Real estate market report (Feb 13th, 2009 - Feb 19th, 2009) Is it time to invest in property?

While other markets, such as security, gold, or dollar, are unstable, property investment is considered as a safer channel, thanks to the deep fall in prices.

Prices of apartments have fallen but remain high

The last week’s most prominent information was that investors actively decreased the apartment prices for projects such as Hoang Anh River View (from $2.200/sq/m to $1.350/sq/m). Apartment prices of the Phu Hoang Anh project were initially $1.500/sq/m at least, but are now at $1.250/sq/m. However, this strong decrease is only a specific phenomenon. According to experts, in spite of one year price decrease, the property prices in general, and apartment’s prices in particular, are still high.

On May 2008, Nguyen Tran Nam, deputy minister of Ministry of Construction, said: “Looking for an apartment with a price of VND20 million/sq/m is now very difficult. Meanwhile, the real investment cost for each square meter of a hi-end apartment building is only VND13 million – VND15 million”, implying that the final prices have been pushed too high. At this time, even when the apartment prices averagely fell by VND500.000 – 1.2 million/sq/m, such as Hoang Anh Gia Lai, their prices remained very high. Particularly in Hanoi, prices at the 34-floor Trung Hoa – Nhan Chinh building were up to VND32million/sq/m, and now down to VND31.5million/sq/m on its peak period. The Thang Long International Village (Dich Vong, Cau Giay) were at VND25million/sq/m, and decreased to VND22-23 million/sq/m. And Song Da, My Dinh area, has recently fallen to VND21-22 million/sq/m, while its previous price was VND26 million/sq/m. Besides, Vinaconex’s N05 apartment building project is under construction on Tran Duy Hung Street, although from issuing the documents to now, its price was kept at VND26 million/sq/m. With this price rate, the investors also equip these accommodations with more interiors and furnitures, such as air-conditioner, fridge, washing machine, or cooking system, etc.

According to many experts, building materials prices have continuously fallen during the past months, making this sector unstable. As a result, prices dropped to nearly 50% compared to those of 6-7 months ago. This evolution makes many people think that property prices will plummet more.

Some surveys from Real Estate Service Companies show that professional investors are still outsiders, as they were strongly affected by the 2007 property fever. The investors are now mainly new ones, who have long earned profits in banking and now shift to new investment channels, in order to generate new profits. For this reason, the capital flowing into the market is not so much. As estimated, property prices will continue to drop and realty transactions will only increase in a few areas.

Cheap-priced houses save the market

Le Tham Duong, dean of Business Administration Department, HCM City University of Banking, told that, because prices of gold and dollar are unstable, the security market continuously drops, and property investment is considered as the safest. However, Duong also added that this investment must be on the long-term, without surfing or speculation.

“Vietnam is a new market, still in its development period. The government is fostering investment calls for infrastructure development because people’s housing demand is really huge... Although its development isn’t stable yet, Vietnam’s property market is holding many good opportunities, and this time is suitable for returns on investment,” Peter Ryder, Indochina Capital’s general director said.

Asked about the 2009’s market trend, Dinh The Hien, economist, said that housing and land prices are still high compared to majority of residents incomes. Many people want to buy houses but they can’t. Meanwhile, residents’ demand is very huge. However, the low-cost housing segment is ignored by the real estate businesses because the expected profits earned are too small, and longer in returns, compared to hi-end apartments. Therefore, Hien told that invest in cheap-priced houses is an intelligent choice for real estate businesses, today. “2009 will be the right period for cheap-priced houses and this segment will save the market by escaping from the current “unmarketable situation”. However, it won’t look like the 2007’s fever,” Hien judged.

Le Hoang Chau, chairman of HCM City Real Estate Association, also said that, in the first quarter of 2009, cheap-priced housing segment for low and mid-income earners will start to be “hot”. Chau quoted that, despite the 2008’s property market continuously plummeted, many luxury apartment projects and foundation lands were unmarketable, and housing segment of about VND1 billion accommodations remains “hot”.

For instance, cheap-priced housing projects of real estate companies such as Nam Long, Dat Lanh, or Sacomreal attracted many customers, last year, because their prices were relatively reasonable. In early 2009, a series of project construction were sold at VND12 million/sq/m.

Office buildings for lease are unmarketable

According to surveys from many foreign and domestic property brokerage companies, renting prices of grade-B and grade-C office buildings are in a standstill and can drop because of inflation. As forecasted, in the second quarter of 2009, renting prices of grade-A office buildings would increase from $65 to $70 per sq/m a month, because of the lack of supply and the abundance of demand.

Meanwhile, grade-B and grade-C office buildings risk loosing their customers, and their prices are likely to plummet. Now, grade-B office buildings are at $40-$45 per sq/m a month. Similarly, prices of grade-C offices stand at $27-$30 per sq/m a month. The reason is that most of customers hiring grade-B and grade-C office building are medium and small businesses, which are facing cost and expenses reductions to survive.

The fact that office renting prices are in a standstill is not as important as the implicit risks of a deep crisis. More particularly, in Hanoi, the first quarter of 2009 alone is expected to receive 140.000 sq/m of grade-A and grade-B offices for lease.

Also, at this time in HCM City, the market will receive 40 new office buildings for lease. With such an abundant source of supply, with a context of many businesses trying to overcome difficulties, with less and less businesses investing in Vietnam, and with a decreasing demand of offices, many office buildings become unmarketable.

One of the current main concerns of office buildings investors is that the customers only hire for short-term, for low prices, and for a longer negotiation contract period, instead of queuing to deposit as previously. Moreover, there is no exception for reverse flows from grade-A office buildings to grade-B and grade-C ones, because of cheaper expenses and richer source of supply.

Le Dinh - Rol.vn