Luxury and high-end projects are rebounding as the real estate market well and truly enters a period of recovery.
After a period of inactivity the high end apartment market is showing rapid signs of recovery with the rebound of many projects. Among others, luxury and high-end project developer the Tan Hoang Minh Group began construction of D’.LeRoi Soleil on the corner of Xuan Dieu and Dang Thai Mai Streets in Hanoi’s Tay Ho district, with sales of 498 opening on July 4 apartments after many years of delay. “D’.LeRoi Soleil has already received 230 registrations for purchasing apartments,” Mr. Tran Nhu Trung, Deputy Managing Director of Tan Hoang Minh, told VET. “Its extremely favorable location is one of the major reasons behind the project’s attraction for homebuyers and investors.”
With three sides overlooking West Lake and one looking out to the Red River, this is the only high-rise project in the area to offer apartments for sale with a permanent red book. “Among customers registering to buy our apartments are many from Malaysia and Singapore”, Mr. Trung said. The delay in the project, he went on, had nothing to do with the financial capacity of the developer but with changes to Hanoi’s zoning under the revised Hanoi Master Plan. Its apartments boast luxurious and elegant interiors and are priced from VND70 million ($3,210) to VND97 million ($4,445) per sq m.
The West Lake Real Estate Development JSC previously opened sales of high-end apartments in its Watermark project on Lac Long Quan Street in Tay Ho district. The majority of apartments have already sold out, at prices starting from VND50 million ($2,290) per sq m, according to the developer. The share of transactions for high-end apartments is increasing in Hanoi, according to a recent CBRE Vietnam report. In the first six months of this year high-end apartment transactions accounted for 22 per cent of total sales, compared to 6 per cent in the same period of 2013 and 18 per cent in 2014. At the same time, the share of the affordable segment, which used to dominate the market, fell to 26 per cent in the first half of 2015 from 49 per cent in 2013 and 33 per cent in 2014.
A similar situation is being seen in Ho Chi Minh City, with the market having its second-highest number of high-end launches in a single quarter (around 4,500 units) in the second quarter, mostly driven by projects in the city’s east, such as Estella Heights (the second phase of The Estella), Tower 2 of The Sun Avenue, The Krista (the second phase of PARCSpring), Vista Verde - the Lotus Tower, Gateway Thao Dien, Sarimi in Sala Thu Thiem Town, and The Landmark 1, 2, 4, 5 of Vinhomes Central Park.
The positive signs for high-end apartments in recent months will continue with new regulations coming into being. The impact of two long-awaited pieces of legislation - the new Law on Housing and the Law on Real Estate Business - effective from July 1, is expected to be significant and will mark an important step towards opening up Vietnam’s real estate market to overseas investment. The change allowing foreigners to own houses is one of the most important factors in creating the new buzz, according to Mr. Jonathan Tizzard, National Head of Valuation & Research at Cushman & Wakefield Vietnam. “The number of foreign homebuyers will account for 20 per cent of total customers buying high-end apartments,” he predicted.
The impact of the new regulation expanding the right of home ownership to foreigners on high-end projects was confirmed at an event held on July 1 exclusively for foreigners, introducing the Vinhomes Central Park project developed by Vingroup in Ho Chi Minh City. Despite being announced only four days earlier the event attracted strong interest, with 112 apartments being sold within just two hours. But at high-end projects developed by CapitaLand Vietnam, such as The Vista and Vista Verde in Ho Chi Minh City’s District 2, foreign buyers accounted for only around 10 per cent of customers, according to Mr. Lim Hua Tiong, General Manager of CapitaLand in the south of Vietnam. “I don’t think foreigners will buy housing en-masse, because the rental yield is very low,” he told local media. “According to my experience, they target the high-end sector.”
Buy-to-lease is a very popular trend nowadays. There are an increasing number of investors and speculators pouring money into high-end projects as long-term investments, as the property market has emerged as a more attractive investment channel compared to bank deposits, the stock market, and gold. “Property in Ho Chi Minh City is more attractive than other markets, including Hong Kong and Singapore, in the eyes of investors due to the lower purchase price and a rate of return on rental property ranging from 5-7 per cent,” said Ms. Nguyen Hoai An, Associate Director of Research & Consulting at CBRE Vietnam.
Bank loans with preferential interest rates for property developers and homebuyers are also contributing to the popularity of luxury and high-end real estate products. There have been concerns expressed, however, over the reappearance of a property bubble, as the amount of credit being poured into real estate increased nearly 11 per cent in the first five months of this year, or double the credit growth in the entire economy, Minister of Planning and Investment Bui Quang Vinh told an interdisciplinary meeting summarizing the country’s economy in the first half. “If credit continues to be poured into the property market, bad debts may increase,” he said. “So there should be more caution exercised in managing credit to the sector.”
The last property bubble burst in early 2008 after prices jumped off the charts in large cities, fueled by high economic growth, a dire shortage of housing, and weak government management, all of which gave rise to speculation. In the 2011-2013 period the real estate market was frozen and there were few speculators. “Some degree of speculation is inevitable as the market warms up with higher transaction numbers,” Minister of Construction Trinh Dinh Dung said. “The market must therefore be controlled to prevent a bubble from reappearing.”
On the resale front in Hanoi, average market prices in the second quarter increased 2.4 per cent year-on-year. The high-end price surged 5.6 per cent year-on-year., according to CBRE. Most high-end projects in Ho Chi Minh City also increased their asking prices in later phases or launches, pushing the high-end primary price up by 3.2 per cent quarter-on-quarter to $1,781 per sq m. Speculators, however, also appear to be more careful, recalling the bitters days of the city’s real estate market in the past. The current performance in the real estate market is unlikely to mirror 2007 and 2008, when buyers were queuing up to buy units and re-selling almost overnight, according to insiders.
The race for developing high-end projects is now a game between large enterprises with strong financial resources, as the reputation of investors has become one of the prerequisites for customers when buying an apartment. It is also not easy for high-end project developers to be successful, as homebuyers are now more rigorous in considering apartments to buy in the segment, according to Ms. Pham Thi Minh Hieu, Executive Director of TNR Holdings Vietnam Ho Chi Minh City Branch.
To win more customers, high-end projects must meet a range of criteria, including convenient location, modern facilities, large green spaces, splendid views, and competitive prices. According to Mr. Trung from Tan Hoang Minh, each housing segment being targeted to specific groups of customers and developers is creating products that buyers are satisfied with. “We received feedback from many customers saying they were willing to pay for our products as long as we meet our commitment to creating truly five-star products,” he said. The group now also plans to promote D’.Palais de Louis in Nguyen Van Huyen Street in Hanoi’s Cau Giay district, which once had a price tag of more than VND100 million ($4,585) per sq m, with model apartments expected to be introduced in September.