Vietnam's real estate market was on the recovery trail in 2014 with steady growth recorded and residential properties seem likely to be the most promising sector in the years to come.
After a three-year “freeze”, Vietnam’s real estate market has begun to once again attract interest from foreign investors. With an increase in foreign direct investment (FDI) capital in recent times, investment confidence has also improved in all sectors. Last year total transaction volumes increased substantially in the residential sector compared with 2013. According to Savills Vietnam, apartment transactions in 2014 increased by as much as 30 per cent year-on-year and were evidence of increased confidence among buyers, who have been cautious since the financial crisis first took hold.
Signs of recovery
Many residential projects entered the market in 2014, particularly apartments. According to the Ministry of Construction, about VND293 trillion ($13.7 billion) in investment was poured into the real estate market in the first three quarters of 2014, up 12 per cent compared to the same period of 2013. Business Monitor International also found that FDI into the real estate market grew to almost $10 billion in the first half of the year, making it one of the largest recipients of foreign capital in Southeast Asia. Various factors have combined to trigger interest among overseas developers and investors.
Investment capital in Vietnam’s real estate market continues to increase sharply. Many major foreign investors have promoted high-value trading and merger and acquisitions (M&A), especially investors from South Korea, Japan and Singapore. According to a CBRE Vietnam report, the office market in Q3 2014 continued to see improvements in average leasing prices. In hotels, the number of both foreign and local tourists was on an upward trend, causing investors to promote investments in hotels in central areas of major cities or resorts by the seaside. Even so, Mr. Marc Townsend, Managing Director of CBRE Vietnam, said that foreign investors remain cautious when investing in Vietnam as they only do things step-by-step and have long-term plans.
According to Deputy Minister of Construction Nguyen Tran Nam there were almost 1,000 successful real estate transactions in Hanoi in the first eleven months of 2014, a 200 per cent increase against 2013. Meanwhile, the number of successful real estate transactions in Ho Chi Minh City reached 8,850 during the first eleven months, up 135 per cent compared to the same period of 2013. “Housing prices have generally been in conformity with purchasing power,” the Deputy Minister told a conference on property trading held in Hanoi in mid-December. “Vietnam is not listed among the Top 20 most expensive places to buy property in the world.”
Savills Vietnam noted that, in the third quarter, Hanoi’s residential property price index was 102.7, a 2.4 point quarter-on-quarter (QoQ) increase and a slight 0.6 point year-on-year (YoY) increase. The quarter, it said, witnessed a significant rise that can be considered a positive signal from the market. The inventory ratio declined sharply, by 24 percentage points QoQ and 26 percentage points YoY, because of the entire market’s strong performance. The absorption rate in Hanoi was 38 per cent, a 15-percentage point QoQ increase.
The average price in the third quarter was approximately VND25.2 million ($1,180) per square meter, a 2 per cent QoQ increase. In Ho Chi Minh City the residential index was 89.5, the same as the previous quarter and a 0.7-point YoY increase. The overall absorption rate was 19 per cent, a two percentage point increase QoQ and a seven percentage point increase YoY. Approximately 3,280 units were sold, a 29 per cent QoQ increase and 85-per cent YoY increase, representing the highest transaction volume since the fourth quarter of 2010.
Mr. Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, said that high-end apartments are still attractive enough to buyers. Recently, Vingroup saw more than 800 buyers visit the launch of their Vinhomes Nguyen Chi Thanh project, with more than 250 buying apartments, which cost from VND60 to 65 million ($2,800 to $3,080) per square meter. Sales at the Tan Hoang Minh Group’s D’. Le Pont D’or project have also seen improvements. Reasons liquidity in the high-end apartment market improved were the huge stockpile of real estate and developers excluding high-end projects from their portfolios.
According to real estate experts, while the situation has become more positive, further efforts are required to deal with the inherent instability in the market. In 2014 promotions became a gateway for prospective buyers to get to know and become aware of a new project when it was being launched on the market. “This is the initial stage of project advertisement, especially for projects that are still in the construction process,” said Mr. Nguyen Khanh Toan, Head of Ho Chi Minh City Research at Savills Vietnam. “This activity is particularly helpful in the current market conditions, with financial sensitivities that largely affect property buyers’ sentiment. It is expected that a number of attractive financial incentives are also being offered, such as extended payment methods and small divided payments, in most residential projects.”
Prospects in 2015
Industry insiders said that residential properties will definitely be the most promising sector in the coming years, especially with new regulations on house ownership for foreigners being approved in November. “It is expected that when foreign property rights take effect on January 1 it will help to leverage demand in the residential sector,” said Mr. Toan. “Furthermore, strong and consecutive growth in residential transactions during recent quarters has resulted in positive prospects for the segment in 2015.” Projects that are being completed have the potential to increase prices but investors who have entered the market for a short period of time will be careful in increasing their prices as demand remains lower than supply. Prices are therefore expected to remain stable.
Under amendments to housing regulations, foreigners now have an enforceable title, which will open up a far deeper purchaser pool. Importantly, the amendments help Vietnam property market become more competitive in the region. Vietnam’s rapidly changing legal landscape is creating greater business certainty and a healthier and more competitive financial environment. The housing amendment was met with an optimistic response among the general public and boosted the degree of contentment among current and prospective foreigners residing in Vietnam. Furthermore, domestic economic stability along with strong flow of FDI will help to strengthen the property market in all sectors.
The market continues to see residential development projects changing hands, including in the apartment sector, the landed property sector, and township projects. Investors also have a strong appetite for operating assets with stable yields and lower risks. The interest of Japanese and South Korean investors, who have accounted for the majority of M&A activities in the last two years, is expected to remain strong. There is also growing demand from Singaporean and Taiwanese groups for both residential and commercial office buildings so there will be continued activity in these sectors in 2015. “Thorough property market research is definitely a critical activity that we would recommend for every property developer entering a competitive property market like Vietnam, whether in residential, commercial, or retail,” said Mr. Toan.
- Year in review