Investors Tap Evolving Market
In Vietnam's Ho Chi Minh City

Vietnam's Ho Chi Minh City offers both tantalizing prospects and daunting challenges for real-estate investors.

Two recent reports on Vietnam underscore the conflict faced by investors hoping to tap a market that only recently put out the welcome mat for foreign investors. Ho Chi Minh City received the highest ratings in prospects for development out of 19 Asian-Pacific cities based on a survey last year of real-estate experts that included lenders, investors and developers by the Urban Land Institute and accounting firm PricewaterhouseCoopers. At the same time, the transparency of Vietnam's real-estate market ranked last out of 56 countries surveyed by Jones Lang LaSalle in 2006, according to Andrew Brown, the country head for Jones Lang LaSalle in Vietnam.

Known as Saigon before 1975 and South Vietnam's unification with communist North Vietnam, it was the South Vietnamese stronghold during the Vietnam War. More than three decades later, Ho Chi Minh City is home to about seven million people and the commercial capital of one of the world's fastest growing economies, according to Moody's Economy.com. Vietnam shares a northern border with China and has benefited from its central location in the booming Asian region. The country's gross domestic product is expected to grow about 8% this year, second only to China's forecasted 9.3% growth out of the 45 major countries followed by Moody's.

Vietnam is also expected to benefit from improved international stature with its membership in the World Trade Organization last month -- just as Shanghai's real-estate market took off after China joined the WTO in 2001. "It basically puts Vietnam on the map for more foreign direct investment and more demand for its real estate," says Don Lam, managing partner of VinaCapital, a Ho Chi Minh City-based fund that has about $865 million in investments in Vietnam, some in real estate.

Ho Chi Minh City's growing and young consumer class makes mixed-use projects with larger apartments and modern retail a good bet, Mr. Lam says. The fund's Hung Vuong Plaza in Ho Chi Minh's China Town will contain 276 condominiums and about 36,000 square yards of enclosed mall space on multiple levels. Billed as Vietnam's first enclosed shopping mall, when Hung Vuong opens in June it will have such standard Western mall amenities as a department store, a food court, a bowling alley and an eight-screen movie theater. It will also contain restaurants for wedding receptions as the country's relatively young population make nuptials a big business, Mr. Lam says.

Despite early attempts at making the market more transparent, the legacy of communist rule and the Asian financial crisis of the late 1990s made foreign investors leery. However, recent changes in land-use laws have allowed non-Vietnamese companies to take full title to their developments on a 50-year lease basis rather than only through joint ventures, Mr. Lam says. The change opened the door wider to much-needed foreign capital and has led to an increase in office, retail and residential projects in Ho Chi Minh City as developers race to meet the needs of the modernizing economy.

Six high-end office buildings are under construction or planned this year in Ho Chi Minh City's central business district, according to a December report by Jones Lang LaSalle, a real-estate services company. Already underway is the 68-story Bitexco Financial Tower, with a shape inspired by a lotus flower, which is slated to be one of the tallest buildings in Vietnam when completed in 2009. Vietnam also has approved plans to build a $33 billion high-speed railway system that will link Ho Chi Minh City with Hanoi, Vietnam's capital to the north.

Many of the investors are Hong Kong or Singapore companies such as CapitaLand Ltd. The Singapore-based developer is involved with two projects in Ho Chi Minh City that are slated to construct a total of about 1,700 homes.

"The problem in Vietnam is not the laws, which are pretty good, but how they are enforced," says David Dapice, an economist at both Tufts University and Harvard University.

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