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Residential property hits slump, as commercial market heats up
Prices have fallen in residential real estate but the commercial property sector remains hot, according to Nguyen Alliance Commercial Real Estate (NAC Real Estate).
Commercial real estate includes office, retail, serviced apartments, and industrial and hotel properties.
According to NAC, no vacancies exist for Grade A office buildings in HCM City, while the vacancy rate is 1.5 per cent in Seoul, 1.8 per cent in Hong Kong, 3.5 per cent in Singapore, 9 per cent in Taipei, 14 per cent in Bangkok and 19 per cent in Jakarta.
For the residential market, higher interest rates and inflation are affecting the market.
The mortgage rate has soared to 18-22 per cent, driving away first-time home buyers, while the high-end market for new apartments has seen prices escalate caused largely by speculators over the past year, NAC said.
NAC said demand from existing tenants and new foreign companies entering Viet Nam market continues to drive the market but supply remains the same for Grade A and B office buildings in central business districts.
The average rental increase for office buildings for the first quarter has jumped 80 to 100 per cent compared to the first quarter of last year.
In the first quarter, the office building sector contributed to 41 per cent of Viet Nam’s commercial real estate market; followed by retail, 23 per cent; residential, 17 per cent; industrial properties, 4 per cent; hotels, 2 per cent; and other properties, 9 per cent.
"This trend will play out six months to a year," said Nhat John Nguyen, managing director of NAC Real Estate. "We are expecting new space when the Kumho Asiana and Centec tower is completed by 2010."
Bubble bursts
Nguyen said the bubble in residential real estate was slowly deflating.
"There will be a large differentiation between institutional quality properties where lower leveraged players can play, and property value diminution will be less in the asset types and locations where institutional investors typically haven’t played," Nguyen said.
What happens to asset prices very much depends on the type of buyer, said Nguyen.
"People perhaps realised the problems were deeper than they originally thought, and weren’t susceptible to a quick resolution. It took a long time building up so much liquidity in the system and having that increased liquidity affects property values," he added.
"It will take a substantial period of time to unwind all that. This is a cyclical change in the approach to valuation and credit. Slowly but surely, we’ll get more comfortable with the mortgage rate. But the residential property price is not going down forever."
VNS
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