Cushman & Wakefield Vietnam review the residential market in Hanoi and Ho Chi Minh City.
Ho Chi Minh City
The last quarter of 2014 registered a wave of new supply across all grades, up significantly by 38 per cent quarter-on-quarter and 46 per cent year-on-year in terms of primary supply. Fourth quarter 2014 saw 459 Grade B units and 696 Grade C units from six active projects, while a further 1,812 Grade A units, 2,356 Grade B units, and 3,007 Grade C units from 20 new projects were also launched. Grade C remained the core product, accounting for 43 per cent of total stock, with 42 per cent of total primary stock being in Districts 2 and 7.
The residential market, which has been depressed for several years, is exhibiting some strong signs of recovery, with absorption rates across all grades in the fourth quarter registering the highest transaction volumes compared to other low periods. Grade A projects registered a 38 per cent absorption rate and Grade B 39 per cent, while Grade C was the highest, at 52 per cent. The Grade C segment remains the most active sector, accounting for more than 50 per cent of total transaction volumes during the quarter. Grade A is the only segment that seems to be still mired in a downward price trend, while the Grade B and Grade C segments saw significant improvements. However, most of the increases/decreases in price were due to lower/higher prices offered by new projects launched in the quarter.
Affordable apartments sizing from 40-70 square meters in the price range of VND15-18 million ($714-857) per square meter should continue to be the most sought after and this market sector is expected to be the most active going forward. Notably, there is no future supply located in the city center due to limited supply of development sites and permission to build residential being difficult to obtain. Therefore, future supply will be in non-CDB areas that still offer easy access to the city center, such as District 2, District 4, District 7 and Binh Thanh district. In particular, projects located along the first urban railway line will attract more buyers and investors. Some suburban districts, such as Districts 8, 9, and 12 and Binh Tan district, with an abundant stock of affordable apartments, sufficient land funds for project developments, and upgraded infrastructure, are also attracting developers and low-income earners.
The amended Law on Housing, to take effect in July and permit foreigners to own commercial properties in Vietnam, will help to strengthen demand, especially in mid to high-end projects.
Fourth quarter 2014 witnessed strong launch activities across all grades: one new Grade A project launched 378 units, two existing Grade B projects continued selling new apartments, and new Grade C projects offered up to 3,900 apartment units. Reopening and relaunching activities at existing projects were also prevalent, in order to keep projects in the minds of potential buyers. Grade C accounted for the greatest market share (61 per cent of total primary supply), followed by Grade B (34 per cent) and Grade A (5 per cent). The total primary supply in this quarter was more than 15,600 units.
The fourth quarter also recorded a better sales performance across all grades. This could be explained by certain factors, such as the market at the end of the year being traditionally at its most active as well as the concerted efforts of developers in regard to construction progress, a wide range of promotions and the rental guarantee program applied in mid and high-end projects. In addition, low-end apartment projects in the quarter also offered more value-add to attract buyers (building more kindergartens or schools and public areas, setting up free hot water systems in their projects).
The limited supply of existing Grade A projects and the relatively good sales performance of newly-launched Grade A projects contributed to the high absorption rate of 50 per cent in the quarter. The Grade B and C sectors also showed a positive absorption rate of 19 per cent and 21 per cent, respectively, in the quarter.
The Grade A average asking price increased slightly, by 1.3 per cent to VND61 million ($2,852) per square meter, due to limited Grade A supply. Grade B also showed an increase in asking price, by 0.5 per cent to around VND36.8 million ($1,720) per square meter. Grade C recorded the most stable average asking price compared to the previous quarter, of VND18.4 million ($860) per square meter (all prices include VAT).
Low-end apartments will continue to be the most sought after and the market sector is expected to be the most liquid going forward. However, demand for mid and high-end apartments is expected to increase as investors continue to return to the market. With new points added to the Law on Housing and reasonable interest rates supporting buyers, the apartment market will continue to improve this year. The new law, relaxing foreign ownership restrictions, may not have an immediate impact but should attract a number of foreign investors to Vietnam as well as help to improve market liquidity.
- Cushman & Wakefield