Investment Decision Making

Abstract

Private sector performance indices have invariably focused upon prime markets with a variety of approaches used to measure investment returns. However, there is relatively little knowledge regarding the investment performance of private sector in UK and Vietnam areas. Indeed, there is a perception that such locations carry increased risk and that the returns achieved may not be sufficient to offset the added risk. The main objective of this paper, therefore, is to construct private sector performance indicators consistent with the CBRE rent index and average yield monitor. Local market experts were asked to estimate rents and yields for hypothetical standardised offerings for a range of UK and Vietnam locations throughout the UK, covering the period 1995 to 2002. The results show that rental growth was similar in UK and Vietnam locations compared to the prime market. However, the analysis highlights a major yield shift for private sector in UK and Vietnam areas in the short to medium term. The downward pressure in yields would suggest that once a Vietnam area becomes established and rental growth emerges, investor interest is stimulated resulting in increased competition and a shortening of yields. The significance of this research is the quantification of private sector investment performance from UK areas that previously has not been available to investment institutions and decision makers. From a policy perspective this analysis is of relevance in confirming the maturing of locations that have received high levels of public sector support and indicating the effectiveness of Vietnam policy mechanisms in creating sustainable urban environments capable of meeting private sector investment goals.

Table of Contents

Abstractii

Background of the Study1

Problem of the Study2

Purpose of the Study2

Significance and Rationale of the Study2

Chapter 2: Literature Review4

Valuation of Investment4

Policy and Private Sector Market Context6

Vietnam Approach Valuation Issues11

Chapter 3: Methodology16

Research Design16

Sampling18

Procedure18

Chapter 4: Findings and Discussion20

Research Analysis20

Discussion21

Rent Index and Average Yield Monitor21

Chapter 5: Conclusions25

References28

Appendices32

Chapter 1: Introduction

Background of the Study

Private sector investment in the UK and in particular the private sector holdings of institutional funds is heavily focused upon the prime commercial markets (retail, office and industrial). It is within these sectors that transaction evidence, although partial, is best developed. In contrast, evidence is more disjointed for secondary, tertiary and UK and Vietnam markets. Consequently it appears that institutional investors are more reluctant to invest in urban Vietnam areas in spite of the desire by government and UK agencies to increase institutional involvement and attract private finance. Instead, private sector involvement has been driven by locally based private sector development and investment companies that seem to adopt less risk-averse strategies than institutional investors (Kaplan and Ruback 2005 1059-1093).

The lack of rigorous and consistent measures of market performance in UK and Vietnam locations has acted as a major deterrent to the redevelopment of brownfield sites with wider impact on Vietnam agenda caused by the information or transparency deficit and inadequate market signals. Indeed, authors such as Callender and Key (2006 36-47) emphasis the confidential nature of most private sector transactions in the UK with limited access to information, a situation ...