| by Tony Adams |
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Following a year long cycle of decline, the Vietnamese property market is beginning to show signs of life again and they are signs that prices might start to recover in both Ho Chi Minh City and Hanoi. In the capital city, nearly 400 off-plan apartments in Keangnam Tower were sold not long after construction on the building started. Lots in the Van Phu Urban Area and Xa La high-class apartment projects in Hanoi´s newly-merged Ha Dong city have also been magnetic to investors, and prices have gone up nearly 20 per cent since Tet. Last year, investors paid little attention to these and other projects, as land prices were in heavy decline.
“Vietnam real estate entered the downturn in late February 2008 when the State Bank of Vietnam capped lending growth at 30 percent over 2007 levels,” Brett Ashton, managing director of Savills Vietnam says. “Many banks had already experienced lending growth in the first two months at or near this level and so limited new loans to long time clients. This had an almost instantaneous effect on the real estate market, particularly the condo market, which was the most over heated. This six to nine month head start, compared to the region, in price corrections in the condo market combined with renewed lending by banks this year suggests a modest but sustainable pick up in the market.”
B. Hawkins Pham, fund reporting manager of Indochina Land agrees.
“Vietnam’s property market was never gone – it has simply matured, and capital values have recalibrated after the exit of speculative investors,” he says. “The real estate market continues to be characterized by the dramatic imbalance between supply and demand. Across all grades, there is a significant shortage of residential, retail, office and hotel properties, and the high rental rates and low vacancy rates throughout the country are indicative of this lack of inventory.”
Indochina Land has been active both in the resort and urban sector for the past few years. The company has developed both the award winning Nam Hai villa and resort development and urban residential projects such as Indochina Riverside Towers in Danang and River Garden in Ho Chi Minh City, both of which are reportedly 99 percent sold, with several new transactions surfacing in mid-March.
“In our view, the current rally in the property market is a result of Vietnam’s limited investment alternatives – the equities market is underperforming and there is a structural lack of confidence in the local currency, as the Vietnamese dong systematically depreciates in order to bolster exports,” Pham says. “With interest rates in the domestic market trending lower, real estate investments in Vietnam will remain attractive in the year ahead, and this projection is supported as our soon to launch projects, Indochina Plaza Hanoi and the Hyatt Regency Danang Resort & Spa, have both received considerable interest in the pre-sales phase.”
In HCM City, the markets significant fall over the past year has helped balance supply and demand, prices are now at a more realistic level; apartments have become significantly cheaper.
“We believe that the apartment market is beginning to recover, with several projects launched recently sold out within a few days while others are selling reasonably well, albeit at a pace more in line with regional standards,” Ashton says. “Developers will need to build in longer sales periods going forward and price their products at sustainable levels over a sales period of a year or more. The secondary market is still flat but appears to have hit bottom, with prices stabilizing and even rising in some areas over the past few months.”
Apartments in Van Do, for example, which is several minutes away from the centre, are now selling for 20 million VND (US$,1140) per sq.m; they were at 30 million VND per sq.m before the decline.
“We continue to believe the lower to upper middle condo segments will perform the relatively well along with retail over the short to medium term,” Ashton says. “Offices are over-supplied at the moment and it will take at least two years for the oversupply to be soaked up in HCMC. However, supply may begin to exceed demand in certain parts of HCMC over the next two years so developers will need to be careful and look at their competitors.”
Another positive factor is that the prices of construction materials such as steel, cement and brick have also been coming down. Also, the current and forecasted low interest rates at domestic banks, coupled with limited good investment opportunities in other sectors, will make real estate an attractive investment-grade asset class and a safe saving vehicle for individuals.
“Compared to other Asian countries, Vietnam’s property market is in its infancy,” Pham says. “For instance, the SM Mall of Asia in the Philippines provides more square meters of retail space than all the department stores and retail centers in Hanoi and HCM City combined. As Vietnam’s economy grows and its young population matures, the need for quality world-class real estate properties will increase. Yet, Vietnam’s real advantage from a long-term growth perspective is its stable political regime and young hard-working population. Compared to countries like Thailand, these soft advantages make Vietnam a safe haven for investors seeking stability. Additionally, the lack of significant financial integration and generally lower leveraging rates afford Vietnam a degree of insulation from the direct transmission of the financial crisis.”
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