Mr. Marc Townsend, Managing Director of CBRE Vietnam, talks to VET about the performance of the residential market in 2015 and his forecasts for 2016.
■ What are your thoughts on the health of the high-end, mid-end, and low-end segments in the residential market in 2015?
Since mid-2014 Vietnam’s residential market has been recovering, firstly in the affordable segment. Entering 2015 the picture has become much clearer and we can confirm that the condominium market is on a firm path towards recovery.
This was proven by take-up levels. Quarter 2, 2015 marked a new record in quarterly absorption, with over 10,000 units sold in both new and previous launches. For the first nine months of this year condominium sales were close to the whole-year peak seen in 2009 in Hanoi while in Ho Chi Minh City it marked a new record with nearly 25,000 units being sold.
Interestingly, the majority of successful transactions have rippled from the affordable segment during 2012-2013 to the high-end segment more recently.
Even though it is still early to talk about capital gains again in Vietnam, 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. Compared to net yields of 2 to 3 per cent in Singapore and 4 to 6 per cent in Bangkok, this is very attractive.
The availability of a ready pool of tenants in these districts, especially near international schools, also helps investors quickly fill up their vacant apartments.
Contributing to its success is a combination of infrastructure development, controlled inflation and interest rates, strong FDI inflows, agreement reached over the TPP, an expanding home loan and mortgage market, the stimulus package for affordable housing, and an improving legal environment.
For the first time we really see some progress being made in infrastructure, with the first metro line in Ho Chi Minh City and two metro lines in Hanoi. Inflation has a hit a ten-year low.
Developers have begun to look not just at 110-130 sq m units but are now developing 50, 60, and 70 sq m units, and working with banks to provide mortgages and home loans to potential buyers.
The pyramid of ownership was very steep but is now wider. Investors, either as individuals, private equity, or funds are very excited. With the new Law on Housing and Law on Real Estate Business there is a huge level of maturity now compared to ten years ago.
■ 2015 marked two important pieces of legislation coming into effect. What are your thoughts on the impact of these on the real estate market?
The new Law on Housing and the Law on Real Estate Business are expected to be significant and will mark an important step towards opening up Vietnam’s real estate market to overseas investment. This will be important not only for the real estate business but also for other sectors, as the government has also agreed to ease restrictions on foreign stakeholders in listed Vietnamese enterprises.
The new Law on Housing makes it easier for foreign individuals and firms to buy and own real estate.
There will no longer be limits on foreign participation, except where these are imposed by companies themselves or in sectors governed by separate laws and the banking sector.
The amended Law on Real Estate Business permits foreign entities and individuals to purchase built facilities for use as a head office, working office, or production/business/service undertakings in conformity with their functions. Foreign-invested enterprises may also lease constructed facilities.
While we notice there has been notable interest from foreigners who live and work in Vietnam, there have been very limited sales to offshore foreigners to date. In contrast to local buyers, who are very familiar with the market, when foreigners buy homes they ask many questions about the administrative process, potential capital gains, and rental yields. They look far into the future and are concerned about any potential implications or problems relating to selling their assets when the time comes.
Many potential buyers are still waiting for more guidance and progress in implementation. Being an agent targeting this group of buyers, we have 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, as some of them find this 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.
■ What are your comments on FDI to Vietnam’s real estate market in 2015 and M&As in the sector during the year?
A long-awaited and unprecedented change to Vietnam’s foreign ownership regulations, which came into force on July 1, has revived a flagging investment outlook. The relaxation of foreign ownership restrictions is more significant than previously anticipated and marks a strong step towards the opening up of Vietnam’s real estate market to overseas investment.
Ho Chi Minh City has received good news with the recent high levels of FDI inflows. Notably, the Thu Thiem New Urban Area has received two major investments: $1.2 billion from Empire City LLC for the Empire City Complex project, and $88.9 million from the Lotte Group in the Thu Thiem Smart Complex, which is worth about $2 billion in total.
Foreign investment activities continued to grow strongly. Significant deals include Chow Tai Fook of Hong Kong, which bought a $4 billion controlling stake in the Hoi An casino resort while another Hong Kong-based private equity firm, Gaw Capital Partners, acquired four projects in Hanoi, Da Nang, Quang Nam, and Ho Chi Minh City from Indochina Land.
In short, Ho Chi Minh City’s real estate market remains stable in this quarter and the upward trend of FDI and M&A is expected to continue for the foreseeable future.
■ What are your forecasts for the real estate market in 2016?
We hold a very positive view for 2016 with a hope that inflation and interest rates will continue to be under control and that new legislation will begin to show results after one year in place.
More and more foreign investors will come to Vietnam. Foreign investors love the size of the population, the rising affordability, and the rapid urbanization rate in the two big cities of Ho Chi Minh City and Hanoi.
The recent TPP deal will spur more investment into Vietnam, especially from countries that are big importers of Vietnam like the US and Japan. Manufacturers from other countries will certainly consider switching from non-TPP countries like China, Thailand, Cambodia, Indonesia, and India to Vietnam to enjoy extra-low tariffs. This will lead to more demand for industrial land, warehouses, and factories.
Demand for international-standard office space will also increase following the rise in foreign investment and growing demand among companies to set up in Vietnam.
Given the limited supply of high quality space in both Hanoi and Ho Chi Minh City, future office developers may want to take a second look at their development plans to speed up the office development process.
The anticipated growth of foreign companies coming to Vietnam also means higher demand for serviced apartments, apartments for lease, and even apartments for sale. Following the Law on Housing, more and more foreign buyers will be encouraged to own an apartment in Vietnam instead of leasing, especially when the housing price in Vietnam is considerably lower than in regional countries.