to surpass US$50bn by 2010 with a compound annual growth rate of nearly 30%. AT Kearney ranks Vietnam as the third most attractive market for retail development behind India and Russia.

Figure 24: Vietnam’s Retail Sales

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Retail Sales (VND bn) YoY Change

Source: CEIC, Lehman Brothers research


14 June 11, 2007

According to CBRE, traditional retail stores, such as wet markets and mom-and-pop shops, still capture the bulk of retail spending in Vietnam, occupying nearly an 80% market share. As of end-2005, Vietnam had 9,063 traditional markets, including 165 wholesale markets. Modern distribution channels, such as supermarkets, were introduced about a decade ago and have gained acceptance by many consumers. Compared to 1995 when there were only ten supermarkets operating in six cities, there are now close to 200 supermarkets operating in 25 cities in Vietnam. CBRE estimates that there are 20 supermarkets and 35 trading centres under construction across the country.

While traditional markets still dominate retail spending, anecdotal evidence suggests a growing acceptance and preference for organized retail. For instance, a survey by VnExpress, a Vietnam newspaper, in December 2005 indicated that 55% of 1,747 respondents preferred supermarkets to traditional retail stores.

CBRE classifies shopping formats in Vietnam under five categories: 1) wholesale markets, 2) supermarkets, 3) convenience stores i.e. trading area <500sqm, 4) shopping centers > 10,000sqm and 5) shop houses.

As more traditional shop houses give way to modern retail stores in Vietnam, it is believed that lower-priced retailers, such as supermarkets and hypermarkets, will attract more customers initially due to their lower price points. For traditional shopping malls, the current stock is very limited. For instance:

Ho Chi Minh City – The shopping centre market in HCMC is currently very small with around 124,000sqm spread over ten shopping centers. Occupancy rates are high at nearly 92% with average rental rates of US$40psm per month. In the next three years, CBRE estimates that HCMC’s retail stock should more than double with nearly 140,000sqm of net lettable area (NLA) coming on stream.

Hanoi – Similar to HCMC, the stock of shopping centers in Hanoi City is limited at only 95,000sqm spread over six shopping centers. Occupancy rates are high at 95% with average rent at US$40psm per month. Future supply is more significant as compared to HCMC, as 300,000sqm of retail space in Hanoi is currently under construction.


June 11, 2007 15

Figure 25: HCMC Current & Future Retail Centers (sqm)

Fig. 26: Hanoi City Current & Future Retail Centers (sqm) Centre Developer Type Completion AreaCurrent SupplyDiamond Plaza Posco Dept Store 1999 8,000 Parkson Saigon Tourist Dept Store 2005 18,000 Zen Plaza Hasegawa Dept Store 1999 6,817 Saigon Centre Keppel Office/Retail 1996 6,265 Saigon Tax Plaza SATRA Shopping Centre 14,760 Saigon Superbowl SUTL - Singapore Shopping Centre 1996 6,000 Saigon Factory Outlet Outlet Mall 2006 30,000 Eden Mall Eden Co - Vietnam Shopping Precint 2006 5,000 Thuan Keiu Plaza Hong Kong Shopping Mall 2000 21,797 An Duong Plaza Van Thi Phat Market Kiosk 2004 7,000 Future SupplySaigon Paragon Paragon Crop Shopping Centre 2007 15,000 Opera View Artex Saigon 2007 1,280 Tan Da Court Norfolk Group/Invesc Res/Shopping 2007 4,380 Hung Vuong Plaza M&C/Kinh Do Dept Store 2008 33,000 Sailing Tower 2008 2,560 Times Square Larkhall Res/Shopping 2009 12,367 Happiness Square Fei-Yueh Vietnam Mixed use 2009 11,882 Asiana Plaza Kumho Mixed use 2009 6,880 SJC Tower M&C Corp Mixed use 2010 8,292 Saigon Pearl Vietnam Land SSG Res/Shopping 2010 30,000

Centre Developer Type Completion AreaCurrent supplyTrang Tien Plaza Vinaconnex Shopping Centre 1999 12,000 Vincom City Towers Vincom JSC Shopping Centre 2005 17,400 Trun Hoa Nan Chinh Casino Group Hypermarket 2005 16,000 Melinh Plaza T&M Trans Trade Centre 2006 42,000 Pacific Place Ever Fortune Mixed use 2007 7,000 Opera Business Centre Bac Ha Office w/retail 2007 1,100 Future supplyViglacera Tower Viglacera Office/Retail 2007 4,000 Syrena Res/Retail 2007 1,000 Ruby Plaza Specialty 2007 3,300 Viet Tower Peace Co Office/Retail 2008 15,000 The Gardens Bitexco Land Shopping Centre 2009 50,000 Ciputra Mall Ciputra Regional Mall 2010 103,000 Hanoi City Complex 2010 50,000


Figure 27: Parkson, District 1, HCMC

Figure 28: Diamond Plaza, District 1, HCMC

Source: Lehman Brothers research Source: Lehman Brothers research

Compared to other South-East Asia countries, Vietnam’s monthly retail rents are still very low at US$73psm. This compares to Bangkok’s US$560psm and Singapore’s US$290psm.


16 June 11, 2007

Figure 29: Prime Retail Rents in SE Asia (US$ psm/month)

Figure 30: Prime Retail Rents in HCMC

20 48 73 70133

185 191290

560

727

0100200300400500600700800

Man

ila

New

Del

hiH

o C

hiM

inh

City

Jaka

rta

Bei

jing

Sha

ngha

i

Taip

ei

Sin

gapo

re

Ban

gkok

Hon

gK

ong

32.4

32.4

32.4

33.9

35 37.7

39.8

42.3

45.9 52.2 62

.6 73.1

100%

100%

100%

100%

96% 97

%95

%93

%91

% 93%

92% 93

%

0

20

40

60

80

100

120

140

1996

1997

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2000

2001

2002

2003

2004

2005

2006

2007

50%

60%

70%

80%

90%

100%

110%

Avg Rental (US$psm) Occupancy (%)


For retail businesses, with Vietnam’s WTO entry, foreign retailers can now set up JVs with Vietnamese and are allowed to invest up to 49%. The 49% limit will be abolished on January 1, 2008 and from January 1, 2009 onwards, the foreign party will be able to buy out the Vietnamese partner. The table below shows a list of retail chains that are active in Hanoi.

Figure 31: Retail Chains Active in Hanoi Supermarket/Hypermarkets F&B Other TradeIntimex (2001) Trung Nguyen - Coffee Nettra Mobile FiviMart (1997) Highland Coffee Nino Maxx - FashionMetro Cash & Carry (2002) New Window - Coffee Blue Exchange - FashionBig C Supermarket (1998) Nang Sai Gon - Coffee ShisheidoParkson Vietnam (2005) Pho 24 - Noodle PiaggioG7 Mart (2006)Hapro(2006)Dairy Farm (licence 2006)Lotte Shopping (licence 2006)

Source: CBRE

Over the short term, as new retailers enter the Vietnamese market and with the addition of better quality retail property stock, we believe Vietnam’s retail rentals should reprice higher (to reflect the better quality malls) before moderating to rise at a rate in tandem to the income growth of the locals. We expect medium-term rental growth of 8% p.a., which is in line with Vietnam’s expected GDP growth.

Office Market Outlook

HCMC is the business hub for Vietnam. CBRE estimates that there are 92 medium to high quality office buildings in the city, providing a total 407,749sqm office space. Grade-B and -C office buildings make up the bulk of the stock with NLA of 200,089sqm and 129,725sqm, respectively. Grade-A office stock is limited at only five buildings, providing an NLA of 77,935sqm.


June 11, 2007 17

The average monthly rent for Grade-A office space is currently around US$38psm, including service charge but excluding the 10% VAT. Grade B office rents range US$20-US$32psm, while Grade C office rents are at US$14-20psm (including VAT and service charge). The leasing market is very tight with occupancy running at 100% for Grade-A office, 99% for Grade-B office and 97% for Grade-C office.

Figure 32: HCMC Office Supply (sqm)

Figure 33: HCMC Office Rentals and Occupancy

-50,000

100,000150,000200,000250,000300,000350,000400,000450,000

Current 2007 2008 2009 2010

A B C

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Figure 34: Bitexco Building, District 1, HCMC

Figure 35: Asian Plaza, District 1, HCMC

Building site ->

2009 Completion -> Source: Lehman Brothers research Source: Lehman Brothers research


18 June 11, 2007

The Hanoi office market is similarly small with Grade A offices limited to nine buildings. Total lettable stock has stood at 84,172sqm since 2002. The average rent of Grade-A office stands at US$27psm per month with a occupancy rate near 100%.

With various sectors opening up post-WTO, more foreign enterprises are expected to set up offices in Vietnam. However, at this stage, demand for average office space remains small. According to a survey by CBRE, some 79% companies currently occupy less than 300sqm of office space, while only 4.9% occupy over 1,000sqm. CBRE expects Grade-A office rents to rise until 2008 when new supply starts to come on stream. New and expansion needs should provide strong demand for both Grade-A and Grade-B office space.

While a significant amount of office space is forecast to come on stream by 2010, a number of projects have witnessed delays. Given the existing tight occupancy, CBRE believes Grade-A office rents may reach US$40psm per month by 2008.

Residential Market Outlook

According to the HCMC Department of Housing and Land Management Services, there are 1 mm houses and apartments in HCMC with a combined housing area of 52.7 mn sqm, implying an average area per capita of around 10.27 sqm. The city plans to increase total housing space to 103m sqm by 2010 and increase per capita space to 14.2 sqm. Most of the housing units are of low to mid quality. The first high quality apartment/condominium, My Canh in Phu My Hung, was only built in 1999.

Generally, luxury apartments can be classified under two price segments, those with sales price of over US$1,000psm and those that go for US$600psm-US$1,000psm. The total stock of high quality apartment in HCMC is only estimated at 35 projects with 7,900 units. CBRE estimates that there are currently 91 projects under construction with 30,603 units expected to be for sale between 2007 and 2009.

Yields and Capitalization Rates

To date, there have been very few transactions of investment-grade assets in Vietnam. Many of the existing office buildings were developed prior to the Asian Crisis and have only now recovered to their pre-crisis levels.

CBRE and JLL estimate current retail yields to come in between 13.5% and 14.8% and serviced apartment yields to reach between 12.8% and 13.0%.


June 11, 2007 19

Figure 36: Major Asian Cities – Net Income Yield Comparison

Retail Yield ResidentialYield

Risk FreeRate

RetailSpread

ResidentialSpread

HCMC 14.8% 12.8% 7.7% 7.1% 5.1%Hanoi 13.5% 13.0% 7.7% 5.8% 5.3%Phnom Penh 13.5% 13.0% NA NA NAIndochina Average 13.9% 12.9% 7.7% 6.2% 5.2%Jakarta 15.0% 10.7% 9.2% 5.8% 1.5%Bangkok 11.9% 4.8% 3.6% 8.3% 1.2%Makati 11.5% 7.4% 6.6% 4.9% 0.8%Shanghai 11.3% 7.0% 3.7% 7.6% 3.3%Mumbai 11.0% 3.5% 8.1% 2.9% -4.6%Kuala Lumpur 10.3% 7.1% 3.2% 7.1% 3.9%Delhi 9.5% 3.0% 8.1% 1.4% -5.1%Beijing 7.8% 8.4% 3.7% 4.1% 4.7%Seoul 7.0% 4.5% 5.3% 1.7% -0.8%Macau 6.1% 3.6% NA NA NASingapore 5.8% 2.8% 2.7% 3.1% 0.1%Hong Kong 3.9% 3.2% 4.1% -0.2% -0.9%Tokyo 3.6% 5.1% 1.7% 1.9% 3.4%Ex-Indochina Asia Average 8.8% 5.5% 5.0% 3.8% 0.5%

Source: CBRE, JLL

Figure 37: Major Property Market Participants in Vietnam Vietnamese Foreign

Residential Office Residential Office Major players in market w/oactive development

Fico RESCO Phu My Hung (Taiwan) Luks Industrial (HK) Lotte (Korea)Refico REE Corporation Daewon (Korea) CT&D (Taiwan) GS Construction (Korea)BMC Bitexco Keppel Land (Singapore) Centrepoint (SG) Rajawali (Indonesia)Construction Co No 1 Savico Capitaland (Singapore) Kotobuki (Japan) Sumitomo (Japan)Thu Duc Housing Development FICO Posco (Korea) SP Sethia (Malaysia)FIDECO Artex Saigon East Asia Property (HK)RESCO Nam Long Construction Marubeni (Japan)COTEC Sun Wah Group (HK)Bitexco Chiap Hua (HK)Hoan Cao Keppel Land (SG)

Larkhall (HK)Kumho (Korea)Fu Tsu Construction (Taiwan)

Source: CBRE


20 June 11, 2007

Cambodia Property Market Outlook

Compared to Vietnam, the Cambodian property market is at an even earlier stage of development. Its properties reflect the state of the Cambodian economy with segments such as hotels and serviced apartments for NGOs being the more developed ones. At present, we are just starting to see some new office and retail stock being built in Phnom Penh.

Figure 38: Map of Cambodia and Phnom Penh

Sway Rieng

Snoul

Senmoncrom

Lumphal

BoungLong

Siempang

Slung Treng

Phnom ThbengMeanchey

Cheomksan

Siem Reap

Potpet

Sicophon

Battambang

Polin PursatKampong Thom

Kampong Cham

Banam

Ta KhmauKampong Speu

TakeoKampolSihanoukville

Sie Ambel

KrongKoh Kong

Kampong Chhneng

PHNOM PENH

Sway Rieng

Snoul

Senmoncrom

Lumphal

BoungLong

Siempang

Slung Treng

Phnom ThbengMeanchey

Cheomksan

Siem Reap

Potpet

Sicophon

Battambang

Polin PursatKampong Thom

Kampong Cham

Banam

Ta KhmauKampong Speu

TakeoKampolSihanoukville

Sie Ambel

KrongKoh Kong

Kampong Chhneng

PHNOM PENH

Source: CBRE

Serviced Apartment Market

The serviced apartment market in Cambodia is a very niche market. In Phnom Penh, CBRE estimates that there are only five completed projects of international quality, providing 279 units of serviced apartments. The major tenants of serviced apartments are expatriates, who could also rent villas owned by locals or seek hotels accommodation as alternatives.

In Phnom Penh, the tenants of serviced apartment are charged US$1,400-US$2,200 per month for a 1-bedroom unit and US$2,400-US$5,100 for 2-3 bedroom units. While hotels could be an alternative to serviced apartments, the rates currently stand at some US$2,800 per month (discount given for longer stay) for a standard room in the city centre. As such, serviced apartments appear to be more cost efficient for expatriates. Villas are another alternative for expatriates. However, villas are either occupied as office premises in the city centre or are located further from the city centre. The average rental per month for a 200-345sqm villa approximates US$1,000-US$3,500. While the rent is comparable to a serviced apartment, the villa offers a bigger living space. The trade off, however, is the serviced apartment offers cleaning services and has a better location.


June 11, 2007 21

Figure 39: Existing Supply of Serviced Apartments

Figure 40: Hotel Stocks

ProjectNumber of

Units Unit SizeRents

(US$/month)Rents

(US$psm pm)Phnom PenhHimawari Apartments 116 55-175 2,142-5,100 29-39Intercontinental Apartments 37 65-110 2,200-3,500 32-35Colonial Mansion 44 24-231 1,200-3,500 15-50Embassy Place 50 70-124 1,400-2,400 18-20Les Jardins du Bassac 32 70-217 1,600-4,000 23-18.35

RatingNumber of

Units

Room Rate(US$ per

night)

Est.Occupancy

RatePhnom Penh4 and 5 Star 1,461 70-350 60%-80%3 Star/Boutique 387 25-130 50%-85%


Figure 41: Serviced Apartments in Phnom Penh – Colonial Mansion


In terms of future supply, CBRE estimates that 200 serviced apartment units are currently under construction in Phnom Penh. Despite the ramp-up in building serviced apartments, the overall stock remains low and demand from expatriates should remain high (as noted by the further build-out of office buildings).

With NGOs making up the bulk of expatriate demand in Phnom Penh, we expect serviced apartment rentals to rise by 8% p.a. in the medium term, between Cambodia’s GDP growth and inflation rates.

Figure 42: Future Supply of Serviced Apartments

Figure 43: Future Supply of Hotels

ProjectNumber of

UnitsPhnom PenhColonial Mansion Group's Project on Street 102 64Colonial Mansion Group's Project opposite Amanjaya Hotel 80The Royal Group's Project 40-45

Rating

Number ofUnits

Phnom Penh5 Star 620



22 June 11, 2007

Retail Market Outlook

The retail market is still at its infant stage. In addition to the traditional shop houses and open air markets, the first retail outlet, Lucky Market, started operation in Phnom Penh in 1994, which is not drastically different from a supermarket. Since then, several other shopping outlets have been built, which cater to the daily necessity needs of residents, offering supermarkets, restaurants, fashion, among others. Currently, the largest retail outlet in Phnom Penh is the six-storey high Soriya Shopping Center. At 27,000sqm, the shopping center also houses a cinema and a roller-skating rink. Tenants at shopping centres are charged US$10-$80psm per month, and most centres achieve high occupancy rates.

CBRE notes that supermarkets are constantly looking for new opportunities and retailers are queuing for retail space in Phnom Penh. The future supply of retail outlets, estimated by CBRE, would come from four projects, providing some 141,000sqm. Two of the projects are under construction, whereas the other two are yet to start construction.

Figure 44: Current Shopping Centers in Phnom Penh

CentreNumber of

FloorsFloor Plate

(sqm)Total GFA

(sqm) Occupancy Major TenantsPhnom Penh - Existing

Soriya Shopping Center 6 4,500 27,000 100%Supermarket,Citymart, The

Pizza Co.

Paragon Cambodia 3 3,000 9,000 Some lines

shopsavailable

p ,Paragon

Supermarket,Black Canyon

CoffeeBS Department Store 4 1,000 7,000 50% KPK Supermarket

Lucky Market 1 2 1,500 3,000 100% Supermarket,Lucky Berger

Lucky Market 2 2 1,200 2,400 100%Supermarket,

Lucky Beurger,Fashion Store

Lucky Market 3 (Soriya) 1 1,290 1,290 n/a Lucky market withLucky burger

Source: CBRE

Compared to Vietnam, the Cambodian retail market is less mature. Despite its earlier entry into WTO, there are presently no foreign retailers operating in Phnom Penh. Although we expect foreign retailers to start to enter the Cambodian market, supermarket and department store operators are likely to prefer longer lease terms with fixed rental payments. Overall, we believe Cambodia’s retail rents (excluding anchor tenant leases, which are at fixed rates) should rise 5% p.a. in the medium term, in line with the inflation rate in Cambodia.


June 11, 2007 23

Figure 45: Shop Houses Under Construction in Phnom Penh

Figure 46: Inside Soriya Shopping Center

Source: Lehman Brothers research Source: Lehman Brothers research

Office Market At present, there are no tall office buildings in the city of Phnom Penh as the majority of companies utilize villas or shop houses as office premises, which usually charge a monthly rental of US$4,000. According to CBRE, there are only two Grade-C office buildings in the city, namely Hong Kong Centre (4,000sqm) and Intelligent Office Centre (3,750sqm), which charge monthly rents of US$10-15psm and US$7-9psm, respectively. Both have full occupancy. The city is only expecting new office supply in 2008-10 – the Vattanac Bank Building (15,300sqm, 18 storeys), Canadia Bank’s OCIC Tower (100,000sqm, 27 storeys) and The Royal’s Group mixed-development (7,470sqm).

Figure 47: Construction Site of OCIC Tower



24 June 11, 2007

Appendix 1: Regulations on Land in Vietnam

Figure 48: Regulations on Land in Vietnam Law on RealEstateBusiness(2007)

The Law on Real Estate Business permits foreign investors to:(i) construct houses and buildings for sale or lease out,(ii) enhance the land and develop infrastructures on leased land with a view to subletting them(iii) provide real estate business services such as real estate consultancy, management, brokerage and management.Domestic organisations and individuals can purchase houses in Vietnam regardless of their registered place of business orregistered place of permanent residence.

Overseas Vietnamese who have resided in Vietnam for 6 consecutive months may buy one residential house or apartment.For those that fall under certain categories, they can own an unlimited number of houses.

Foreign investors, who invest in the construction of residential housing for lease in Vietnam, may own such residential housingfor the duration of their investment certificate. This limited duration must be recorded in their certificate of residential housingownership.

The Law on Residential Housing affirms the ability of foreign organisations and individuals permitted to remain in Vietnam formore than 3 months and overseas Vietnamese to lease residential housing in Vietnam.

The Law allows developers to accept up to 70% of value of house lease or price from potential lessee/buyer, provided thefoundations for the house have been completed.

Decree 2(2006)

Developers of new residential centres have to satisfy the following conditions:- Business license comprise real estate field.- Project's developers have finance capability at least 20% of total investment capital of projects.

Decree 17(2006)

Developers have to complete the engaging developments as well as infrastructures before transferring LURs of projects orpartial projects.

Permits housing developers in rural districts to transfer land plot completed infrastructure without construction development.

Decree 181(2004)

Legal entities, overseas Vietnamese, foreign entities, foreigners which carry out housing projects for lease and sale have theright to transfer the LUR’s just in case they have already completed the constructions in accordance with approved projects.

Developers have to complete housing construction before transferring or selling to the others/purchasers.Housing projects which have not been carried out or delayed the constructions will be taken back the LURs.

The New Land Law recognises and makes provisions for the developing real estate market.Provided that land rental is paid for the entire term and certain conditions are satisfied:- Foreign investors may transfer, mortgage and contribute the LUR and assets attached to the land.- Foreign investors may sell and/or lease residential housing.

All land theoretically belongs to the state, but everyone (including foreign investors) are entitled to LUR.

Vietnamese people may be entitled to indefinite “freehold”, and foreign investors may only be entitled to “leasehold” terms of50 years (or 70 years in special cases).

LUR may be leased, mortgaged, exchanged, transferred and/or inherited in certain cases.

Law onResidentialHousing (2006)

Old Land Law(1993)

New Land Law(2003)

Source: CBRE, International Financial Law Review, Freshfields Bruckhaus Deringer, Economist Intelligence, Vinaland's Prospectus


June 11, 2007 25

Appendix 2: District of Ho Chi Minh City and Major Developments

Adopted from CBRE Vietnam Property Market Overview Report

District 1 and 3 – City centre where most government authorities and foreign businesses are headquartered. The current CBD is generally accepted as areas in District 1 along major thoroughfares such as Le Loi, Nguyen Hue, Le Duan, Dong Khoi and within 1-km radius around City Hall and Notre Dame Cathedral.

District 2 – Located in the North-East gate of Ho Chi Minh City, the district is adjoining to several districts including District 1, 7, Binh Tanh, Thu Duc and the Dong Nai province. District 2 has great advantages in transport communication, either by road or by rai. It also has a new urban centre in Thu Thiem peninsula situated opposite the City Centre by the Saigon River.

District 4 – Situated at the South East gateway of Ho Chi Minh City, District 4 has become a maritime transport junction. District 4 is to become the centre for maritime-port commence and hence trade and transport centre.

District 5 – Known as China Town (Cho Lon). District five is often the unofficial link to the Chinese speaking countries

District 7 – Situated at the Southern gateway of Ho Chi Minh City, District 7 is a new urban centre for HCMC and includes the new urban centre of Phu My Hung or Saigon South.

District 9 – Situated to the south of District 2, District 9 is also a new urban centre for Ho Chi Minh City.

Thu Duc District – New urban centre situated to the north-east of HCMC, Thu Duc is an industrial centre as well as education centre where many universities are located.


26 June 11, 2007

Appendix 3: Vietnam’s WTO Provisions

Adapted from CBRE Vietnam Property Market Overview Report

Tariff Reduction

Over the next 5-12 years for 4,000 items across many industries.

Automobiles: 90% lowered to 52%

Televisions, air conditioners and washing machines: 50% lower to 20%

Beers and Wines: lower to 45%

Agriculture products: 23.5% lower to 20.9%

Garments and textiles: no quotas, 37.3% lower to 13.7%

Footwear: 50% lower to 30%

Computers/ IT products: 0% in 2012

Market Access

(a) Legal, accounting and auditing and bookkeeping services:

On accession, 100% foreign-invested enterprises can be established.

(b) Taxation services:

For the period of 1 year from the date of accession, the licensing shall be made on the case by case basis and the number of service providers shall be decided by Ministry of Finance subject to the need and development scope of Vietnam's market.

(c) Urban planning and urban landscape architectural services:

After 2 years from the date of accession, 100% foreign-invested enterprises may be established.

(d) Computer and Related Services:

For the period of 2 years from the date of WTO accession, 100% foreign- invested enterprises may only provide services to foreign-invested enterprises in Vietnam. After 3 years from the date of accession, branching is allowed.

(e) Research and Development Services:

Unbound

(f) Advertising services, Market research services:

Upon accession, joint ventures shall be allowed with foreign capital contribution not exceeding 51% of the legal capital of the joint venture. As of 1 January 2009, there shall be no limitation on foreign capital contribution in the joint ventures.


June 11, 2007 27

(g) Supply of equipment, materials and chemicals, supply base services, offshore/marine support vessels, accommodation and catering, helicopter services:

Upon accession, joint ventures with foreign capital contribution not exceeding 49% shall be permitted. After 3 years from the date of accession, this limitation shall be 51%. Two years thereon, 100% foreign-invested enterprises shall be permitted.

(h) Services incidental to manufacturing:

After 3 years from the date of accession, only joint ventures with foreign capital contribution not exceeding 50% shall be permitted. Five years thereon: 100% foreign invested enterprises shall be permitted.

(i) Courier Services:

Unbound, except that foreign ownership in joint ventures may be limited to 51% within the first 5 years after accession. After 5 years from the date of accession, 100% foreign-invested enterprises shall be permitted.

(j) Telecom:

Unbound but under control.

(k) Motion picture:

Only through business cooperation contracts or joint venture with Vietnamese partners who are authorized to provide these services in Vietnam. Foreign capital contribution shall not exceed 51% of legal capital.

(l) Construction and related engineering services:

For the period of 2 years from the date of accession, 100% foreign-invested enterprises could only provide services to foreign-invested enterprises and foreign-funded projects in Vietnam. After 3 years from the date of accession, branching is allowed.

(m) Wholesale trade services and Retailing services:

A joint venture with a Vietnamese partner is required, and foreign capital contribution shall not exceed 49%. As of 1 January 2008, the 49% capital limitation shall be abolished. As of 1 January 2009, unbound.

(n) Franchising services:

None, except a joint venture with a Vietnamese partner is required and foreign capital contribution shall not exceed 49%. As of 1 January 2008, the 49% capital limitation shall be abolished. As of 1 January 2009, unbound.

After 3 years from the date of accession, branching is allowed.


28 June 11, 2007

(o) Education services:

Upon accession, only in the form of joint-ventures. Majority foreign ownership of such joint ventures is allowed. As of 1 January 2009, 100% foreign-invested education entities are permitted. After 3 years from the date of accession: unbound.

(p) Insurance and Insurance-Related Services:

As of 1 January 2008, unbound for motor vehicle third party liability, insurance in construction and installation, insurance for oil and gas projects, and insurance for projects and construction works of high danger to public security and the environment.

After 5 years from the date of accession, non-life branches of foreign insurance enterprises shall be permitted, subject to prudential regulations.

(q) Banking services:

Upon accession, foreign credit institutions are allowed to issue credit cards on a national treatment basis. Beginning on 1 April 2007, 100% foreign-owned banks are permitted. For capital contribution in the form of buying shares, the total equity held by foreign institutions and individuals in each Vietnam's joint-stock commercial bank may not exceed 30% of the bank's chartered capital, unless otherwise provided by Vietnam's laws or authorized by a Vietnam's competent authority.

(r) Securities:

Upon accession, foreign securities service suppliers shall be permitted to establish representative offices and joint ventures with Vietnamese partners in which foreign capital contribution not exceeding 49%.

After 5 years from the date of accession, securities service suppliers with 100% foreign-invested capital shall be permitted.

(s) Health related and social services:

Unbound with minimum requirement on investment capital.

(t) Travel agencies and tour operator services:

Unbound

(u) Entertainment services:

Unbound except after 5 years from the date of accession, joint ventures with foreign capital contribution not exceeding 49% are permitted.


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Guide to Lehman Brothers Equity Research Rating System

Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2- Equal weight or 3-Underweight (see definitions below) relative to the country index of the country in which a stock is listed.

In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3-Negative (see definit ions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.

Stock Rating

1-Overweight – The stock is expected to outperform the unweighted expected total return of the relevant country index over a 12-month investment horizon.

2-Equal weight – The stock is expected to perform in line with the unweighted expected total return of the relevant country index over a 12-month investment horizon.

3-Underweight – The stock is expected to underperform the unweighted expected total return of the relevant country index over a 12-month investment horizon.

RS-Rating Suspended – The rating and target pr ice have been suspended temporarily to comply with applicable regulations and/or f irm policies in certain circumstances including when Lehman Brothers is acting in an advisory capacity in a

merger or strategic transaction involving the company.

Sector View

1-Positive – Sector coverage universe fundamentals/valuations are improving.

2-Neutral – Sector coverage universe fundamentals/valuations are steady, neither improving nor deter iorating.

3-Negative – Sector coverage universe fundamentals/valuations are deteriorating.

Distribution of Ratings

Lehman Brothers Equity Research has 2052 companies under coverage.

42% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating. 40% of companies with this rating are investment banking clients of the Firm.

41% have been assigned a 2-Equal weight rating which, for purposes of mandatory regulatory disclosures, is classif ied as a Hold rating, 27% of companies with this rating are investment banking clients of the Firm.

12% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classif ied as a Sell rating, 21% of companies with this rating are investment banking clients of the Firm.

HK-2933

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