HANOI 12M GDP 8.1% INFLATION CONTROL OPENS THE DOOR FOR MONETARY EASING SUPPORTING GROWTH HEADING TO ODA disbursement.

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1 Hanoi MarketView Q CBRE Global Research and Consulting VN 12M GDP 5. HCMC 12M GDP 9.2% HANOI 12M GDP 8.1% VN PMI 49.3 e-o-p VN RETAIL AND SERVICES TURNOVER 16% y-o-y INFLATION CONTROL OPENS THE DOOR FOR MONETARY EASING SUPPORTING GROWTH HEADING TO Quick stats VIETNAM 2012 Y-o-Y Real GDP Growth 5. Implemented FDI $10.5 Bil Exports $114.6 Bil Imports $114.3 Bil CPI (e.o.p) 6.8% Tourism (arrivals) 6.6 Mil Base Rate 9% Exchange Rate (e-o-p) 20,828 HCMC 2012 Y-o-Y Real GDP Growth 9.2%) CPI (e.o.p) 4. Registered FDI $1.3 Bil Exports $30.0Bil Imports $26.1 Bil Retails and Services Turnover VND Tril Tourism (arrivals) 3.8 Mil Hanoi 2012 Y-o-Y Real GDP Growth 8.1% CPI (e.o.p) 6.3% Registered FDI $985 Mil Exports $10.3 Bil Imports $24.6 Bil Tourism (arrivals) 16Mil 1.6 Chart 1: Vietnam Economic Indicators (% growth y-o-y) FDI realisation ODA disbursement Some good news 2012endedwithCPIat6.8%y-o-y, better than target of 8%, thanks to the Government s efforts in keeping price pressure down, which in turn opens the door for further monetary easing in Rediscounting and refinancing rate have been cut 1% in the final weeks of the year while the base rate unchanged. The motion is leading to a decrease in deposit interest rate cap by 1% to 8% in an attempt to lower lending costs by reducing banks financing costs. Owning to low imports, Vietnam witnessed the first trade surplus in the last 20 years, which was USD284 million. Export Import Retail Sales and Services Overseas Remittance Int'l Arrivals Source: General Statistics Office 2012 Concerns GDP growth reached only 5.03%, lower than the revised target of 5.5%. In the midst of sluggish economy, FDI disbursement unavoidably dropped by 5% y-o-y. It shows the first sign of losing Vietnam s competitiveness, which is more a concern. Bad debts reached VND250 tilli trillion, equal to 8.8 % of total debt. Resolving bad debts together with prioritising sustainability over rapid growth are challenges for VNIndex moved out of the downward trend in December as investors regained confidence on risky assets due to recent releases of CPI, trade balance, interest rates cut and sealed M&A deals between the large local firms and strategic foreign investors.

2 Q Hanoi MarketView 2 HANOI CONDOMINIUM FOR SALE IT WILL TAKE BETWEEN 1.5 TO 4 YEARS TO CLEAR OUTSTANDING STOCK Chart 2: New Launch Supply (Units) 25,000 20,000 15,000 10, ,000 0 Q1 Q2 Q3 Q4 Whole year Chart 3: New Completion Supply (Units) 10,000 8, ,000 4,000 2,000 0 Q1 Q2 Q3 Q4 Whole year Chart 4: Secondary Price Change (% q-o-q) 14% 12% 1 8% 6% 4% 2% -2% -4% -6% Mixed story in the supply: launches were down but completions were up! In 2012, new launch supply of condominiums witnessed a significant drop of 65% y-o-y, explained by developers increasing caution since the second half of completion supply, on the other hand, was among the highest on record. This indicates that many developers are still committed to their projects despite market uncertainty. Downward price trend continued, but secondary price reduction slowed in Q4/ was a buyers market, with significant price reductions recorded. The year also witnessed an interesting shift of public attention from the secondary to the primary market. In early 2012, individuals sustained dramatic losses as secondary market prices plunged up to 3 below purchase price. Conversely, in late 2012 developers (i.e. the primary market) aggressively slashed their asking prices by up to 4 of the original price. Sales plunged, pushing up the amount of outstanding stock Hanoi currently has 20,500 unsold units that developers have launched but are unable to find buyers. Hence, it will take between 1.5 to 4 years to clear outstanding stock, depending on how the market recovers: either to 2011 sales levels of 12,000 units (ideal scenario) or maintains 2012 sales levels of 5,000 units (worst case scenario). Is price reduction a feasible strategy? Recently,developersinHCMChaveunitedina no-furtherprice-cut strategy. This raises the question of whether price reductions could stimulate demand in this market. Focusing on the end-user group, which is a more sustainable source of demand, CBRE finds that end-users current inaction is more apsychological l issue than an affordability issue. Even when a person can afford a unit, they hesitate to complete the purchase due to reasons such as expectation of further price drops, or distrust of developers ability to deliver their commitments. As such, a price reduction may only stimulate demand if it exceeds buyers expectations. The largest reduction in the market is 4 of the original price, for bare shell finished units. ARE DEVELOPERS WILLING TO MAKE A GREATER DISCOUNT, WITH NO GUARANTEE OF IMPROVED SALES? Looking ahead, CBRE expects a further decline in secondary prices by 1 in Transactions will remain low and be concentrated in projects with highly attractive price points and good construction progress. Developers price reductions will continue, but will not attract buyers until the discount is at least 3-5 of the original price. Therefore 2013 is expected to continue to be a tough year for developers.

3 HANOI LANDED PROPERTY END-BUYERS WILL PLAY A BIGGER ROLE THAN SPECULATORS A challenging 2012, with prices still on a downward trend Similar to the condominium sector, landed properties also experienced a challenging time in Asking prices in the secondary market have dropped for seven consecutive quarters, while transactions were reportedly low throughout Secondary prices have gone down by 2 year-onyear, and by 3 compared to the peak period in the second quarter of Meanwhile, the number of houses completed continues to increase, with the number of houses completed in equal to about 8 of houses completed in the period of The increase in completed supply on the one hand shows -3 positive progress on developers side, but on the other hand will put more pressure on prices going forward. -4 Chart 5: Q-o-q Villa Secondary Prices Change Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Cau Giay Tu Liem Hoang Mai Ha Dong Long Bien Hoai Duc Market Average Q Hanoi MarketView END-BUYERS ARE HAVING MORE CHOICES THAN EVER IN THE PAST 5 YEARS TO OWN A HOUSE. BUT HOME PRICES WILL HAVE TO COME EVEN CLOSER TO AFFORDIBILITY BEFORE MORE DEALS ARE CLOSED. Chart 6: Historical and Exp. Completion (Units) 20,000 16,000 12,000 8,000 4,000 It s a buyers market! Looking forward, year 2013 will be a buyers market, where end-buyers, rather than speculators, will be most active. These buyers will look for real houses rather than paper projects. Units valued under VND10 billion with ready or almost ready conditions will sell, as buyers seek quality as well as reasonable price points f 2014f 2015f 2016f Chart 7: 25x Households Annual Savings, Hanoi 3 As end-buyers will now play a more active role than ever, affordibility will become a bigger issue. Statistics of household income in Hanoi shows that only 2% of all households have 25 times of annual savings ofvnd billion and above, implying that if using this estimate, only about 2% of households in Hanoi can afford to buy a house. Developers: The selection process goes on Following what happened in 2012, there will be more exits from the real estate market by non-core competency developers. Developers that survive the selection process will adapt to the new situation by providing products that meet end-buyers demand. 37% 2% 1% 8% 14% 38% bil VND or higher 203bilVND bil VND 0.36 bil VND 0.23 bil VND 0.14 bil VND 0.09 bil VND 3

4 Q Hanoi MarketView HANOI OFFICE GENERALLY RENTS HAVE FALLEN THROUGHOUT THE YEAR Chart 8: Office Asking Rents $60 $50 $40 $30 $20 $10 $0 Grade A Grade B Chart 9: Office Vacancy Grade A Grade B Large supply in 2012 albeit at a much slower pace than last year During 2012, large supply of new space was added to the office market, albeit at a much slower pace than last year. The additional stock was 106,500 sm, half that of By location, West-side contributed the largest share at 5, followed by Mid-town (4) and Other areas (9%). Falling rents helped improve occupancy Generally, asking rents were on the downward trend throughout the year as landlords tried to keep occupancy levels up. West-side buildings were most aggressive, cutting prices by up to 18% in the second quarter then remaining stable in the second half. In the face of increasing vacancies, CBD landlords also started to compromise on price, by up to 1. As a result, vacancy rates dropped significantly, with Grade A down from 37% at end 2011 to 21% at end 2012, and Grade B down from 26% to 23%. Net absorption was impressive, at 91,000 sm, the second highest in the past 8 years. Strong take-up in Keangnam Landmark 72 and Indochina Plaza Hanoi (a combined 50,000 sm) was mainly responsible for this result. TENANTS WILL STILL HAVE THE UPPER HAND IN NEGOTIATING LEASING CONTRACTS AS THERE WILL BE ABUNDANT SUPPLY AND RENTS ARE EXPECTED TO FALL FURTHER! 4 Looking ahead, in 2013, tenants will still have the upper hand in negotiating leasing contracts as there will be abundant supply and rents are expected to fall further. Among which, large occupiers will continue to relocate to more affordable options to benefit from large floor plates and generous incentives while smaller occupiers will enter into new or renewal contracts in CBD Grade A buildings. Pharmacy, Law, IT & other supporting services are anticipated to replace banking & finance to dominate the occupier market. Acquisition of office properties will become more popular as developers continue to restructure their investment portfolios.

5 HANOI RETAIL LARGE SUPPLY WILL PUT DOWNWARD PRESSURE ON RENTALS New supply slowed down sharply compared to last year 2012 was a challenging year for retail developments when consumers tightened their shopping budgets and tenants consolidated rather than expanded their premises. New supply slowed down sharply compared to last year with the openings of two shopping centres Indochina Plaza Hanoi and Melinh PLAZA Ha Dong, providing 50,000 sm NLA. There were also some signs of distress when some projects had to close down for renovation or recorded modest occupancy of 2. Average rents decreased but occupancy did not improve Market-wide, average rents decreased compared to 2011, which was attributable to rental declines in both existing and newly-launched non-cbd projects in attempt to retain tenants. The vacancy rate was 14% in the fourth quarter, up 2% from the sameperiod last year. Large tenants t moving out were mainly responsible for this increase. Large supply will put downward pressure on rentals, especially in non-cbd areas Around 700,000 sm of retail space is expected to enter the market in Among which, two Vincom Mega Malls (Royal City and Times City) will supply total 460,000 sqm GFA. These giants are likely to beat other competitors in terms of customer footfall and diversification of tenant mix. The first quarter of 2013 will also see the opening of the first truly luxurious shopping centre in Hanoi Trang Tien Plaza with expected entrance of numerous luxury and high-end international fashion brands. CBRE sees that this large supply will put downward pressure on rentals, especially in non-cbd areas. FOREIGN RETAILERS WHO HAVE DONE A THOROUGH RESEARCH AND HAVE THE CONFIDENCE IN THE MARKET GROWTH, WILL SET FOOTPRINT OR CONTINUE TO EXPAND IN HANOI Chart 10: Retail Ground Floor Rents $120 $100 $80 $60 $40 $20 $0 CBD non-cbd Chart 11: Retail Vacancy CBD non-cbd Q Hanoi MarketView 5 In terms of foreign retailers attitude and movements, CBRE anticipates that those who have done a thorough research and have the confidence in the market growth, will set footprint or continue to expand in Hanoi. Among which, convenience store and F&B occupiers are expected to be most active. At the same time, local and international supermarket chains will compete to enhance their market coverage.. 5

6 Q Hanoi MarketView HANOI SERVICED APARTMENT CURRENT LACK OF DEMAND FOR ACCOMMODATION OF BELOW US$2,000 IN THE WEST Chart 12: Asking Rents (US$ psm per month) $60 $50 $40 $30 $20 $10 $0 International Operator Self-managed Average Chart 13: Serviced Apartment Vacancy 5 International Operator Self-managed Average Rents reduced d compared to last year, helping to boost occupancy by year end Highlight of year 2012 for the serviced apartment sector was high vacancy due to the opening of Calidas Landmark 72 in January 2012, which remained at 24%-25% in the first three quarters. By year end, occupancy improved to 81% as asking rents softened by more than 2% y-o-y on average, although actual rents might have been even lower. Occupancy improvement primarily occurred in Calidas Landmark 72 and Crowne Plaza, both of which opened less than two years ago. Individual units for rent, such as buy-to-let apartments, offered deeper discounts in the face of economic difficulties. Supply set to increase by about 200 units in 2013 The two projects that delayed their openings in 2012 are expected to come into operation in One of these is to be managed by Candeo Hotels, a hotel operator from Japan, while the other one will be located in Tay Ho District. Despite this new supply in Tay Ho, projects in this area will continue to perform well thanks to its desirable location for living among expatriate community DEMAND WILL INCREASE FOR ACCOMMODATION IN THE WEST AS MORE OFFICES ARE BEING RELOCATED TO THIS AREA, ESPECIALLY DEMAND FOR ACCOMMODATION OF BELOW US$2, Demand will be strong for accommodation in the West Year 2013 expects to see increasing demand for accommodation in the west as more offices are being relocated to this area, especially demand for accommdation of below US$2,000. Moreover, Japanese clients will continuetobeamaingroup,withbudgetsofus$2,000 and higher. Rents are expected to further soften as economic difficulties persist. In terms of locations, Tay Ho area will continue to perform well despite new supply coming up, although older projects in the CBD will face competition with new projects in the west.

7 7 HANOI HOTEL INCREASING TOURISTS MIGHT SUGGEST A MODEST GROWTH THE INDUSTRY IN 2013 By the end of 2012, the market had 8,673 rooms in 68 hotels, representing an annual growth of 5%, more modest than the 12%-13% growth enjoyed in During 2012, six new 3-4 star hotels were opened while one 3-star hotel was closed for redevelopment. With regards to investment activities, most notably was Hanel s acquisition of the 5-star Daewoo Hotel in Mar and few other luxury hotel brands on sale in Nov. Besides this, Horison was renamed Pullman Hanoi in Nov. Regarding market performance, Q4ishighseasonthuswe observed improved performance in almost all segments q-oq. On the contrary, compared to 2011, 2012 was a worse year throughout the market, most severely in the 3-star segment. A few 3-4 star hotels suffered worsening performance y-o-y over several quarters. In 2012, visitor arrivals to Hanoi increased significantly against The city received around 1.6 million international visitors (up 27.4% y-o-y) y) and 8.46 million domestic visitors (up 8.2% y-o-y), versus minor growth of over 2% in Length of stay at hotels also rose towards year-end. Asia remained the largest visitor source, contributing over half the total arrivals in Travellers from key inbound markets including China, Australia, Korea & Japan grew strongly by 27%, 2, 53% and 32% y-o-y, respectively. A CHALLENGING G YEAR FOR FOR THE INDUSTRY BUT INCREASING TOURISTS MIGHT SUGGEST A MODEST GROWTH Looking ahead, 2013 will see an increase in supply of 1,000 rooms (over half of which in the 5-star segment), raising the risk of oversupply where competition within each and bt between the different segments will be tougher than We also expect the market to favour buyers with more choices of accommodation and promotion packages offered for hotel guests, especially by new entrants. On the demand side, visitors to Hanoi in 2013 will keep increasing with an expected annual growth of international and domestic visitors up to 1-12% and 8%, respectively. Occupancy might rise slightly by 3%-5% on average while ADR might fall a bit more (3%-5% for 3- and 5-star segments and 6%-8% for 4-star segment). With respect to the investment channel, moreinternational brands will enter the market this year. A natural selfselection process might arise, with a few budget hotels closing for renovation, rebranding, or change of operations due to increased competition. We also believe that licenses to build new hotels will be harder to win in the next 3 years due to oversupply, particularly in the 5-star segment. Capital values of existing hotels could be eroded across the market. As for M&A activities, a few M&A deals may occur in 2013, especially in luxury segment, with local developers being more active than foreign players. Chart 14: Market Performance (Q4/2012) $120 $100 $80 $60 $40 $20 $0 ADR RevPAR Occupancy (%) 5-star 4-star 3-star Chart 15: Y-o-Y Changes by Grade (Q4/2012) 5% -5% -1-15% Occupancy ADR RevPAR 5-star 4-star 3-star Chart 16: Visitor Arrivals to Hanoi (Millions) International Domestic % 6 57% 54% 51% 48% 45% Q Hanoi MarketView 7

8 Q Hanoi MarketView Map 1: Hanoi City CONTACTS For more information about this Hanoi MarketView, please contact: Hanoi Research & Consulting Richard Leech Executive Director Hanoi Research & Consulting CBRE Vietnam 6 th Floor BIDV Tower, 194 Tran Quang Khai, Hoan Kiem Dist. t: e: richard.leech@cbre.com Tuyen Nguyen Associate Director Hanoi Research & Consulting CBRE Vietnam 6 th Floor BIDV Tower, 194 Tran Quang Khai, Hoan Kiem Dist. t: e: y g Ngoc Le Publications Manager HCMC Research & Consulting CBRE Vietnam Unit 1201, Melinh Point Tower, 2 Ngo Duc Ke Street, District 1 t: e: ngoc.le@cbrevietnam.com + FOLLOW US GOOGLE # /posts FACEBOOK es/cbre/ TWITTER Marc Global Research and Consulting This report was prepared by the CBRE APAC Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. 8 Disclaimer 2012, CBRE, Group Inc. CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.