URBAN REGENERATION KSB

12ANNOTATED OUTLINE – PHU MY HUNG, HO CHI MINH CITY, VIETNAM - CASE STUDYTABLE OF CONTENTSummary

5Context and Background

6The Process

7Project Outcomes

11Success11Concerns

12Lessons Learnedand Replicability

13Sources

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34ANNOTATED OUTLINE – PHU MY HUNG, HO CHI MINH CITY, VIETNAM - CASE STUDY1SUMMARYPROJECT & LOCATION

Phu My Hung City and Tan Thuan Export
Processing Zone, Ho Chi Minh City, Vietnam

LAND-BASED FINANCINGINSTRUMENT USED

Joint Venture

TOTAL PROJECT COST

Tan Thuan EPZ: US$ 89 million
Phu My Hung City: US$ 242 million

LAND EXCHANGEDFOR INFRASTRUCTURE

Tan Thuan EPZ: 300 hectares
Phu My Hung City: 600 hectares

ECONOMIC & SOCIAL
BENEFITS TO THE CITY

Development of EPZ; 17.8 km of 10-lane road; approximately US$ 500 million in tax revenue (1998-2009);
a modern residential area; and infrastructure on 150
hectares of land

In the 1990s, Phu My Hung (PMH) was undeveloped swampland located seven kilometers to the south ofdowntown Ho Chi Minh City (HCMC). Today, PMH is one of the most coveted residential areas in Vietnam andits transformation is referenced as a national model for urban development.
PMH was one of the first land-based financing projects since Vietnam’s reunification in 1975. It was part of alarger scheme by HCMC to develop an area to the south of the city (Saigon South) that included three main
projects: Tan Thuan Export Processing Zone (EPZ), PMH area, and Hiep Phuoc Industrial Park. This case study
explores the first two of these projects.

FIGURE 1

Phu My HungDevelopment SiteP H U M Y H U N G .VURBAN REGENERATION KSB

5FIGURE 2Star Light Bridge
Connecting Two Pmh
DevelopPHOTO CREDIT:PHUMYHUNG.VN

2CONTEXT AND BACKGROUND

In the late 1980s, Vietnam’s leadership pursued a program of reforms that called for market-based initiatives
across the economy, including a new appetite for foreign investment. Considered the cradle of Vietnam’s
market economy, HCMC was at the forefront of the liberalization process with the New Saigon South MasterPlan. However, given that the country was transitioning from a centrally planned, communist system towards
a market-based economy, the HCMC government was aware of the challenges of attracting international
investment. The government launched the initiative with building export processing zones (EPZs) as anentry point for foreign direct investment, helping to promote exports and develop Saigon South. The HCMC
government established the state-owned enterprise Industrial Promotion Corporation (IPC), in an effort toattract potential financiers.
After lengthy negotiations, the interest of Taiwanese investors was secured as they have seen the Taiwanese
economy go through similar challenges to that of Vietnam. Taiwan was among the first countries to promote
exports through EPZs, strengthening the partnership. Using their experience with EPZs, the investors
recognized Vietnam’s growth opportunity through its export sector.
The negotiations between the city and the private sector investors resulted in an agreement to establish Tan
Thuan Corporation (TTC), a joint venture to build a 300-hectare EPZ at Tan Thuan, a site along a peninsula
toward the south of Saigon. Once the EPZ was completed, a 17.8-km road was needed to connect it to thecountry’s main national highway. During the negotiation process, the two parties agreed on the development

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ANNOTATED OUTLINE – PHU MY HUNG, HO CHI MINH CITY, VIETNAM - CASE STUDY

of PMH to recover the investors’ costs of providing infrastructure to the EPZ. For the PMH project, thegovernment contributed land and the Taiwanese partners put in equipment, financing, and expertiseestablishing the Phu My Hung Corporation (PMHC).

FIGURE 3Location of TanThuan EPZ and PMH

3THE PROCESS

To build the EPZ, the HCMC government established the Industrial Promotion Corporation (IPC) as the cityowned company to enter into a joint venture with its foreign counterparts, the Taiwanese Central Tradingand Development Corporation (CT&D). The IPC and CT&D created the Tan Thuan Corporation (TTC) as a jointventure. The IPC contributed 300 hectares of land for a 30 percent equity stake in TTC, while CT&D got 70
percent ownership by contributing finance and expertise.
The cost of investment was around USD 89 million with an investment license issued in 1991. By 1992, theEPZ was built. However, the EPZ but suffered from power blackouts because the existing electric grid hadinsufficient capacity which led the developer to build and operate a 375 MW power plant named Hiep Phuoc
Power Plant (HPPP). HPPP still delivers power to around 45% of HCMC.

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7PUBLIC

PRIVATE

Kuomintang,
TaiwanHo Chi Minh City,Vietnam

IPC

CT&D

(30%)

(70%)

FIGURE 4

The creation ofthe TTC

8Tan Thuan Corporation (TTC)

ANNOTATED OUTLINE – PHU MY HUNG, HO CHI MINH CITY, VIETNAM - CASE STUDYTTC built the on-site infrastructure for the EPZ and put it intooperation. However, the needed highway connection triggered CT&D
to collaborate with HCMC government on an additional joint venture,
Phu My Hung Corporation (PMHC). The arrangement was that thedeveloper would receive 600 ha of land with a 50-year lease term
for real estate development in exchange for the construction of theNguyen Van Linh Parkway (220 ha for a 17.8 km, 10-lane highway) and
150 ha of built infrastructure land for public use. The serviced public
land is mixed in with the commercial land of PMH. Figure 4 shows the600 ha of PMH’s which are divided into five modern urban clusters
A, B, C, D and E. PMHC was established in 1993 with US$60 million
in equity from HCMC and CT&D. The city government contributed
land to the venture, and in return received a 30 percent stake in PMH
valued at US$18 million. CT&D contributed US$42 million in equity for
a 70 percent stake in the new company. The total cost of the project
was estimated at US$242 million, with US$79 million for the road andUS$29 million for the 150 hectares of land.

FIGURE 2

Lots A, B, C, D,And E Under Pmh
Corporation
PHOTO CREDIT:
PHU MY HUNGCORPORATIONURBAN REGENERATION KSB

9PUBLIC

PRIVATE

Kuomintang,
TaiwanHo Chi Minh City,Vietnam

IPC

CT&D

(30%)

(70%)

FIGURE 5

Ownership Structureof PMH Corporation

10Phu My Hung (PMH)
Corporation

ANNOTATED OUTLINE – PHU MY HUNG, HO CHI MINH CITY, VIETNAM - CASE STUDY4

PROJECT OUTCOMES

The project is considered a success in Vietnam of applying land-based financing — through the sale andtransfer of land development rights to the private sector — due to its catalytic contribution to the city’sdevelopment. However, as described below, there are significant concerns regarding its impact on social
segregation and the environment.

5SUCCESSDEVELOPM EN T O F
TAN T HUA N EPZ

Tan Thuan EPZ attracted 204 international investors aggregating
US$1.559 billion in total investment. The special economic zone createdmore than 64,000 permanent job opportunities with US$2.1 billion inannual exports in 2013. Euromoney’s Corporate Location Magazine rated
it the best industrial zone in 2011.

TA B L E 1Tang (2019). Lessons
From East AsiaSpecial
Economic Zone

Number ofCompanies

Industries

Occupancy
Rate

TotalInvestment (US$)

Export Value

Local
Employment

Tan Thuan EPZ

204 (62 Japanese,46 Vietnamese, 45
Taiwanese, 7 US, 6Singapore)

Textiles, garments,
software & tech,electric appliances,electronics,
mechanics

87.2%

1.78 billion

23.538 billion>60,000

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116T I M ELYCOM PL ET I ON OF
T HE ROAD

Relative to most highway construction projects in Vietnam, whereby
delays and cost overruns are common, Nguyen Van Linh Parkway wascompleted within negotiated budget and timeline. The road connects
Tan Thuan EPZ with the National Highway No. 1, facilitating transport ofthe export-oriented goods produced within the EPZ, such as consumer
electronics, garments, processed food and cosmetics.

CON S TRUCTION OF
A M OD ERN URB AN
AREA

After nearly two decades from the initial conceptualization of the project,a modern urban area has been built. PMH has become one of the mostdesirable places to live in Vietnam. From a meagre swampland, the valueof vacant land in PMH has risen considerably, with the latest reliable
reports showing it cost US$4,000 per square meter in 2011 and land
prices were on an upward trend.

F IN AN CIALB EN EF ITS FOR THE
CIT Y

The PMH project has proven to be a good investment for the city
government. From 1998, when the venture started generating revenues,
to 2009, the government received US$500 million in dividends andrevenues from taxes on income, property, and payment for the transferof land use rights.

B EN EF ITS FORS OUTH S AIG ONAREA

The 970 hectares of land allocated to the project comprised of parcels
scattered over an area of 2,600 hectares. The parcels serve the wider
South Saigon area and are not confined to the boundaries of PMH
Corporation. This development has positively impacted a large numberof businesses and residents in the area by increasing land values, creating
direct job opportunities, and opening up more opportunities for doing
business with the exporters.

CONCERNSS US TAIN AB ILIT Y OF
URB AN S ERV ICES IN
PM H

12The developer has been directly subsidizing urban services in PMH, suchas infrastructure maintenance, landscaping, and security services. Thisbusiness model raises serious concerns about the financial sustainabilityof these services in the future, especially the costs of landscape andinfrastructure maintenance and operations. When the developer started
to transfer the responsibility of providing these services to the resident-

ANNOTATED OUTLINE – PHU MY HUNG, HO CHI MINH CITY, VIETNAM - CASE STUDYnominated building management boards, disputes emerged between
the residents and the developer. Currently, there are no revenue sources
for providing these services. If the current quality of urban services
within PMH deteriorates, once the developer exits, there would be little
difference left between PMH and the rest of the city. This could lead toa decline in property prices and the attraction of area. This situationrose because the funding for ongoing maintenance and common-areacharges was not agreed on when the business model and development
agreements were initially signed.

7S PATIALS EGREG ATION &S OCIAL EXCLUS ION

PMH is a gated mixed-use community with restricted access. Like any
gated community, it creates spaces of social and spatial segregation,
depriving non-community members access to the public spaces.

EN V IRON M EN TALCON CERNS

PMH is built on a wetland, an important ecosystem that provides
protection from floods, mitigates changes in sea levels, and houses
wildlife habitats. Some cities have developed wetlands into residential
and industrial uses across the world without fully assessing the potential
environmental damage. HCMC needs to address risks of flooding thathave been aggravated with the destruction of this wetland.

LESSONS LEARNED AND REPLICABILITY

APPROP RI AT E
RI SK A L LOCAT I ON
BET WEEN T H E
P U BL I C AN D
P RI VAT E SECTO R

PMH serves as a good example of how a joint venture model can work
well, with an appropriate allocation of risk between the private and public
partners. The risk of the project was distributed in a manner where eachpartner assumed risks that it could manage more effectively. The public
sector partner assumed the risk of dealing with local issues such as land
clearance, intergovernmental bureaucracy, and administrative matters
including getting plans approved, meeting standards, and filing documents.
The private partner assumed the financial and technical risks. The expertiseand experience of the staff, who were extremely knowledgeable about theirlocalities, combined with the private capital aligned strengths and incentives
to achieving an efficient process of land acquisition.

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13LOW COSTA N D EA SE OFRESET T L EM EN T

The cost of resettlement, which was borne by the HCMC government,
was relatively low and the process was straightforward due to several
factors: the majority of the 970 hectares was vacant swampland; theland was considered risky and unfit for development as compared withsurrounding areas; reclaiming land for private development was a newprocess in post-war Vietnam and there was no precedent of resettling
residents. As a result, resettlement costs were only US$15 million.

P OL I T I CALL EA DERSHI P/P OL I T I CAL BUYOU T

The leadership of Mr. Phan Chanh Duong from the HCMC government
and Mr. Lawrence S. Ting from CT&D was critical for the project’s success.
Viewed as a risky venture, Mr. Phan and his team put in extra effort toconvince the city government to pursue the project. From the private
sector side, Mr. Ting was open to new investment opportunities. Withthe Tan Thuan and PMH projects, Mr. Ting prioritized job creation andbuilding public spaces such as parks and squares to increase land
values and attract people to live and do business in PMH. He led CT&D
to develop PMH without deviating much from the master plan of HCMC.

FAVORA BL E
FI N AN CI N G AN D
I N CEN T I VESThe PMH project benefitted from favorable financing from CT&D and aligned
incentives for both parties of the joint venture. CT&D is owned by Kuomintang(KMT), the ruling party in Taiwan at the time. During that era, the tensions
in Taiwan Strait¹ pushed the Taiwan to seek backup exporting facilities
abroad. Thus, political and security concerns led to venture capital into
an emerging real estate market. The KMT-led initial financial investment
paved the way for private investors to gain confidence in the project.
The private partner had the potential to make a profit, and the city could
develop Saigon South and benefit directly from the growth through its 30
percent ownership in the venture. It was unprecedented for the city toget US$ 22 million in an interest-free loan for land clearance. Access tothis financing opportunity facilitated the city’s work on the project.
The long-term partnership between the city (through IPC) and CT&D
through the joint venture resulted in a risk reduction for the private
investors. Because the joint venture was also an investment vehicle forthe city, that dynamic created incentives for the city to liberalize land use
policies. For instance, when the initial agreement was signed between
IPC and CT&D, foreign individuals or companies were not allowed to own
land in Vietnam. The successful venture paved the way for new legislationthat authorizes foreign ownership of land use rights.

1. During 1995-1996, the People’s Republic of China conducted missile tests in the waters surrounding Taiwan causing disruption and tensions to Taiwan’s economy

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ANNOTATED OUTLINE – PHU MY HUNG, HO CHI MINH CITY, VIETNAM - CASE STUDYREPL I CABI L I T Y

8The experience of PMH can be replicated by other cities around theworld for infrastructure development, if favorable market conditions anda facilitating regulatory framework exists. PMH presents a case where
the market demands for new developments existed along with a flexible
legal framework that allowed local governments to pursue joint venturesand sell development rights. A ring road project in Changsha, China
and a new airport in Bangalore, India are additional examples of public
infrastructure built using a similar arrangement.

SOURCES

1. Huynh, D. (2015). Phu My Hung new urban development in Ho
Chi Minh City: Only a partial success of a broader landscape.
International Journal of Sustainable Built Environment, 4(1),125-135.
2. Ngo, A., Huynh, D. (2010). Urban Development ThroughInfrastructure Land-based Financing: Cases in Ho Chi Minh City,
Fulbright Economics Teaching Program.
3. Peterson, G. E. (2008). Unlocking land values to finance urban
infrastructure. The World Bank.
4. Tang, K (2019). Lessons from East Asia: Comparing Ethiopia
and Vietnam’s Early-Stage Special Economic Zone Development.
John Hopkins University: China Africa Research Initiative.
5. T&C Consulting and Gillespie, J (2014). Public Land Disputes
in Vietnam: A Multi-Actor Analysis of Five Case Studies with an
East Asian Comparative. The Asia Foundation.

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