NATIONAL UNIVERSITY, HANOI
SCHOOL OF BUSINESS

HO LE QUY

BUILDING REAL ESTATE
INVESTMENT TRUST IN HANOI

Major : Business Administration
Code : 60 34 05
MASTER OF BUSINESS ADMINISTRATION THESIS
Supervisor: Dr Pham Quy Long
1.2.5 Main business activities 36
1.3. Benefits of REIT 37
1.3.1 Benefits of REIT to investors: 37
1.3.2 Benefits of REIT to economy 39
1.4. EXPERIENCE LESSONS FROM BUILD AND DEVELOPMENT
PROCESS OF REIT IN COUNTRIES 42
1.4.1 Introduction of some REIT on the world 42
1.4.2 Success of REIT in countries 49
1.4.3. Experience lessons 50

viii

Conclusion 51
CHAPTER 2. HOUSING MARKET AND FINANCIAL SOURCE FOR REAL
ESTATE BUSINESS IN HANOI 52
2.1 HOUSING MARKET IN HANOI CITY 52
2.1.1 Overview of Vietnam’s property market 52
2.1.2 Property market in HANOI 53
2.2 Financial sources for real estate business 63
2.2.1 Overview of real estate finance 63
2.2.2 The Major capital sources on primary real estate market. 67
2.2.3 Difficulties in financing for real estate projects 69
2.2.4 Disadvantages in real estate trading caused by lack of monetary
supply 73
2.3 STUDY REIT (REAL ESTATE INVESTMENT TRUST) AND
NECESSITY OF ESTABLISHING REIT IN HANOI 75
2.3.1 Existence of REITs in Vietnam 75
2.3.2 Differences between REIT and other Investment Fund in Vietnam. 75
2.3.3 Necessity of establishing a model of REIT in Hanoi 76
Conclusion: 76


x LIST OF TABLES

Table 1.1
Dividend versus risk free rate

Table 2.1
Statistics of apartment for sale on the market

Table 2.2
Statistics of for lease apartment market (6/2009)


Figure 1.2
Model of traditional REIT

Figure 1.3
UPREIT Model

Figure 1.4
DOWNREIT Model

Figure 1.5
Pacific REITs by sub-sector

Figure 1.6
Total numbers of REITs by country

Figure 2.1
Figure 2.1 Supply forecast, 2009 – 2012

Figure 2.2
Future rooms supplies in Hanoi

Figure 2.3
Stock and New Supply, 2009 - 2012

Figure 2.4
Capital Structure

Figure 2.5
Capital demand


Basically, the real estate market in Vietnam still focuses primarily on land use rights
transfer business. In addition to the actual needs on real estates for residents and
trade business, there are so many needs about investment in land of speculators.
Those who invest in land normally transfer land use rights in the suburban regions
to procure imparity shares when the land price increases as the speculators do.
According to the Department of Natural Resources and Environment of Hanoi City,
from 2000 to late 2009, there were 2,300 real estate investment projects with a total
area of used land up to 11,500 hectares. However, most of these projects have not
been completely implemented by investors.
In other words, there is no complete real estate product such as infrastructure;
housing and other real estate was conducted to generate profits in the primary

13

market. Just in fact, over the last time, for the real estate market, activities are
mainly the transfer of land use rights for business on the secondary market.

This situation makes potential risks arise and be serious for immature market,
because this situation could lead to too high and impractical real estate price, which
is out beyond the ability of payment of those with actual housing needs and
enterprises trading real estate. It will be more risk if many individual or legal entity
investors rush into real estate investment but have no suitable and careful business
strategy, while sources of land are limited. Moreover, in recent years, people tend to
change the way of putting aside unused money and savings from gold or cash to real
estate investment with expectation of earning more profits than saving. Just this
reason made the market "hot" in 1995, 2000, 2002 and 2007
Since 2004, the government issued some policies and regulations to help real estate
market to develop strongly and limit risks that may occur. Since there are Decree
No. 181/ND-CP dated October 29th 2004 of the Government with regulations
related prohibition against the dividend into plots for background sale, the real


We can see that the investors have not been enough financial capacity to complete
the real estate projects. When the government issued policies and regulations stated
above, the real estate investors can resolve the difficult problem about capital to
carry out the projects.

In fact, many individual or legal entity investors want to invest in the real estate
market but do not have enough funds to buy wholly a single product and on the
other hand, they also are interested in the liquidity in real estate business and the
demand of investment diversification into other assets

Therefore, the author believe that, one of positive solutions to resolve the problem
of capital markets in real estate market is to find mechanisms and tools to mobilize
capital effectively that can help to connect real estate market with capital flow
channels from financial markets. 15

For that reason, the author want to mention the review of REIT model with strategy
to mobilize capital broadly in the public who have needs of real estate investment
but with a fixed capital. This will contribute to limit the risks related to the land
speculation as well as risks related to bank credit in the area of real estate
investment financing. The author want that through the project "Building Real
estate Investment Trust in Hanoi city", further researches shall be suggested to find
new solutions of mobilizing sources of capital funding for the real estate market of
Hanoi City.

c) Research purposes
This project will focus on answering 02 big questions as follows:

practice.
e) Research method
This is a qualitative research on the theories, which have previous solid foundation.
These theories were searched and exploited based on the data collected
systematically. Based on the establishment of specific research goals, the author
uses many different methods. Among them, the main method used is the analysis
method to clarify the needs of real estate products and define the model of new
capital mobilization tools to meet the needs of real estate investment capital. On the
other hand, the analysis makes clear the benefits of new investment channel so that
investors can use when they want to invest in real estate business. In addition, this
research uses the comparison method to compare among REITs in the countries on
the world to draw the practical lessons when applying to Vietnam. Other support
methods such as experience survey, depth interview are used to clarify more clearly
the issues on research practice. In this research, the author use most of secondary
data resources – namely the data got in the past.
These data will be used mainly in chapter 1 and chapter 2 of this research, including
the theoretic documents from of the foreign author and domestic data from
specialized documents, newspapers, website

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f) Structure of research
This research is structured into 03 chapters (not including the Introduction and
conclusion) as follows:
Chapter 1. "Overview of Real Estate Investment Trusts (REITs)" will outline
the location of REIT in real estate financing market, brings the basic concept of
REIT to readers and summarizes the operation principles of REIT and the benefits

1.1.1 Concept.
“REIT (Real Estate Investment Trust) is a type of investment company
specializing in purchasing, development, management and sale of real estate
based on the professional management of real estate portfolios. This is a form
of business investment in the real estate market through kinds of possessive
assets or debt security assets that organizations and individuals can participate
by purchasing or selling shares.”
[1]

According to Barron's Real Estate Dictionary: “Real Estate Investment Trust:
an investment trust that owns and manages a pool of commercial properties
and mortgages and other real estate assets; shares can be bought and sold in
the stock market”

“Individuals can invest in REITs either by purchasing their shares directly on
an open exchange or by investing in a mutual fund that specializes in public
real estate. An additional benefit to investing in REITs is the fact that many
are accompanied by dividend reinvestment plans (DRIPs). Among other
things, REITs invest in shopping malls, office buildings, apartments,
warehouses and hotels.
Some REITs will invest specifically in one area of real estate - shopping
malls, for example - or in one specific region, state or country. Investing in
REITs is a liquid, dividend-paying means of participating in the real estate
market.” Investopedia.com 19

Business operation of REITs often generates income from the rental property
and capital gain when selling the property. An advantage of investment in

Comment [V3]: Đây có vẻ là chức năng/đặc điểm
chứ không phải là hình thức tổ chức của REIT

20

 Real estate properties: are properties that has fix physical location and
not movable, including land, houses, construction works associated
with land, including assets associated with the houses, buildings and
other properties associated with land. Real estate market is place or
means for purchasing and transactions of real estate and related
properties.
[2]

 Real estate business activities: includes real estate business and
property business services
[2]

 Real estate business: is the investment to create, buy, receive, transfer,
lease, financing lease real estate for sale, transfer, for rent, lease, and
financing lease for the purpose of the profit.
[2]

 Real estate business services: is the business support the property
market and real estate, including brokerage services, property priced
valuation, property transaction floor, property consultancy, real estate
auction, real estate advertising, property management.
[2]

 Real Estate Investment Trust – REIT: “A corporation or trust that uses
the pooled capital of many investors to purchase and manage income

the word in theory will be investment in real estate or loan security property
(hereafter called security property) stated in detail in the prospectus of REIT
when issuing stocks. These investments shall not change all the time. Owing
to that, investors could carry out assessing quality of the real properties in that
portfolio before deciding to invest in REIT. Conversely, a common trust fund
can mobilize starting capital in advance and then find security real estate or
property for investment. Some REITs are organized as specialized investment
funds or trusts. Unlike common trust fund, trust reselling and renting will
invest in land below building projects and then rent back them out to seller.
These specific REITs get bigger income from properties rental or increase
value of reinvestment those buildings. In fact, REIT can rent professional
property management companies to manage the properties to make income
from rental and provide related services for renters.
 Mortgage REIT - Mortgage trust

22

“Mortgage REITs deal in investment and ownership of property mortgages.
These REITs loan money for mortgages to owners of real estate, or purchase
existing mortgages or mortgage-backed securities. Their revenues are
generated primarily by the interest that they earn on the mortgage loans”
[4]

These REITs are highly sensitive to credit quality of renters. Some mortgage
REITs restrict their investment items in construction and short-term security
properties; some others only invest in long-term or eternal security property,
and some mortgage REITs invest in both two kinds of these security
properties. Another kind of mortgage fund - dedicated mortgage fund - is
organized to provide companies specialized in development of real estate
projects with security loans to a defined project. In brief, mortgage REIT lend

time. In these cases, properties must be taken back in many different periods,
normally from 4 to 15 years, then these properties will be sold and income
will be distributed to shareholders when the fund is liquidated. Theoretically,
advantage of a unit trust with defined period is price of REIT's share in
accordance with present value of the property because investors can estimate
quite exactly the balance of correlative property. REITs without defined
period have eternal operation period and characteristic of capacity of
reinvestment in any trading or financial activities for new or present
properties. To maintain their condition, these REITs must distribute most of
cash flow gained from renting real estate or interests paid for shareholders.

Hybrid REITs also can be distinguished based on "lever effect". When a lever
REIT buys back property, REIT will find a loan to sponsor for that property.
Normally, the amount of sponsoring money can reach 90% value of the
purchased property. Conversely, non-lever REIT will not make the most of
loan sponsoring items to invest in obtained property. Then, REIT will buy
property by cash or invest its fund in security property.

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1.1.2.2. Classification by organization

REIT organized as a company (legal entity REIT)

This REIT is formed following Enterprise Law as a company with Board of
manager or Trustees elected by shareholders. REIT‟s stock can be traded on
big securities exchange floors, at both primary and secondary market.

Additionally, in some cases, REIT organized as a company can be the very
property management company
 REIT organized as a fund
This type of REIT is a form of cooperation or association of investors who
want to mandate their sum of investment contribution money in real estate
business. This type can be described with following diagram:

26

Figure 1.1: Model of REIT organized as a fund:
[1]

Source:

The management company on behalf of REIT will conduct all REIT‟s

subsidiaries
Real estate
Real estate 27

 State authorities : be responsible for licensing and monitoring
 Individual or legal entity investors: who invest their capital to REIT
 Management companies: Management Company: Joint Stock Company
or Limited company has sufficient conditions to perform fund
management services. These companies on behalf of REIT will conduct
all commercial transactions of REIT such as preparing portfolio,
carrying out investment plans… A fund management company can
establish and manage many different funds at the same time.
 Sponsor: normally, fund management companies are concurrently
sponsors or supporters for forming REIT
 Fund: sum of money contributed by investors and trusted to
Management Company to conduct investment to make profit. This sum
is income arising from selling REIT‟s shares for investors.
 Trustees and guardian: can be one person, a group or an organization
(bank or trustee company) meeting requirements. They are
representative who are responsible for looking after, supervising and
protecting property, benefit of investors.
 Auditors, valuators or assessors.
 Special organization (Special Purpose Vehicles - SPV): like a
subsidiary company that is rather common in Vietnam. REIT invests to
establish this SPV or REIT together with other investors invests
separately in special property. The property condition of these SPV will
not be shown in the REIT's balance sheet, so SPV is called "off–


Properties
management
company

Real estate Renter

REIT

Shareholders of
REIT
Profit
Investment
Own
Rental income
Properties
management
contract
Management
Rent
contract

between properties and OP certificates because when selling properties for
UPREIT, taxable items payment can be postponed until these OP certificates
are changed to cash or shares.
This REIT is also a solution that some companies want to participate to be
applied regulations for REIT, use to conduct trade activities, merge present

30

properties to transfer properties in order to diversify portfolios without issuing
shares or borrowing, or carrying out payment in big scale at a time.
Operation of UPREIT is described as follows:
Figure 1.3: UPREIT Model:
[6]
Certificate
s

Initial
Partner
Asset
Owner

Initial
Partner
Asset
Owner