Opinions are mixed over whether the real estate market is exhibiting signs of overheating after only recently entering a period of recovery.
After experiencing five difficult years in succession, Vietnam’s real estate market, which has been slowly recovering since 2014, has truly bounced back in the opening months of 2015. While developments in or around the inner cities of Hanoi and Ho Chi Minh City are seeing a steady rise in value, the active involvement of investors, including speculators, are pushing prices higher than levels some consider sound. Along with a strong supply in the pipeline and rapid sales growth, there are already concerns about the market overheating.
In the first three months, on average, primary prices in the high-end and low-end segments in Hanoi increased 7 per cent and 5 per cent, respectively, year-on-year, according to the latest CBRE quarterly report. On the resale front, average market prices have improved both year-on-year and quarter-on-quarter. Of the four segments, luxury and high-end resale prices surged quarter-on-quarter by 3.2 per cent and 5.8 per cent, respectively.
Price increases have not been seen across the board, according to Ms. Nguyen Hoai An, Senior Manager at CBRE Vietnam. They have only been witnessed at certain developments of reputable developers and with good infrastructure and been in incremental steps rather than in a sharp surge. “There are certain projects in the affordable segment that really drew a good crowd of buyers, presenting developers with the opportunity to increase their prices,” she said.
Certain high-end apartment projects also managed to increase their prices in the later sale phases, as these phases benefit from previously developed facilities and a relatively established residential community.
Ho Chi Minh City saw a similar situation, with some projects also increasing their prices, such as Lexington Residence, Galaxy 9, Soho Riverview, Vinhome Central Park, and Hyco 4 Tower, according to Cushman & Wakefield (C&W) Vietnam.
As in Hanoi, price increases occur when a developer releases the first phase of a scheme and is met with more positive response from the market than anticipated. “They therefore raise the price in the second phase to capitalize on this demand,” said Mr. Jonathan Tizzard, Director of Research & Valuation at C&W Vietnam.
When buying an apartment, purchasers enter into negotiations and the final price paid can be discounted or paid in instalments. There can be other incentives as well, including a rent guarantee if the apartment is bought for investment purposes and the provision of preferential interest rates on financing. “To accurately state that ‘the price has increased’, we need to take into account these extra ‘perks’, which in reality are an alternative to reducing the price or keeping it the same,” Mr. Tizzard explained. If developers remove these incentives but increase the price, the actual net price may very well remain the same. “The real estate market is similar to other markets in the respect that marketing and people’s perceptions of the product are very important,” he added.
Concerns of overheating
Strong improvements in buyer confidence are reflected by high sales, even at projects that had large off-contract premiums. Sales events were well attended and some projects had good pre sales before the official launch event. There were about 3,950 successful transactions in Hanoi and Ho Chi Minh City in the first three months of the year; a three-fold increase compared with the same period last year, according to Ministry of Construction figures.
Responding to whether real estate investors and transaction floors had come together to push up housing prices, Mr. Tran Ngoc Quang, General Secretary of Vietnam Real Estate Association, said that increases were considered normal after a long period of idleness. The property market has seen strong recovery, with the number of successful transactions significantly increasing recently. The number of newly-established property companies rose by 89 per cent, to 13,766, in the first two months of this year. The property sector also ranked second in attracting foreign direct investment in the first two months. “We need to prevent transaction floors deliberately pushing property prices to ‘sky-high’ levels,” he added. “This ensures the healthy development of the real estate market.”
The State Bank of Vietnam certainly appears to have learned the lessons of 2008 and 2009, where too much credit was provided to the real estate market and the resulting bubble ended in a long, drawn out crash. But, “we are not expecting a property bubble to be an issue in the short to medium term,” Mr. Tizzard said.
There may potentially be an issue in overbuilding in certain developing areas of both cities, however, where supply is released at a quicker pace than what the market can absorb. Savills Vietnam said that between now and 2016 Hanoi will see more than 14,200 new units from 25 projects. Approximately 29 per cent of total future supply is expected to be completed in 2015 and 2016. In the next three years, meanwhile, approximately 70,100 units from 102 existing and future projects are expected enter the Ho Chi Minh City market.