The recovery being experienced in Vietnam's residential real estate will only continue in 2016.
The residential market across Vietnam has performed well this year. “We have witnessed strong growth in both demand and supply in the apartment sector,” said Mr. Neil MacGregor, Managing Director of Savills Vietnam. Many projects entering the market in 2015 have achieved high absorption rates, especially when they are developed in strategic locations by credible developers, such as Riviera Point in District 7, Ho Chi Minh City, Watermark in Cau Giay district, Hanoi, and most recently The Nassim in District 2 and City Garden Phase 2 in Binh Thanh district, Ho Chi Minh City. The villa and townhouse segment has also seen strong growth and sales performance, according to Savills. Dai Phuoc Lotus in southern Dong Nai province, Villa Park in District 9, Ho Chi Minh City, and The Point in Da Nang are outstanding examples.
For the first nine months of this year the condominium sales volume was close to the whole-year peak seen in 2009 in Hanoi while in Ho Chi Minh City it reached a new record, with nearly 25,000 units sold in the period, according to a CBRE report.
Interestingly, the high-end segment has taken over from the affordable segment in terms of successful transaction numbers.
“Even though it is still early to talk about capital gains in Vietnam again, investors can enjoy a gross rental yield of 6-8 per cent at some high-end projects in District 2 and District 7 in Ho Chi Minh City,” Mr. Marc Townsend, Managing Director of CBRE said. The availability of a ready pool of tenants in these districts, especially for projects near international schools, also helps investors quickly sell their apartments.
The key drivers in Vietnam’s property market in 2015 have been the economic recovery, controlled inflation and interest rates, rapidly improving infrastructure, the stimulus package to fund affordable housing, and a more supportive legal framework, according to industry insiders.
In particular, the new Law on Housing and Law on Real Estate Business, which came into effect on July 1, were significant and important steps towards opening up Vietnam’s real estate market to overseas investment. The Amended Law on Housing has created favorable conditions for foreigners to own properties in Vietnam. “More developers are now considering sales and marketing plans to attract this group of target buyers,” said Mr. MacGregor. The new Law represents a significant step in foreigners securing properties Vietnam and further guidance has recently been issued by authorities. The new Land Law has also clarified a number of issues, providing real estate investors with much-needed confidence.
While there has been notable interest from foreigners who live and work in Vietnam, there have been very limited sales to offshore foreigners to date, Mr. Townsend said. In contrast to local buyers, who are familiar with the market, when foreigners buy homes they have many questions about the administrative process, potential capital gains, and rental yields. They look far into the future, he said, and are concerned about any potential implications or problems related to selling their assets when the time comes.
Many potential buyers are still waiting for more guidance and progress in implementation. As an agent targeting this group of buyers, CBRE has observed that professionalism, language proficiency, and ease of credit card payments are some of the key concerns. Last but not least, offshore buyers are still looking at how to get money in and out of Vietnam, which can be difficult. “Until all of these issues are addressed we believe it may take several years to see a number of foreign buyers actually buying into the market,” Mr. Townsend confirmed.
Foreign direct investment (FDI) in real estate has increased strongly since the early months of this year. This appears to show that foreign investors long believed the TPP would conclude this year, Mr. Nguyen Manh Ha, Chairman of Phu Quy Land Company, was quoted as saying. Vietnam’s property market attracted $1.81 billion in FDI to 19 new projects in the first nine months and seven existing projects increased their registered capital, according to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI).
Among others, real estate investors and insiders have high expectations over the potential of Vietnam’s real estate market in all segments given the imminent TPP and ASEAN Economic Community (AEC). “The partnerships will have a significant and positive impact on Vietnam’s real estate market,” according to Mr. David Blackhall, Managing Director of VinaCapital Real Estate. “While the TPP’s impact is likely to be seen over the medium to long term, the AEC should impact the industrial sectors of member countries almost immediately, with some positive impacts expected to be seen in the local office and retail markets.”
The two agreements may well trigger a healthy rise in the industrial market, which in turn will bolster the growth in office demand as more multinational corporations (MNCs) enter the market and more small and medium-sized enterprises (SMEs) expand in the country. Personal wealth and living standards should increase markedly, which will have massive implications for the real estate market in general, as people save more and look to invest. One of the main outlets for this investment would be the real estate market, especially condominiums for sale, according to one insider.
While there is still a long process before the full benefits of the trade agreements are seen, it is a great time for real estate investors to prepare for the anticipated increase in demand, according to Mr. MacGregor. Vietnam is emerging from the bottom of the real estate market cycle and the time is right to secure development projects and begin construction. “It is important that projects are built to international standards to appeal to this renewed influx of foreign demand, while the government needs to continue the focus on investment in infrastructure to maximize the opportunities,” he added.
“We hold a very positive view for 2016, with a hope that inflation and interest rates will continue to be under control and new legislation will start showing initial results after being in place for one year. More and more foreign investors will come to Vietnam at both the entity and individual level. Foreign investors love the size of the population, rising affordability, and rapid urbanization in the two major cities of Ho Chi Minh City and Hanoi.”
Mr. Marc Townsend, Managing Director of CBRE Vietnam
“We remain very positive about the residential market across Vietnam over the next 6-12 months. We’re also seeing more demand from real buyers and less speculation in the residential market, particularly in Ho Chi Minh City. We expect price increases to remain moderate given the large volumes of supply. With the effect of the amended housing law we anticipate an increased level of inquiries from foreigners looking to buy properties in Vietnam in the months to come.”
Mr. Neil MacGregor, Managing Director of Savills Vietnam
“The performance of office for lease in 2016 will be more driven by supply. There is a shortage in Ho Chi Minh City and too much in Hanoi, so different trajectories in rents will continue. Building-by-building, quality will be the key factor in 2016, not only in construction but also management and operation. The bigger multinationals become the more demanding they are in terms of building performance, service and quality, as are their best staff.”
Mr. Alex Crane, General Manager of C&W Vietnam