HSC Securities: Real Estate Sector Update

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Oct 17th, 2016

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Industrial park segment seeing strong growth led by KBC’s Trang Due IP

  • Steady expansion in IPs seen
  • Amongst the best IPs in Vietnam, KBC’s Trang Due is a standout
  • Haiphong location is a big plus for any IP
  • KBC signs an MOU to more than double the size of Trang Due IP to 1,000ha

The occupancy rate of industrial parks (IPs) in Vietnam increased to 70% by the end of June up 3 percentage points than the beginning of the year, according to the latest report of Savills Vietnam. The Ministry of Planning and Investment also reported that there was an increase of new FDI wave with a total of US$11.02 billion (+12.4% y/y) has been disbursed by end of September 2016.

Steady expansion in IPs seen – In the first 9M FY2016, six newly operational IPs supplied approximately 700 hectares of leasable area, bringing the total to 220 IPs with an area of 59,600ha. The total leased area was 31,800ha during the period, rising 22% y/y. There was another 104 IPs under construction, tentatively proposed to supply 29,700ha of leasable area.

Amongst the best IPs in Vietnam, KBC’s Trang Due is a standout – Although the supply is increasing, the IPs incorporation essential features will benefit the most, such as, (1) convenient locations to access (close to international airports and/or, seaports) and with decent roads, full on-site infrastructure including utilities and warehouses, services quality and offering tax incentives for investors. And since the industrial activities are posing numerous challenges to the environment and human health, basic regulations on eco-industrial parks (EIPs) will soon be submitted. Thus, it is also necessary for future IPs developers to develop technologies for greenhouse gas emissions and waste treatment as well as energy recycle and reuse.

IPs in the right location with full service facilities and offering special tax breaks are able to charge a significant premium to other more standard IPs. In KBC’s case Trang Due offers exactly such a package.

Haiphong location is a big plus for any IP – Given the advantage of nearby international air, seaports and an excellent highway network including the Hanoi – Haiphong highway, Haiphong was a pioneer in developing IPs in the northern region. Despite the lack of incentives for IPs developers that initially constrained the average occupancy rate of the local IPs. However that all changed since 2008, when the Dinh Vu – Cat Hai Economic Zone was established and operated under the Decision No. 06/2008 / QD-TTg of the Prime Minister to be one of five key economic zones and coastal areas of Vietnam. And with that, any investment or business activity in this economic zone’s IPs become entitled to preferential treatment in terms of different taxes reduction such as CIT, PIT, import/export tax, VAT, excise tax, etc.

Currently, there are 7 IPs operating in Dinh Vu-Cat Hai economic zone including Trang Due IP. Trang Due IP has completed 2 phases to date offering up to 400ha. While phase 1 is fully occupied, the occupancy rate for 2nd phase was 61% at the end of 1H 2016. While the estimated selling price at Trang Due IP is US$80 per sqm (+10% y/y) which is far higher than most other IPs and reflects an increasing demand for premium land in special economic zones from foreign investors.

Costs vary by type and region. In the North of Vietnam, per sqm costs for industrial land is around US$40-50, but those who incorporated in economic zone will enjoy more benefits that the rent is much higher at around US$70-80 per sqm. The rate in the South of Vietnam is normally higher around 50% higher than in the North, at around US$60-65 per sqm

KBC signs an MOU to more than double the size of Trang Due IP to 1,000ha – Recently, KBC signed a memorandum of understanding with the municipal People’s Committee of Hai Phong on carrying out the 3rd phase at Trang Due IP. Adding an extra 600ha to the park and assigned its subsidiary namely Saigon- Haiphong Industrial Park Corporation (SHP) to make a plan and execute. As we know that, the company intends to pour approximately VND4.5 trillion into the expansion in 2017 to build out the necessary infrastructure. And at the current rate, we estimate that it can generate about VND6.4 trillion over the next 3 years. Out of the 600ha extension, we estimate the sellable area is around 400ha. And at a flat rate of US$80 per sqm, we get VND6.4 trillion. We also assume that in a favourable case, KBC can sell over 100ha per year, so the land bank will be used up after around 3-4 years after completing the basic infrastructure.


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