Time for Thu Thiem - Vietnam Business - Thu Thiem White...Time for Thu Thiem 3 Puxi Shanghai...

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JLL Research Report The largest mixed-use inner city development in Southeast Asia Vietnam | November 2017 Time for Thu Thiem

Transcript of Time for Thu Thiem - Vietnam Business - Thu Thiem White...Time for Thu Thiem 3 Puxi Shanghai...

  • JLL Research Report

    The largest mixed-use inner city development in Southeast Asia

    Vietnam | November 2017

    Time for Thu Thiem

  • Time for Thu Thiem 3

    PuxiShanghai Philippines Vietnam

    Pudong Makati Bonifacio District 1 Thu Thiem

    30,000

    25,000

    20,000

    15,000

    10,000

    5,000

    0

    US$/sqm

    43%

    0% -34%

    2 | JLL

    1. Time to buy residential units Residential prices in Thu Thiem are currently trading at 30-35 percent discount below District 1 levels. In Shanghai, apartment prices in Pudong are 43 percent above Puxi, the old CBD and Bonifacio prices are the same as Makati. Over time, we expect Thu Thiem to follow a similar trend.

    2. “Tipping point” for office development With lack of supply and increasing rents in the existing CBD, and the completion of a major infrastructure within Thu Thiem, we anticipate large head office requirements will start to consider Thu Thiem as a viable alternative to the existing CBD.

    3. Lack of government funding and incentives Unlike other new urban development area in other countries, the lack of preferential policies/incentives are the biggest impediments to the development of Thu Thiem. Developers/investors will need strong support from the government on legal and tax-related matters. Creating a more favourable and more transparent business environment will act as a catalyst, speeding up Thu Thiem’s development progress.

    4. Difficulty in acquiring land While the majority of land has been allocated, many sites have not been developed. In our opinion, there are three potential ways to acquire land in Thu Thiem.

    Key takeaways from this reportA. Acquire land from an existing owner that has been allocated land.

    B. Form a joint venture (JV) with a local partner who has been allocated land.

    C. Enter bidding process for the land that has yet to be allocated.

    5. Phasing It is important to note that Thu Thiem is 657 hectares, with 20,426 residential units and 3.4 million square metres of commercial space. It is critically important that developers pay careful attention to market conditions and supply and demand dynamics to limit the risk of oversupply in the future.

    6. Long term construction site It is inevitable on a large mixed-use development site that the area will be a construction site for a number of years. Developers and purchasers of residential property will need to be mindful of this fact when investing in Thu Thiem.

    7. Time for school operators to enter the market According to the master plan, 10 land parcels are set aside for school developments to serve the educational needs of Thu Thiem residents and surrounding areas. Due to lack of infrastructure and residential community this sector has attracted less attention thus far. However, there are a number of opportunities for school operators wanting to expand their footprint in this attractive market.

    Figure 1: Old CBD v.s. new CBD prime apartment selling price

    Source: JLL Research

  • Ha N

    oi Highw

    ay

    N

    guyen

    Van L

    inh

    East-W

    est

    Bouleva

    rd

    Go Vap

    Tan Binh

    THU THIEM

    BinhThanh

    CBD

    District12

    Thu Duc

    District9

    District2

    District7District

    4

    District5

    District10

    District3

    Tan SonNhat Airport

    District11

    District6

    District8

    Nguyen

    Duy Trin

    h

    Nguyen H

    uu Tho

    1A

    1A

    1A

    1A

    657 ha9,784,129 sqm

    362,563 people

    Land area

    Total estimated population**

    Total GFA*

    Time for Thu Thiem 5 4 | JLL

    Thu Thiem, Ho Chi Minh’s proposed financial district and mixed-use urban area, is set to become the largest inner city development in Southeast Asia in the coming years. Once complete, Ho Chi Minh City will transform into a modern megacity, following a similar path to Shanghai, Manila, Bangkok and Jakarta.

    Over the past 30 years, Ho Chi Minh City has witnessed a meteoric rise. However, rapid growth comes with growing pains. Infrastructure within the existing CBD is starting to buckle under the pressure of rapid expansion, vacant land is difficult to find, land values have reached levels that make office development unviable, and office rents have reached levels not seen since 2008. Traffic congestion has increased over the past five years, with the number of cars increasing 35 percent per annum from 2012-2016,

    according to Vietnam Automobile Manufacturers’ Association (VAMA) figures.

    The master plan for Thu Thiem will alleviate the pressures faced in the existing CBD, with the possibility of saving some of the historic urban centre of the “Pearl of Asia” from demolition and redevelopment.

    The 657-hectare site is located on the Saigon River’s opposite side, facing the existing CBD. Comprising 176 land parcels with approximately 3.2 million square metres (GFA) residential space and 3.4 million square metres (GFA) of commercial space, the total site will eventually accommodate a residential population of 145,000 and employee population of 217,000. The new financial district will be home to a number of major head offices and

    will become a vibrant destination combining residences, offices, shopping centres, hotels and serviced apartments.

    It is fair to say Thu Thiem has suffered a chequered history, with many false starts because of complicated land compensation issues, turbulent economic conditions and lack of favourable government policies. However, with pressure mounting on the existing CBD and renewed impetus on the completion of major infrastructure, we believe that now more than any other time since its inception 12 years ago, Thu Thiem has reached a “tipping point”. It’s time for investors to set their sights on Thu Thiem for the investment opportunities it offers.

    Time to invest in Thu Thiem

    *Including basement area**As per master plan, total population included 145,393 residents and 217,170 employees

  • Hiep Binh Phuoc M3

    M2

    M1District 12

    Go Vap

    Tan Phu

    District 9

    BinhThanh

    District 11

    District 8

    Ten Lua

    District 4

    District 5

    District 7

    Vuon Lai

    Tan Son NhatInternationalAirport

    ProposedLong Thanh

    International Airport

    ProposedThu Thiemtrain station

    ThuThiem

    Cat Lai Port

    Suoi Tien

    Time for Thu Thiem 7 6 | JLL

    Thu Thiem is designated as Ho Chi Minh City’s new central business district.

    After the completion and operation of the infrastructure - including Metro Line No. 2 and Bridge No. 2,3,4 connecting to the District 1 and 7 – Thu Thiem will be

    operated properly as planned.

    Mr. Yong-Beom(Kevin) Kim Functional Manager, Vietnam business team,

    GS Engineering & Construction Corp

    Sitting at the heart of Ho Chi Minh City, the Thu Thiem peninsula is the most significant development area in the city. Thu Thiem is bordered by the Saigon River and is only five-minute drive away from the central business district via the Thu Thiem Tunnel. Alternatively, one can easily reach the CBD and other parts of Ho Chi Minh City via the Thu Thiem Bridge 1, which links the peninsula to Binh Thanh District. Located only 10 kilometers away from the Tan Son Nhat International Airport, Thu Thiem is within convenient reach.

    Thu Thiem is a strategic gateway from Ho Chi Minh City to future development areas to the east, including the new proposed Long Thanh International Airport. With the Thu Thiem Bridge 1 and Thu Thiem Tunnel in operation, and once the other four bridges that are either in construction or planning stages are completed, residents in CBD and neighbouring district will have direct connection to Thu Thiem.

    From Thu Thiem, people can reach the National Highway 1A and 51, and also the Long Thanh-Dau Giay Expressway via the East-West Boulevard. The future international airport will also be accessible from Thu Thiem.

    Thu Thiem will benefit from the future Metro Line No. 2, which stretches from Thu Thiem (District 2) and ends in An Suong (District 12) with the total length of approximately 19 kilometers. It is forecasted that once complete, the metro line will handle approximately 480,000 passengers per day.

    The construction of the Metro Line No. 2 and the four bridges is seen as the government’s determination and commitment to turn Thu Thiem into Ho Chi Minh City’s new financial and residential district. By improving the infrastructure and accessibility to the area, the authority hopes to encourage more developers to invest in large-scale real estate projects here.

    Strategically located to benefit from the future growth of the City

  • #4

    #3

    #1

    #2a

    #2b

    #2c#8

    #5

    #6

    #7

    Time for Thu Thiem 9 8 | JLL

    Land-use master plan Site Area (ha) %

    Development Site 215.8 32.9%

    Public parks 113.9 17.3%

    Wetland 103.9 15.8%

    Road surface 159.5 24.3%

    Water surface 63.8 9.7%

    Total land area 657 100%

    Development Summary Size Unit

    Total parcel 176 Parcels

    Total GFA (above ground) 7,563,750 Sqm

    Total GFA (under ground) 2,220,379 Sqm

    Total NFA - Commercial (*) 2,540,588 Sqm

    Total NFA - Residential (*) 2,665,977 Sqm

    Net floor area ratio (FAR) 3.5

    Residential units 20,426 Units

    Residential population 145,393 People

    Employee population 217,470 People

    Service apartment units 573 Units

    Service apartment population 1,719 People

    Components of development sites Site area (ha) %

    Residential 88.5 41.0%

    Commercial 72.8 33.7%

    Other facilities 54.5 25.3%

    Total land area 215.8 100%

    Source: Sasaki Master Plan 2012 & Thu Thiem I.C.A

    Source: Sasaki Master Plan 2012 & Thu Thiem I.C.A

    No. Key feature Key landmark/public building

    1 • High density mixed-use central business district

    Convention & exhibition centre, Central square, Opera house, Planning information centre, The river park

    2 • High density mixed-use development

    Observation tower complex, Sport complex, Local administration centre

    3 • Mixed-use residential Thu Thiem museum

    4 • Mixed-use residential• High-density

    commercial buildings• Low-density residential

    and public buildings

    Central community hub, Local administration centre, Fire station

    5 • Public facilities• Low-density residential

    Children’s palace, The “city hall”, Central community hub, Local administration centre

    6 • • Low density mixed-use

    residential• Mixed-use commercial

    International hospital, Central community hub

    7 • Marina Complex• Mid to high-rise

    residential complex

    Urban resort hotel, Marina Complez

    8 • Zone of enhanced mangrove landscape

    • Dredged and cleaned waterways

    Southern delta resort, Aquatic park, Southern delta research

    The Thu Thiem new urban area is divided into eight main functional areas, so-called “neighbourhood”. Each

    as landscaping and landmark buildings.

    Thu Thiem key development parameters

    With its clear master plan, disciplined authority, cleared land plots, modern infrastructure and

    proximity to the traditional business district 1, Thu Thiem will surely become Ho Chi Minh City’s modern

    district, one which is urgently needed.

    “”Cosimo Jencks

    Chief Representative, Hong Kong Land

    (*) Excluded neighbourhood No. 7

    Source: Sasaki Master Plan 2012 & Thu Thiem I.C.A

  • Residential mixed-useResidential high densityResidential low densityCommercialCommercial mixed-useSchoolFunction parkOthers

    Land tender process

    75,000

    < 50,000

    > 100,000

    GFA (sqm)

    M

    M

    M

    M AE

    Bus line and StopCirculator Bus line and stopM2 Metro line and stopWater Taxi and stopFerry line and stop

    Municipal subway and stationsMAirport Express stationAE

    Transport network

    Land use by sector

    GFA heat map

    10 | JLL

    13%

    24% 43%

    11%

    Time for Thu Thiem 11

    Thu Thiem masterplan

    Thu Thiem – A new modern mixed-used developmentThu Thiem is designed to become a new mixed-use development area that combines both residential and commercial hubs. Of the total development site, 41 percent is designated for residential development. In terms of total NFA (excluding residential mixed-use area for resettlement purpose in neighbourhood no.7), both residential and commercial areas enjoy a share of approximately 49 percent and 51 percent, respectively.

    Due to its close proximity to the existing CBD, the core area – which consists of Parcel 1, 2a, 2b and 2c—is reserved to become a new financial hub of the city. By integrating the concept of “live-work-play” to Thu Thiem, the city authority seeks to alleviate the heavy traffic, reduce the level of pollution from transportation in the inner city, and create a vibrant living and working environment.

    Sasaki’s plan for Thu Thiem incorporates different elements of natural landscape, linkages to the existing parts of Ho Chi minh City, and flexible urban development platform. Key elements for the peninsula are green areas and open space, both of which will consequently increase the value of the Thu Thiem as compared to the existing CBD.

    However, the poor soil condition in Thu Thiem remains the main concern for many developers as it requires heavy investment in pilling and foundation structures.

    Careful massing of buildings together with meticulous consideration for human scale will allow for a spectacular view of the skyline. These will provide a delightful pedestrian experience and enhance the living experience of residents in Thu Thiem.

    Note: The remaining 9% is reserved for public facilities

    of total land area is residential

    of total land area is commercial

    of total land area is road surface

    of total land area is natural land and

    water surface

    Source: Sasaki Master Plan 2012 & Thu Thiem I.C.A

  • BTBiddingBidding (in the future)City-fundedOthers

    Land tender process

    Source: JLL Research

    CompletedUnder construction (*)Under PlanningOther

    11%of total GFA have been completed

    12%of total GFA are under construction (*)

    62%of total GFA are under planning

    Time for Thu Thiem 13 12 | JLL

    Approximately, 62 percent of total GFA (above ground) have yet to start construction as some developers face challenges due to the lengthy process of obtaining all necessary legal/planning documentation approval.

    We also noted that most of the projects launched so far are residential. The market has yet to record any commercial projects other than the Thaco Complex of Dai Quang Minh, which is expected to complete by early 2018.

    Around 71 percent of land parcels (67 percent of total land area and 81 percent of total above GFA) in Thu Thiem have been officially approved The most common way to obtain land in Thu Thiem is through the build-transfer (BT) agreement where land plots are granted to developers in exchange for investing in infrastructure in the new urban area. 45 percent of the total development site area have been officially approved through a BT agreement in which Dai Quang Minh, the developer of Sala project, has been granted the largest land bank in return for constructing four main internal roads (Crescent Boulevard, Central Lakeside road, Saigon Riverside road, the road through ecological forest located in the Southern Delta), Thu Thiem Bridge 2, and a pedestrian bridge. In addition, other parts of Thu Thiem are dedicated to Dai Quang Minh to build a 20-ha Central Plaza and a 9-ha River Park whose 1:500 master plans are in progress.

    Similarly, CII was granted approximately 90,000 square metres of freehold land and 6,000 square metres of 50-year leasehold land for residential and commercial purpose in exchanged for the construction of technical infrastructure for the northern residential area which consists of neighbourhood 3 and 4 and the main North-South arterial road.

    Phat Dat Real Estate Development JSC has also been approved by the People’s Committee to conduct a study on the construction of Thu Thiem Bridge 4, which will link the peninsula to District 7.

    Alternatively, land can be obtained through bidding process. In 2011, the city authority started the first tender for land parcels in Thu Thiem. Prior to 2016, 10 percent of total development site area was granted through bidding process to different consortiums of large investors.

    According to the announcement from Thu Thiem Management Authority in Q2 2017, the remaining 16 percent of total development site will be tendered with the focus on five parcels in neighbourhood 2a.

    Current land allocation - construction statusCurrent land allocation - land tender process

    (*) The JLL definition for a project being referred to as “under construction” will take effect once the process of test piling has commenced. Source: JLL Research

    54%total development area allocated

    via build-transfer agreement

    10%total development area approved

    by bidding process

    16%total development area planned

    for last bidding process

  • Empire City

    Eco Smart City

    Cll + Hongkong Land

    Others

    Time for Thu Thiem 15 14 | JLL

    Land valueWith the majority of the total land bank in Thu Thiem confirmed, the remaining available land bank is scarce while the demand for investment remains strong.

    Land values within Thu Thiem have increased by 30 to 40 percent within past three years. While this is a considerable uplift, we believe it can be substantiated for the following reasons: (1) initial land values are coming off a relatively low base, (2) the speed of infrastructure construction has increased dramatically during this

    period, (3) the most recent residential projects launched in Thu Thiem have witnessed strong demand, and (4) finally Thu Thiem is the largest undeveloped clean and clear, master planned land within the city centre.

    On average, Thu Thiem’s land price is approximately one-third of District 1 and relatively low compared to neighbouring districts such as District 3 and 4. In addition to land values appreciating in Thu Thiem, the neighbouring areas in District 2, such as Dong Van Cong, An Phu and Thao

    Dien have also witnessed increasing land prices. With rapid urbanisation, the establishment of Thu Thiem projects and some improvement in the legal and planning framework, it is reasonable to say that land prices will continue to increase over the coming years. The largest beneficiaries from this price movement will be the early pioneer investors in Thu Thiem as the higher risks that they had to bear in the early stage of development are compensated.

    Project Developers (% equity interest)

    Parcel Deal size (US$)

    Transaction time

    Sale launches Current status

    Empire City Keppel Land (40%), Gaw Capital Partners (30%), Tien Phuoc JSC (15%), Tran Thai Real Estate Co. Ltd. (15%)

    2.14, 2.15, 2.16, 2.17, 2.18, 2.19, 2.20, 2.21

    93.9 million 1H16 Linden Residences: December 2016Tilia Residences: July 2017

    • Master plan 1:500 approved

    • Undergoing piling test

    Eco smart city

    Lotte Asset Development, Lotte Shopping, Lotte Hotel and Lotte E&C

    2.1, 2.2, 2.3, 2.4, 2.5, 2.6

    Undisclosed 1H17 Not yet • Singed the contract with People’s Committee of HCMC in July 2017

    • Planning stage

    Undisclosed CII (36%) and Hongkong Land (64%)

    Undisclosed Undisclosed Ongoing Not yet • Memorandum of Agreement signed in July 2017

    • Master planning

    Source: JLL Research

    Notable transactions and land value

    Source: JLL Research

  • District 2

    Binh ThanhDistrict

    District 5

    District 10

    District 4

    District 7

    Thu ThiemDistrict 1- CBD

    District 3

    > 3,000

    > 2,750

    > 2,500

    Ho Chi Minh City District 1 Thu Thiem

    0

    1,000

    2,000

    3,000

    4,000

    5,000

    2004

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    2016

    2017

    US$/sqm

    Ho Chi Minh City District 1 Thu Thiem

    2,000

    0

    4,000

    6,000

    8,000

    10,000

    2004

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    2016

    2017

    Units

    Time for Thu Thiem 17 16 | JLL

    High-end apartments target market for Thu Thiem• Launched in 2015, Dai Quang Minh’s Sala project has sold

    95 to 100 percent and recorded a 30 to 35 percent increase in sales prices compared to when the units were first launched.

    • The Empire City project commenced a soft launch in December 2016 and a subsequent launch in July 2017, with the projects named as Linden Residence and Tilia Residence, respectively. Both residential projects, totalling up to approximately 1,000 units, are almost sold out within the first few weeks of the launch. The average selling price of Tilia increased by approximately 20 to 25 percent in comparison to Linden during six months. This increment is not only because of Tilia’s closer proximity to the Saigon River and better quality in terms of design and construction, but also a reflection of high demand for the project.

    • With a booming high-end residential market and the abundant opportunities for commercial development, District 2 has become the focal point for large-scale developments in the past three years. Because of the quality of the master plan and the proximity to District 1, Thu Thiem is possibly the most attractive part of District 2.

    Could new supply threaten an increase in prices? • Despite the recent increase in transaction volumes and

    price, we believe that the current cycle has yet to reach its peak. It is forecasted that the supply of apartments in Thu Thiem area will rise in the coming years as a new wave of luxury branded apartments from major investors is expected to hit the market. This new wave of supply might establish a new price level in Thu Thiem as the urban area becomes more developed with value-added services, such as schools, hospital, entertainment centres, etc.

    • The apartment selling price is predicted to keep on rising, and we expect that this uptick will be an offset, helping the investors achieve the expected return in the context of land prices increase.

    • Given a growing economy with strong demand from the buyers who either have cash-on-hand or the ability to leverage, it is likely to see that the buyers are taking a long-term view in their purchase decision, which is a positive sign for Thu Thiem.

    • There are still plenty of investors hunting for good investment opportunities in Thu Thiem at a reasonable land price through acquisition or joint venture with good local partner. Hence, we expect this trend will support a strong sustainable growth in this focal development of the city.

    High-end apartment primary selling price in Ho Chi Minh City heat map

    Figure 3: High-end apartment units launched

    Source: JLL Research Source: JLL Research

    Figure 2: High-end apartment primary selling price

    No. Developers Projects Building No. of units (*) Sales rates Average latest asking price Launch time

    1

    Dai Quang Minh Sala phase 1

    Sarimi 368 sold out 2,850 - 2,950 3Q15

    2 Sadora 605 > 95% 2,200 - 2,300 2Q16

    3 Sarica 130 sold out 2,850 - 2,950 3Q16

    4 Sarina 186 > 95% 2,850 - 2,950 4Q16

    5 Keppel Land, Gaw Capital, Tran Thai, Tien Phuoc

    Empire City Linden Residences 510sold out 2,900 - 3,000 4Q16

    6 Tilia Residences 472 > 95% 3,400 - 3,500 3Q17

    Residential market performance

    Source: JLL Research(*) Latest asking price are based on 3Q17 primary price for launching projects. For sold-out projects , asking price was recorded from secondary market at 3Q17.

  • 35%

    Main infrastructure1

    37%

    External connection2

    44%

    Internal connection3

    1 As per master plan, main infrastructure consists of Thu Thiem water plant, sewage treatment plant, rainwater drainage and levelling, electricity and telecommunications. 2 As per master plan, external connection consists of East-West Boulevard & Thu Thiem tunnel, Thu Thiem 1, 2, 3, 4 bridge, pedestrian bridge; URMT, bus routine and ferry boat. 3 As per master plan, internal connection consists of four main internal roads (Crescent Boulevard, Central Lakeside road, Saigon Riverside road, the road through ecological forest located in the Southern Delta), North-South road, square road, four urban canals, water taxis, and other internal roads.

    Source: JLL Research, Sasaki Master Plan 2012.

    Time for Thu Thiem 19 18 | JLL

    Why is the strong interest not equating to faster development?

    In the early stages when the city government started master planning Thu Thiem, many investors expressed a keen interest to participate in many projects in the peninsula. These investors included Lotte, GS, Sama Dubai, Bouygues, TECO, Urban Development Investment Corporation, The Consulates of Singapore, Thailand and New Zealand. However, during the very early stages, the overall planning of the project was still incomplete, the legal framework was not established, and, most important, the land price was relatively high when compared to construction density and plot ratios which were relatively low and infrastructure was non existent.

    Over the following 10 years, the rate of development in Thu Thiem remained stagnant mainly because of land compensation issues. Only recently, in June 2017, 99 percent of the total land bank in Thu Thiem became fully compensated, according to the District 2's Resettlement Committee. 87 units have yet to be compensated which includes 83 households and 4 religious establishments.

    The other main reasons for the slow development progress in Thu Thiem related to infrastructure and policy/incentives. After the Thu Thiem Tunnel completed construction in 2011, the city authority realised the importance of the private sector to support infrastructure for this landmark development project. The city authority decided to enter several BT agreement contracts to build the rest of the main infrastructure of Thu Thiem. Since then, the development of infrastructure has gathered pace. In the first half of 2017, JLL recorded the progress of infrastructure development in Thu Thiem as below:

    In term of policy/incentive, the lack of attractive business environment is another factor that dampens the attractiveness of Thu Thiem. Many investors revealed that it was difficult for them to estimate the investment timeline and return due to the slow and lack of transparency involved in the investment procedure. In addition, developers, especially those with a strong investment appetite for commercial properties, are still waiting for more preferable policies or incentives to be implemented for this area.

    Besides the "hard infrastructure" developed during the last few years and a well master planning guided by the government in Thu Thiem, investors and the local community are beginning to recognise the strong growth potential of the area. However, to make it a desirable place to live, work, play and learn, Thu Thiem new township will need soft infrastructure such as convention and exhibition centre, schools, healthcare facilities, outdoor sport facilities, entertainment… to become a truly new international financial, service and urban centre of Ho Chi Minh City.

    ”Nhan Vo General Director, Empire City JV

    Time for Thu Thiem 19

  • Factors of success

    • Considered as national priority project

    • Preferential policies and tax applied

    • Basic infrastructure in place and continuously developed

    • Having special free trade zones

    Established year

    1990

    Total land (ha)

    2,800

    Core area Lujiazui‘s Central business district (ha)

    170

    Time for Thu Thiem 21 20 | JLL

    Regional Case Studies

    Lujiazui Finance and Trade Zone, Pudong, Shanghai, China

    Shanghai has served as a gateway of China toward the outside world, geographically and economically. Under heavy pressure to undertake drastic urban transformation because of the growing housing supply shortage, the deterioration in living conditions, as well as fierce global competition, the expansion of the traditional Puxi CBD in Shanghai was needed in the 1990s.

    Before 1990, Pudong was home to harbour industry, low-quality housing, insufficient infrastructure and vast farmland stretches. The transformation of Pudong, from a poor and undeveloped area into an energetic country town, serves as one of the best examples of the large-scale urbanisation process in China, particularly and in the region generally. As a part of Pudong master plan, Lujiazui Financial and Trade Zone (also known as Greater Lujiazui) and its 170-ha waterfront area (also known as

    Little Lujiazui) is identified as the core area of Pudong’s development and also the site for the extension of the historic downtown district of Shanghai across the Huangpu River.

    With all the favourable policies and incentives provided and relatively cheap land price, Pudong became the perfect choice for both new developments and relocation projects. The area’s real estate market has grown dramatically, taking an increasing share of Shanghai’s office space, housing and industrial buildings, and played a more and more crucial part in Shanghai’s real estate market.

    Although the Pudong development initially aimed to encourage economic growth and serve as a pilot project for the reform of the Shanghai market, it is undeniable that property development and the growth of the real estate market would play a key role.

    Lujiazui Finance And Trade Zone Key Development Figures

  • 0

    50,000

    100,000

    150,000

    200,000

    2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2H17

    Greater Lujiazui Traditional Puxi CBD

    RMB/sqm

    43.2%

    88.7%72.5%

    4

    9

    14

    2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2H17

    19.8%

    RMB/sqm/day

    Greater Lujiazui Traditional Puxi CBD

    Time for Thu Thiem 23 22 | JLL

    “”

    Starting at higher level, properties in Pudong have been able to achieve premium value and more favourable growth

    rate compared to its peers in traditional city centre.

    Pudong's development timeline

    1995 Main development phase

    1990 Initial phase

    2000 Continuous development

    Management:• Develop Pudong and Shanghai as the

    international financial centre and the international shipping centre (2009)

    Management:• Shanghai Pudong International

    Airport Preparatory Office opened (1995)

    • Shanghai Pudong Customs and Waigaoqiao Free Trade Zone Customs opened (1995)

    • The"one-stop"service of investment project examination and approval launched (1996)

    Management:• Pudong Development Office of

    the Shanghai Municipal People's Government opened (1990)

    • Shanghai Pudong Development Planning & Research Institute opened (1990)

    • Shanghai CCP Pudong New Area Working Committee and Shanghai Pudong New Area Management Committee inaugurated (1993)

    Notable investment activities:Real-estate related:

    − Signed the first land leasing agreement for building Yu'an Mansion (1991)

    − Shanghai Pudong granted the first commercial land at US$900 psm to 99 Corporation, Shanghai Shenda Company and Huangpu Real Estate Development and Management Company (1991)

    Business-related: − The Agricultural Bank of China Pudong Branch opened, followed by set up of major specialised banks (1990)

    − First large-sized joint venture in Shanghai Pudong founded (1992)

    − First wholly owned foreign trade company set up (1992)

    − Jinmao Mansion Tower, the first super high-rise building in country, put into construction (1994)

    − Start construction of the landmark Oriental Pearl TV Tower, a symbol of Pudong (1991), project completed in 1995

    Notable investment activities:Real-estate related: Start construction of

    − Yinguan Building

    − Super Brand Mall (US$ 300 mil.)

    − Shanghai International Convention Center

    − Yuanshen Sports Center

    Business-related: − The Fuji Bank Shanghai Branch, China's first foreign-funded bank, opened (1995)

    − Entrance of more big names, including: Intel Corporation, Shanghai Siemens Communication Terminal Company, Shanghai Hitachi Electrical Appliances Co., Ltd, (1995)

    − More new big banks moved to Pudong and started RMB business pilot project (1997)

    − Shanghai Securities Exchange

    − The 5,000th foreign-funded enterprise settle down in Pudong

    Infrastructure development: Completion of basic strategic infrastructure

    Infrastructure development: Completion of strategic infrastructure and a number of civil engineering projects completed

    Infrastructure development: Bring Pudong infrastructure to more sophisticated level. Upgrade and expand existing infrastructure development

    Notable investment activities:Real-estate related: Completion of

    − Bocom Financial Towers

    − Shanghai World Financial Tower

    − Shanghai Tower

    Business-related: − Citigroup Tower, head quarter of Citigroup Inc., opened

    − The People's Bank of China Shanghai branch was inaugurated, speeding up the building of Shanghai to be an international financial centre

    − More than 10,000 foreign-funded enterprise settling down in Pudong

    − Approx. 100 regional headquarters of multinationals were granted certificates

    − Shanghai Petroleum Exchange, Shanghai Diamond Exchange, China Financial Futures Exchange opened in Jinmao Mansion

    − Shanghai World Financial Center, the world's highest flat roof building at 492 metres, opened (2008)

    Figure 4: Shanghai prime apartment selling price

    Figure 5: Shanghai Grade A office rental rate

    Source: JLL Research

  • Time for Thu Thiem 25 24 | JLL

    Officially being developed since 1998 from a military fort, Bonifacio Global City (BGC) has quickly become a modern and well-planned residential, business and lifestyle centre. BGC’s development started with the privatisation of a large portion of Fort Bonifacio and the development of apartments, driven by demand generated by huge office developments in its established neighbour, Makati central business district.

    With the idea of a “walkable city”, BGC is divided into six districts with a grid system of streets, following those of the most advanced cities in the world, which makes the city easy to navigate. At BGC, people can get instant access to green space and public transportation from any point in the city. With an insightful design, the entire BGC district brings a dramatic increase in the land value. Each property in BGC is designed to heighten the quality of life and, thus, is envisioned to be appreciated over time.

    BGC is a showcase for successful public-private partnership projects in the Philippines. The development of the 214-hectare project is overseen by the Fort Bonifacio Development Corporation (FBDC), which embodies the public-private partnership between the state-owned and controlled Bases Conversion and Development Authority (BCDA), Ayala Land and the Campos Group of Evergreen Holdings.

    Nowadays, BGC is still developing following its master plan. It is well-known as a rising magnet for investments, a premier business address besides the existing country’s central business district, and one of the most sought-after areas in Metro Manila for elite living and high-end commercial space.

    Zone Key feature

    North Bonifacio • High-class residential buildings• Park/recreation developments

    Cresent Park West • Residential buildings (Forbes Town Center)

    Bonifacio Centre • High-tech offices• High-class residential buildings• Retail outlets • Pedestrian-friendly roads and walkways

    Station Square East • Transit and pedestrian-oriented entrance to BGC• Business convention• Retail spaces

    University Park • Campus zone for institutions• International schools• Universities

    Bonifacio South • First-phase luxury residential buildings• Transition from suburban to urban

    Bonifacio Global City – Manila, Philippines

    Factors of success• The development is overseen by one single entity, the Fort

    Bonifacio Development Corporation (FBDC)

    • Lower taxes and business-friendly

    • Offering Economic zone and Philippine Economic Authority Zone (PEZA), a government agency, is created to encourage investments by providing incentives to investors in the form of tax holidays, discounts, etc.

    • Efficient infrastructure development, both connecting and inner-city, mainly developed via public-private partnership

    Established year

    1995

    Total land (ha)

    214

    Source: Website of Area South

  • Makati Bonifacio

    80,000

    100,000

    120,000

    140,000

    160,000

    180,000

    200,000

    PHP/sqm

    2008 2009 2010 2011 2012 2013 2014 2015 2016 2H17

    Makati Bonifacio

    PHP/sqm/month

    400

    600

    800

    1,000

    1,200

    2008 2009 2010 2011 2012 2013 2014 2015 2016 2H17

    2011 - 2H17 CAGR

    BGC 7.8%

    Makati 7.8%

    2011 - 2H17 CAGR

    BGC 7.0%

    Makati 3.8%

    Time for Thu Thiem 27 26 | JLL

    Bonifacio Global City Development Timeline

    Bonifacio Land Development Corporation

    (BLDC), led by Metro Pacific, won the bid to

    become BCDA’s partner in developing Bonifacio

    Global City

    Fort Bonifacio was turned over to the Bases

    Conversion Development Authority (BCDA), a

    government-owned and controlled corporation

    Ayala Land Inc. and the Campos Group’s

    Evergreen Holdings Inc. bought controlling stake

    in BLDC from Metro Pacific and, together with

    BCDA, formed the Fort Bonifacio Development

    Corporation (FBDC), which now oversees the master

    planning of BGC

    A new master plan of Bonifacio Global City was

    launched

    2003 20061992 1995

    • All types developed with strong influx of capitals

    • Key developers: Mega World and Ayala Land

    Initial Development StrongDevelopment• Mainly infrastructure and residential

    • Focus on Cresent Park West area, a closer part of GBC to Makati city, to benefit from the growing demand for residential and commercial properties in this traditional CBD area

    Source: JLL Research

    Figure 7: Metro Manila Grade A office rental rate

    Figure 6: Metro Manila prime apartment selling price

  • 2002

    2012

    2015 2016 2017

    2013 2014

    2008 2010 2030

    Time for Thu Thiem 29 28 | JLL

    Although officially planned since 2005, it took two years to complete the first bridge, and another four years to complete the tunnel, the second connection between Thu Thiem and the city’s downtown area. Compared with Pudong or Bonifacio Global City, market factors aside, the paucity of support for infrastructure development and lack of preferential policies/incentives are the biggest impediments to Thu Thiem's development.

    Nonetheless, it is also observed that in these cases, it took time for the initial steps to be accomplished. As soon as the infrastructure development takes shape, the market will respond. Developers will be more confident and occupiers and buyers will be attracted to this rising opportunity.

    As a late starter, Thu Thiem has the advantage of having an advanced master plan and learn from the experience of other cities. The authorities are able to introduce “smart city” schemes and Thu Thiem will become Ho Chi Minh City’s premier destination for residential and commercial development. As Thu Thiem gathers pace and becomes a magnet for investors, we strongly believe the next decade will see a “Thu Thiem skyline.”

    2030 Vision

    We believe Thu Thiem will become the future destination of the city and will accelerate the transformation of

    Ho Chi Minh City into a modern megacity.“

    ”Yun, SungjunChief Representative, HCM Office, LOTTE Asset Development Co., Ltd

    Sources: Photos taken from Google Earth

  • 30 | JLL

    Key contacts

    Stephen Wyatt

    Khanh Nguyen

    Trang Le

    Country Head - [email protected]

    Associated Director, Capital Markets - [email protected]

    Manager, Research and Consulting [email protected]

    Dao PhanSenior Analyst, Research and Consulting [email protected]

  • JLL Vietnam officesHo Chi Minh City 26/F, Saigon Trade Center 37 Ton Duc Thang Street, District 1, Ho Chi Minh City Tel +84 8 3911 9399

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