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Steady foundations

Released at: 08:00, 28/01/2017

Steady foundations

Photo: Viet Tuan

Some segments did better than others in Vietnam’s real estate sector in 2016 but overall trends are positive.

by Hong Nhung & Ngoc Lan

It’s generally agreed that 2016 was a dynamic year for Vietnam’s real estate market. Mr. Nguyen Manh Ha, Deputy Chairman of the Vietnam National Real Estate Association (VNREA), told the “Prospects for the Real Estate Market in 2017 - Impact of Policy” conference held in Hanoi in late December that the country’s real estate market saw steady development in all segments during the year, with particularly strong growth in the high-end and luxury segments.

Healthy year

The property market picked up in number of units launched and sold, according to Mr. Stephen Wyatt, General Director of JLL Vietnam. There were 40,000 units launched across all segments in Ho Chi Minh City, an increase of 62 per cent year-on-year, and 35,000 units sold across all segments, up 45.5 per cent. In Hanoi, approximately 36,700 units were launched across all segments, an increase of 30 per cent year-on-year, and 33,600 units sold across all segments, 19 per cent higher.

New supply and sales in the condominium for sale market continued to be strong, with major developments by Vingroup, Son Kim Land, Novaland, Keppel, and Capitaland in Ho Chi Minh City, according to Ms. Nguyen Hoai An, Director of Research, Consulting and Asset Management Services at CBRE Vietnam. Hanoi, meanwhile, saw ground broken at new sites in prime locations such as Lieu Giai and Giang Vo Streets in the mid-town area and Tran Duy Hung Street in the west. 

According to a Savills Vietnam report on the third quarter, eleven new projects and the next phase of one active project were launched in the condominium for sale market in Ho Chi Minh City, supplying more than 4,600 units, down a significant 47 per cent quarter-on-quarter. There were approximately 40,300 available units across all grades. Sales reached 7,500 units, an increase of 7 per cent quarter-on-quarter and 43 per cent year-on-year. 

In Hanoi, total primary stock was 17,000 units, down 2 per cent quarter-on-quarter but up 16 per cent year-on-year. Thirteen projects with fresh launches and ten newly-launched projects supplied 5,700 units, down 6 per cent quarter-on-quarter. There were approximately 5,700 sales, a decline of 6 per cent quarter-on-quarter and 15 per cent year-on-year. 

According to Ms. An, the market also welcomed new players with major projects, such as Maeda in Ho Chi Minh City and the Sunshine Group and the Sun Group in Hanoi. Regarding second home developments, Da Nang, Nha Trang, and Phu Quoc Island continued to be hospitality hot spots. New supply and sales of condotels surged in Nha Trang and Da Nang. Ha Long city and Sapa have also emerged in the sector, with significant projects including FLC Ha Long and Sapa Jade Hill. 

Large property developers such as the BIM Group, the Sun Group, Vingroup, and the CEO Group also entered the race to develop luxury resort properties on Phu Quoc Island in 2016. Da Nang remains on the radar for foreign investors in the hospitality market due to its long, white-sand beaches and increasing international connectivity. The city has pioneered luxury coastal homes and is second behind Nha Trang in total available property, with 1,199 villas and 3,367 apartments, according to a recent report from Savills Vietnam.

Last year also saw more foreign players becoming involved in merger and acquisition (M&A) deals. Notable M&As included Low Keng Huat, a Singapore-based group, selling the Duxton Hotel Saigon in Ho Chi Minh City’s District 1 to New Life RE for approximately $49 million, the Kumho Asiana Plaza Complex in Ho Chi Minh City being sold to Singapore’s Mapletree Partner Investments Pte Ltd. by the Kumho Industrial Company Limited, and the sale of the Sofitel Legend Metropole Hanoi.

Real estate transactions

Source: Housing and Real Estate Market Management Agency

The supply of affordable apartments has continuously increased over the last few years in Hanoi and Ho Chi Minh City. In 2013 there were only some 4,200 units launched in Hanoi and 3,000 in Ho Chi Minh City. The figures tripled in 2015, with nearly 12,800 units launched in Hanoi and over 8,800 in Ho Chi Minh City. “The affordable sector is most likely to see higher growth than high-end or mid-end products,” said Mr. Wyatt. Government policies also gave the real estate market a boost in 2016. 

In the closing months of the year the real estate market has been especially dynamic in the affordable segment, with Vingroup planning to build 200,000 to 300,000 apartments under the VinCity name over the next five years at prices starting from VND700 million ($31,800). Figures from CBRE show that by the end of 2016 the affordable segment accounted for 26 per cent of total accumulated supply in Hanoi and 32 per cent in Ho Chi Minh City. 

The State Bank of Vietnam (SBV) issued Circular No. 06 during the year, replacing Circular No. 36 and aimed at tightening regulations on asset-liability management and real estate loans. The amendments show that the government has begun to look closely at the real estate market again as it does not want a recurrence of the difficulties experienced in 2007, when a property bubbled appeared and later burst. Circular No. 06, according to Mr. Le Hong Lien, Head of Institution Research at Maybank Kim Eng Securities, will indeed help to prevent this from happening again, while Mr. David Blackhall, Managing Director of Real Estate at VinaCapital, said the amendments are expected to be helpful in monitoring and controlling liquidity in the real estate market.

Future prospects 

Vietnam’s real estate market will continue to see stable development in all segments with abundant supply in 2017, according to a number of economic experts. “Stable development will continue in 2017, especially in the high-end and mid-end segments,” said Mr. Ha from VNREA. “The luxury segment will not be as vibrant as in 2016 and the affordable segment will see more opportunities to grow but will be affected by government policy.”

FDI in real estate

Source: General Statistics Office(GSO)

The supply of C-class apartments will witness a strong increase, according to Ms. Do Thu Hang, Director of Professional Services at Savills Hanoi. “There are 2.6 million workers in industrial areas, with 200,000 more each year, of which 75 per cent are immigrants, 75 per cent are under 35 years old, and the average income is $2,500 per year,” she said. “The affordable segment is suitable for this market.”

Mr. Tran Kim Chung, Deputy Director of the Central Institute for Economic Management (CIEM), said that prices in the primary market increased 5 to 7 per cent since the beginning of last year. Prices in the secondary market also rose between 10 and 15 per cent. Transactions slightly recovered in the second half after a pause in the first half. The apartment segment saw absorption rate rise sharply, to nearly 80 per cent. “This is the highest absorption rate for the last four years,” he said.

Tourism and resort real estate, meanwhile, will continue to grow strongly on the back of greater participation by investors and residents given the country’s tourism potential. Addressing the “Vietnam’s Real Estate Market 2016-2017: Overview and Forecast” conference held by batdongsan.com.vn in early December, Mr. Dang Hung Vo, former Deputy Minister of Natural Resources and Environment and now a real estate analyst, said he believes that hospitality real estate will continue to possess the greatest potential into 2017.

Mr. Anthony Couse, Asia Pacific CEO at JLL, also sees development in the retail and hospitality sectors. In August, Ho Chi Minh City welcomed Vietnam’s largest department store, Takashimaya, at the new 590,000 square foot Saigon Centre. Elsewhere, the Hoi An South Integrated Resort is currently being built, with the first phase to be completed in 2019, and Ha Long Bay received its first five-star property, Wyndham Legend Halong Bay, in June.

Many major hospitality projects were launched in 2016, accounting for 10 per cent of the total. Investment in the segment has become something of a trend and results in significant benefits for investors. Mr. Vo forecast that development in the segment will increase in many locations in 2017. However, space should only be allocated in areas that have potential in tourism.

Finance and banking expert Mr. Can Van Luc agrees that the segment currently has high demand, which should continue into 2017. Growth in foreign tourist arrivals is high, at 25 per cent, and Vietnam will host the Asia Pacific Economic Cooperation (APEC) summit in Da Nang this year, presenting further opportunities for the segment’s development. Experts have said that demand among buyers in the hospitality segment is higher than in residential. “Investing in the high-end real estate segment will shift to investing in the hospitality segment in 2017,” Mr. Vo believes.

A report from Cushman & Wakefield (C&W) states that in 2017 there will be nine more projects with nearly 229,300 sq m, some of which have been delayed by six to nine months compared to their initial schedule, including large-scale buildings such as HUD Tower, Discovery Complex Cau Giay, and Vicem Tower. In Ho Chi Minh City, nearly 180,000 sq m of new Grade B supply was expected to be completed in the final quarter of 2016.

Vietnam’s real estate market will witness a strong movement to segments with reasonable prices that meet actual demand, according to the year-end report on the real estate market in 2016 and forecasts for 2017 from the Ho Chi Minh City Real Estate Association (HoREA). This will contribute to dealing with the existing supply - demand imbalance, which now tends to lean towards the luxury housing segment, including hospitality property. “The domestic real estate market is unlikely to see a bubble in 2017,” the report stated.

Another report from JLL said that foreign investors will remain keen on Southeast Asia in 2017, especially Vietnam. Its figures show that foreign direct investment (FDI) capital in Vietnam’s real estate market increased 12 per cent year-on-year in 2016. It also believes the favorable conditions will continue, with GDP growth expected to reach 6 per cent.

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