Performance varies greatly within Vietnam's real estate market and between the country's two major cities.
2013 ended with some reasons to cheer in Vietnam’s real estate market. Lower interest rates gave further potential for mortgage lending to increase while also providing impetus for investors to adjust asset allocations away from deposit accounts into other investment channels. With the local gold price falling 22 per cent year-on-year, local investors have begun to turn their back on buying gold in favour of other assets such as property.
The residential market saw a sharp increase in new launches in Ho Chi Minh City, which represented rediscovered confidence in the market among some developers. Approximately 6,100 units were launched in the City, for a significant increase of 84 per cent y-o-y. Developers’ faith in the market was repaid after these new launches saw notable buyer activity, in both affordable and high-end developments. The year as a whole saw approximately 13,500 units sold in both Ho Chi Minh City and Hanoi; a 50 per cent increase over the same period last year.
Some developers offered very generous payment terms, even longer than initially expected. In the old days buyers had to pay during the construction period, but now when the building is finished they are given two to three years to complete payments. This makes purchasing more attractive as the cost to service a mortgage is still very high, with home loan interest rates at around 12 - 14 per cent.
Prices over the broader existing apartment for sale market fell some 30 per cent when compared to the peak in 2007 and prices have now reached levels deemed to be what the market feels is affordable. Specific projects that are either well located, have strong support from developers or are priced to meet buyer expectations are seeing higher sales volume.
In Hanoi, some developers have introduced bare-shell products to the market at new lower price levels, helping to improve sales performance significantly. Hanoi buyers are still, however, adopting a wait and see approach.
2013 in the south was best described as an investors market, who purchased with the idea of buying to rent, while in the north it was characterised as more of an end-user market.
On the commercial side, 2013 was a busy year for Ho Chi Minh City’s office market, with a number of significant office transactions being closed (25 per cent higher y-o-y) as tenants took advantage of what was seen as the market bottom. The recalibration in rentals has made the country’s office market comparable with regional peers and thus provided multinationals with genuine cost incentives to consider market entry, consolidation or even growth. In Hanoi the opposite was true: ample supply put occupiers in a relatively strong position to dictate leasing conditions.
The retail market continues to witness a mix of positive and negative news. Ho Chi Minh City retailers remain bullish on the market, wanting to grow their access to the strong demographics of the city. However, the headline numbers produced by CBRE in the latest quarter appeared to show a differing story for landlords, who witnessed tenants moving out and rentals softening. However, retailers did not actually shut down their business - they simply relocated, moving out of overpriced CBD retail centres to high-street shop houses in the centre or on the periphery, which offered more affordable rates and attract a larger footfall. These retailers were finding it increasingly difficult to justify the rentals charged by CBD malls, which are only slightly less than those in Bangkok, where foot traffic and spending power is significantly higher.
Looking to 2014, the residential market will continue to show gradual improvement as mortgage costs have now reached five-year lows while the government’s support package for the social and affordable housing market begins to feed through. However, market confidence remains low so the pick-up in transactions will occur gradually. Hence, in our outlook for next year we expect the recovery to gather pace only in the second half as macro-economic conditions improve while prices for real estate projects will take even longer to recover. The strategies being employed in the condominium sector in Ho Chi Minh City will be adopted in Hanoi when the market sees more projects being fitted out.
For the office market, because of limited new supply to be completed in Ho Chi Minh City in 2014, there is little reason to suggest any softening in rents and reason to believe some landlords’ positions may strengthen. Conversely, in Hanoi landlords still suffer fierce competition from a large amount of new supply, which will put downward pressure on rents in the market, especially for Grade B office space.