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Tailored to demand

Released at: 04:28, 26/07/2014

Tailored to demand

Developers have continued to focus on the mid- to low-end housing segment this year, where potential buyers are more readily found.

by Hoang Thu

    Back in 2007 and 2008 the only thing occupying the minds of most real estate developers were high-end projects with modern designs and prices exceeding VND30 million ($1,430) per sq m. The same with buyers, who were mostly investors at that time, not owner-occupiers. The higher the price the more speculators stood to gain when reselling on the secondary market. Since the economic downturn in 2009, however, the situation has changed significantly. Owner-occupiers now account for the majority of buyers and have become smarter, more realistic and more cautious about criteria beyond design and price. According to a recent report from the Ministry of Construction, 120 of the 144 units launched at the Dang Xa apartment project in Hanoi’s Gia Lam district (at around VND14 million ($667) per sq m) were sold in the third quarter of 2013, with the remainder being sold within the following two months. “Similar sales rates can’t be expected at high-end projects at this point in time,” said Ms Ngo Huong Giang, Senior Manager of Research & Consultancy at Savills Hanoi.

    The local property market, especially in and around Hanoi, has seen major changes this year as developers try to tailor their housing products to actual housing demand. In the northern property market apartment projects at prices under VND20 million ($952) per sq m have received positive feedback from the market, with those ranging from 60 to 90 sq m at prices from VND800 million ($38,095) to VND1.4 billion ($66,667) per unit capturing the most attention. Market observers noted fewer high-end apartment projects being launched last year, while projects with sales prices starting at VND17 million ($809) per sq m were highly sought after. The reasons why many developers have shifted their projects towards the mid-end segment are there for all to see.

    According to Savills, of the low- to mid-end projects on sale recently, those gaining most attention possess some or all of the following features: standard construction quality and committed timetables, a reputable developer, flexible sales and pricing strategies, economic designs of small two- or three-bedroom units (50 - 70 sq m each), affordable prices, sound social infrastructure either within the project itself or nearby, and financial support policies.

    The market is indeed seeing a resurgence in activity in the low- and mid-end sectors, according to Ms Le Tuong Vi, Manager of Cushman & Wakefield Research & Consultancy. In Hanoi, for example, in the first quarter of this year Grade B and Grade C sales stood at 13 per cent and 18 per cent, respectively, of all stock, with positive sales seen in mid-end projects such as Lancaster, Royal City, Mulberry Lane, and Thang Long Number One. Buyers now prefer to see what they are buying before parting with any cash. Smaller apartments are also much more in vogue as they are much cheaper. As the market shies away from speculators to owner-occupiers on low to medium incomes, affordability is now the focus.

    Following market trends, foreign investors and developers have begun to join the affordable segment this year, building low-cost projects for middle-income earners rather than investing in luxury projects. Luxury property developer and fund management firm Indochina Land have started investing in reasonably-priced housing in Vietnam to capitalise on growing demand. Indochina Land and Vietnamese property developer Nam Long announced a 35/65 partnership in developing EHome 3 affordable housing project in Ho Chi Minh City’s Binh Tan district at the end of last year. For the first time, Malaysia’s leading construction and infrastructure group, Gamuda Land, will develop mid- to low-end apartments in Vietnam, which will be introduced to the market within the next few months. The apartments are located at Gamuda Gardens in Hanoi’s Hoang Mai district, which is quite far from the CBD. “At this time they are preparing the retail construction plan,” a source told VET.

    Commenting on the success of affordable apartment projects, especially those located away from the city centre, industry insiders say that the developer’s reputation and the project’s affordability are the two critical factors. Land price is one of the major costs developers incur when developing projects, so moving further away from the city centre means land costs are much lower, resulting in lower apartment prices. The affordability ratio (the ratio between earnings and house prices) is still very high in Vietnam, so these projects enable people to gain a foothold on the housing ladder that would elude them in an inner-city project.

    While it’s certainly convenient to live close to the CBD it’s far from the only consideration. “If there are good road or rail links that enable people to commute within a reasonable time then such projects should be very successful,” Ms Vi said. As pollution and traffic increases, people also begin to prefer to live outside of the city centre or even out of town altogether. And as investment in manufacturing, retail and office parks outside of cities continues to grow, population shifts are inevitable. What is important to buyers is the distance from their home to their workplace, their parent’s home, and schools, etc. “Savills is confident about the success of projects located far away from city centres with reputable developers and affordable prices,” said Ms Giang.

    The mid- to low-end commercial apartment segment is in competition with social housing projects, and although it’s not always direct competition cross impacts are certain. Vietnam needs domestic and international assistance to carry out its housing plan for low-income earners to improve their living conditions, Minister of Construction Trinh Dinh Dung told a seminar in Hanoi in March. A number of legal documents have been issued to implement guidelines and mobilise resources for the development of social housing. Apartments in social housing projects normally have unit prices of around $40,000 and below, attracting a substantial pool of potential buyers.

    But the number of social housing projects in operation remains insignificant and those under construction are experiencing slow progress. With the market continuing to struggle, social housing has lost some of its advantages as a lot of commercial housing projects have been providing incentive packages to attract customers. Competition between social housing projects and commercial developments will therefore be in terms of design, landscaping, apartment layout, furniture, quality, services, incentives and, in particular, price. Insiders say that this will drive prices downward, with buyers being the direct beneficiaries.

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