Under the hammer
Vietnam’s residential market will continue to be sluggish in the first half of 2012 given the government’s tightening monetary policy and the ongoing turmoil in global financial markets
Vietnam’s residential market will continue to be sluggish in the first half of 2012 given the government’s tightening monetary policy and the ongoing turmoil in global financial markets.
2011 was a year most residential developers in Vietnam would be happy to forget, as the government’s tightening of monetary policy against a backdrop of high interest rates and capital shortages presented a range of obstacles for developers and buyers alike.
The sharp fall in liquidity during the year inhibited foreign investors from becoming involved in real estate projects. Back in 2008 FDI into the real estate sector set a record $23 billion but it then fell sharply to just $7.4 billion in 2009 and $6.84 billion in 2010.
According to the Ministry of Planning and Investment’s Foreign Investment Agency, from January to December 15, 2011, there were just 22 new FDI real estate projects, totalling $746.1 million.
A Savills report on Hanoi’s real estate market released in January noted that total primary stock from 31 active projects was approximately 10,100 units in the fourth quarter of 2011, an increase of 5 per cent against the third quarter.
Grade A continued to have the lowest absorption rate, at 2 per cent, almost unchanged against the third quarter. Grade C had the highest absorption rate, at 20 per cent, followed by Grade B with 10 per cent.
Average secondary asking prices fell across all districts of Hanoi, put down to low liquidity in the second half of the year. Buyers were mainly owner-occupiers due to the downtrend in the price of apartments and their targeting of completed apartment buildings ready for occupation.
Target demand focused on low- and mid-priced apartments. Apartments priced at less than VND3 billion per unit received the most attention as they are more affordable. “2011 was a tough year for everyone and it got harder as the year wore on,” said Mr Brett Ashton, Managing Director of Savills Vietnam. “The interest rate environment along with high inflation meant that developers started to feel the interest pain at the same time buyers of apartments left the market.”
In Ho Chi Minh City, according to a report from Jones Lang LaSalle, four new residential projects were completed in the third quarter of 2011, offering nearly 700 units and raising the city’s total number of completed apartment units to 38,700.
Nearly 1,880 apartment units were taken up in the third quarter, bringing the total number of sold units to 66,300. Out of the total of 1,182 units launched during the quarter, around 370 were taken up, a fall of 20 per cent quarter-on-quarter. “The residential market continued to face a challenging time as unsold inventory remained high, at around 39 per cent of the total supply in the pipeline as at the end of the third quarter 2011, with the highest rate being in the luxury segment,” said Mr David Brunt, Head of Residential Sales at Jones Lang LaSalle Vietnam.
Challenging 2012
Industry insiders see 2012 as continuing to be a challenge for the property market. “The government has stated that they will continue to put inflationary control as the top priority, which is likely to affect economic growth and also the availability of finance and the cost of credit,” said Mr Craig Wallace, Manager of Valuation, Consulting and Research at DTZ Debenham Tie Leung (Vietnam). “This will have a direct impact on property investors and developers.”
Tough market conditions have existed particularly in residential sectors, where supply has outstripped demand. “Many investors will continue to be cautious in 2012, being deterred by issues such as inflation, interest rates, lack of credit and a weak currency,” Mr Wallace added.
However, the market does offer significant opportunities for those with cash available, according to industry insiders, with some property developers and investors under pressure to find investment for projects. Foreign investors with cash and overseas financing will be particularly looking for “fire sale” situations. “For long-term investors, the Vietnamese market still offers solid potential fuelled by a large and youthful local population, their growing wages and changing purchasing/consumption trends in addition to the city’s increasing global status,” said Mr Wallace. “While the residential sector will also see continued challenges during 2012, we would hope to see an improvement in demand compared to 2011, particularly if interest rates fall during the year.”
Mr Phan Thanh Mai, General Secretary of the Vietnam National Real Estate Association, also believes that 2012 will be a difficult year for developers in terms of capital. An optimistic point for 2012, according to Mr Mai, is money remitted by overseas Vietnamese (Viet Kieu) being poured into the real estate sector. He expected the local property market will recover in the fourth quarter this year.
Looking further ahead, the future of Vietnam’s residential sector remains bright, with strong economic growth, rising salaries and a rapidly growing middle class seeking a better quality of life fuelling demand for quality condominium projects providing the lifestyle the aspire to.
Foreign investors are a sizeable part of the real estate sector in Vietnam and will continue to be so. When any developer gets into trouble, they will look to sell assets. There will always be buyers if the price is right and industry insiders expect 2012 to continue seeing merger and acquisition (M&A) activity. “There will be more M&A among property projects this year in order to boost available capital for the projects, but there needs to be more transparency in the development of the M&A trend,” said Mr Dao Manh Hung, Head of the Investment Department at Savills Vietnam.
Accordingly, economic factors will be crucial in the fortunes of the property market in 2012. If the government continues to relax some of its anti-inflationary policies it will give the property market a boost, particularly in terms of financing of ongoing and new projects.
This financing will also be important for residential demand in the coming year. “If we see a reduction in financing rates it is likely that we will also see a corresponding increase in demand for residential accommodation,” Mr Wallace said.
Mr Marc Townsend, Managing Director of CBRE Vietnam, added that luxury residential in central business districts will sell and registered FDI into real estate will triple in 2012 as Vietnam sees 20 new foreign investors.
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