12:05 (GMT +7) - Friday 16/11/2018

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Property appeal ongoing

Released at: 14:23, 12/08/2018

Property appeal ongoing

Photo: VET Magazine

Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), tells VET of his forecasts for Vietnam's real estate market and the prospects for foreign investment in 2018 and 2019.

How would you comment on Vietnam’s real estate market at this point in time?

Firstly, the country’s economic growth hasn’t been too “heated”. The government has forecast GDP growth of 6.7 per cent this year while the World Bank has forecast about 6.8 per cent; a touch lower than the 6.81 per cent growth recorded last year. This means that it won’t be easy for local people to earn money via the real estate channel. People don’t tend to consider real estate as a safe channel of investment. 

Secondly, credit growth in 2017 was 18 per cent. The State Bank of Vietnam (SBV) has forecast growth of 17 per cent this year, while capping the lending rate at commercial banks at 45 per cent on medium- and long-term loans. Credit policy tends to be prudent and flexible without affecting overall credit. The SBV has defined real estate as a risky channel of investment and instructed banks to strictly control credit to the segment. It also agreed with our proposal to control consumer credit, including housing construction and repair. 

These two factors are key in stopping a real estate “bubble” from appearing but there are also other factors to consider. 

Thirdly, when looking at what people have in their pockets, if incomes rise substantially then the economy may overheat, leading to a real estate bubble. If wages are kept in check, there will no signs of a bubble. 

Fourthly, the imbalance between supply and demand in the high-end segment is narrowing while supply and demand in the condotel segment is gradually coming under control. Supply of apartment projects has been down about 10-20 per cent since the beginning of the year. The price of affordable apartments has fallen or remained unchanged in recent times. This is influenced by a land price fever creating an imbalance in the market, and supply in the apartment segment has also been affected. 
The decline in apartment supply, in theory, makes prices rise. But prices have fallen following the fire in the Carina Plaza apartment block in Ho Chi Minh City, as people are concerned about safety in apartment projects. 

Any other matters of importance?

The imbalance between supply and demand in the high-end segment is being bridged, while in condotels it has widened due to the hot growth seen in the past, and it’s also widened in land. But these factors can be controlled, such as land prices being cut, for example in special zones. There is a supply-demand imbalance but not in the mainstream segment of affordable housing.

Another factor is the increase of secondary investors in the land and condotel segments but not in the high-end and affordable segments. These first two segments do not cause a real estate bubble, and many secondary investors have been disappointed by the profit potential of condotels. 

Lastly is the role of State management and the use of tax tools. The Ministry of Finance recently proposed asset taxes as a solution to promoting a competitive and equitable real estate market. Though this plan has not yet been approved, its impact on the market has been positive. 

What segments have foreign investors focused on in recent years?

Foreign investors are mostly investing in the mid- to high-end segments. Some special investors, however, are focusing on the affordable segment, such as Japanese projects in the Mekong Delta’s Tra Vinh province and projects from Singapore’s National Housing in the central region. In Ho Chi Minh City, foreign investors are paying attention to the high-end segment, including housing, apartments, office space, and commercial space in Districts 1 and 3 and the Thu Thiem Urban Area in District 2.

Japan and South Korea dominate foreign investment in the real estate sector. Do you think there will be higher investment from the two countries in the future? 

FDI into real estate in Vietnam has been the second or third-highest in recent years, with Japan and South Korea leading the way. Japan became the No. 1 investor in the sector last year. In the first five months of this year, South Korea took over the top spot. But the gap between the two countries is negligible. 

Two other countries - Singapore and China - have been investing strongly in real estate. There are many Chinese groups investing in Vietnam recently, through merger and acquisitions (M&As).

What are the prospects for attracting continued foreign investment into Vietnam’s real estate sector in 2019?

The attractiveness of FDI in real estate will be good this year and into 2019, as Vietnam has recently hosted APEC 2017 and was invited to the G20 and G7 in Canada last month. While in Canada, Prime Minister Nguyen Xuan Phuc said there will an increase in FDI to Vietnam, including in real estate. Real estate should remain attractive for foreign investors, as international organizations have made positive assessments of the segment and the country’s economy remains a bright spot in FDI attraction.

Resolution No. 54, providing Ho Chi Minh City with specific mechanisms, will also facilitate FDI into real estate in the city, where administrative procedures are to be completed more swiftly. For example, projects on 10 ha or more previously had to make submissions to the national government but decisions now rest with city authorities. The city is also planning to develop smart cities and build innovative cities in its east. All of these things are positives in attracting foreign investment into the real estate market in the future.

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