Photo: Viet Tuan
Demand for affordable apartments makes it a segment of great potential for developers but sustainable, long-term investments are required.
Vietnam’s real estate market was stirred by news in the final days of 2016 that the high-end property developer Vingroup plans to build around 300,000 affordable apartments over the next five years, at prices starting from only VND700 million ($31,000). Mr. Nguyen Trung Kien, a 34-year-old who works at the Quang Minh Industrial Zone in Hanoi, was happy to hear the news as he has long dreamt of owning his own apartment after renting for 15 years. His family’s income is about $800 a month and he is now considering the different options in affordable apartments from major groups that will introduce products in the year to come.
Vingroup’s VinCity affordable housing project has prices ranging from VND13 million ($580) to VND19 million ($850) per sq m and areas from 35 to 90 sq m and are set aside for households with monthly incomes of around VND20 million ($900). “VinCity is not social housing, but rather a housing development for low- and middle-income earners,” said Mr. Le Khac Hiep, Deputy Chairman of Vingroup. “Prices are reasonable and suitable to those earning low incomes like me,” Mr. Kien said.
High demand, low supply
The local property market has seen a wave of leading developers expand into the affordable housing segment over recent months, which were in low supply until the government took steps to promote investment. Prime Minister Nguyen Xuan Phuc encouraged enterprises to continue investing in affordable housing at a national conference held in Hanoi in early December.
Speaking at the “Vietnam’s Real Estate Market 2016 - 2017: Overview and Forecasts” conference, some experts commented that the affordable housing segment has been facing a severe shortage. Affordable housing in Hanoi in 2014 accounted for only 19 per cent of total supply, which increased in 2015 to 48 per cent thanks to a range of social housing projects appearing, but the figure then fell to 19 per cent last year, according to Mr. Dang Hung Vo, former Deputy Minister of Natural Resources and Environment and now a real estate expert. Affordable housing in Ho Chi Minh City, meanwhile, accounted for 27 per cent in 2014 then fell to 25 per cent in 2015 and just 20 per cent in 2016, he said.
According to the latest report from JLL Vietnam, the apartment for sale segment in Ho Chi Minh City saw sales of a solid 9,091 units in the fourth quarter of 2016, up 12 per cent quarter-on-quarter, in which the affordable and mid-end segments accounted for more than 80 per cent. Hanoi also saw strong demand in the segment, with sales in the fourth quarter increasing 18 per cent quarter-on-quarter and 11 per cent year-on-year, in which affordable units accounted for nearly 40 per cent.
Vingroup’s expansion into affordable housing gave the market some cheer, which had been warned of an imbalance between supply and demand since 2015. Some experts said that the giant developer’s move into affordable housing will cause others to reconsider their competitive strategies and place greater emphasis on the segment, which would contribute to balancing supply and demand and benefit homebuyers. “Because major groups see an abundance in the high-end segment, they will switch their strategy to affordable housing,” said Ms. Duong Thuy Dung, Director of Research and Consulting Services at CBRE Vietnam.
Most low- and middle-income earner are young people and so have actual demand for housing, especially in Ho Chi Minh City. Within the country’s most-crowded city, which has approximately 13 million inhabitants, are 500,000 families urgently in need of housing each year together with 50,000 newlyweds, according to recent figures. The affordable segment is expected to gain in popularity, especially projects with reasonable quality at relatively well-connected locations, according to Ms. Nguyen Hoai An, Director of Research, Consulting and Asset Management Services at CBRE Vietnam.
Supply of apartments, Hanoi
The supply of affordable apartments has continually increased over the last few years in Vietnam’s two major cities. In 2013 there were only over 4,200 units launched in Hanoi and over 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 the highest growth when compared to high-end or mid-end products,” said Mr. Stephen Wyatt, General Director of JLL Vietnam.
Recent moves by Vingroup, Ecopark, Muong Thanh, and Him Lam Land in expanding into the affordable housing segment is a good sign for the domestic real estate market amid a shortage of supply. “This appears to be the beginning an advantageous competitive environment for homebuyers, and the segment will be certainly be eventful in the years to come,” said Mr. Vo. In the long term, the affordable housing segment will be better regulated by the market than the mechanism for social housing development created by the government, he added.
Developers have demonstrated a growing attraction to the affordable housing segment and have adopted a range of different strategies. “The affordable segment will be the key segment in 2017 and subsequent years,” said Mr. Ngo Quang Phuc, Deputy CEO of Him Lam Land. “A large market and customer pool will be created that investors will be keen to capture.”
According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), there is still good liquidity in affordable housing but the shortage remains severe. He also forecast that affordable housing will continue to lead the market next year. Expanding into the segment would be a smart move by property developers, with the Ministry of Construction estimating that 70 per cent of market demand will remain in affordable housing this year.
There are 2.6 million workers employed in Vietnam’s industrial areas, with 200,000 added every year, of which 75 per cent are immigrants, 75 per cent are under 35 years of age, and average annual incomes are $2,500, according to Ms. Do Thu Hang, Director of Professional Services at Savills Hanoi. Demand for affordable housing in these areas is clear to see and will only grow.
Supply of apartments, HCMC
Mr. Matthew Powell, Director of the Hanoi office of Savills Vietnam, said that Vingroup is a major developer in the high-end and resort segment but they also see the potential from a large group of customers seeking affordable housing, including young married couples and recent university graduates.
The move by Vingroup into the affordable segment will also contribute to helping the group minimize risk after focusing on the mid- and high-end segments, according to Mr. Chau. Investments in the affordable housing segment will help to rebalance the market and reduce the concentration on high-end housing. Property developers will also have better liquidity, he said, which leads to business sustainability.
Following Vingroup, Muong Thanh, another hospitality and real estate group, announced it would build 3,000 low-cost apartments in Hanoi with average prices from just $440 per sq m and areas between 50 and 60 sq m. In Ho Chi Minh City, Him Lam Land is also setting up plans to build 2,000 affordable apartments this year. At a recent meeting with investors, a representative from the Nam Long Group said the company would continue to focus on the affordable segment over the next five years and be able to provide more than 10,000 units. Other developers, including Coteccons, Hung Thinh and Dream House, also have their eye on the segment.
Hurdles to overcome
Developers, however, will face obstacles in the process of investing in and developing affordable apartment projects. “Such products need to cater to the lifestyle of the young demographic at an affordable level of pricing,” said Ms. An from CBRE Vietnam. The demographics characteristics of the target group need to be researched in order to fully understand their housing preferences in case of any shift in lifestyle, preferred locations, or affordability level. Recent reports from consultants have forecast that the average price of affordable housing may increase up to 30 per cent in the next three years,
In addition, profit in affordable housing is lower than in the high-end segment, Mr. Chau pointed out. Developers must be large enterprises with abundant land resources and strong finances and their housing must be of good quality with sound infrastructure.