Boom times continue in Vietnam real estate
Strong fundamentals, robust demand, and economic reforms power the property industry to new heights
Anyone familiar with Vietnam can attest to the city’s almost dreamlike transformation. Leave for a year, a couple of months, even a few weeks—and you’ll return to a place at once familiar and dramatically different.
Vietnam’s two major cities, Hanoi and Ho Chi Minh City are undergoing whirlwind physical changes—but a seemingly existential shift is happening. A threshold feels like it’s being crossed, a corner being turned, especially in HCMC, which is transitioning from a kind of overgrown mega-village into an international urban centre.
The real estate market is very much a part of this overall transformation, evolving from the speculation-driven boom-and-bust cycle of the mid-2000s into a more diversified and stable environment.
From foreign investors snapping up luxury properties to young professional couples taking out a mortgage on their first condos, the times have been good indeed. More importantly, there’s an air of sustainability this time around.
“Things are going extremely well,” said Neil MacGregor, managing director of Savills Vietnam. “If you’re a property developer or a residential purchaser who’s got into the market, you would have seen your investments perform very well over the last two to three years.”
MacGregor said that as volume of sales continue to increase year-on-year, the growth has been spread across all segments and with a base of both domestic and foreign buyers, the latter allowed to purchase property in Vietnam since July 2015 when a policy change went into effect.
As a sign of the market’s robustness, recent development has been dominated by the affordable and mid-end sector.
“The middle class in Vietnam is growing very rapidly,” MacGregor noted, “and with that comes increasing demand for owner-occupation in the affordable segment, which has really limitless demand at this stage. Everything that is built is essentially absorbed.” Savills categorizes the affordable segment as units up to USD900 per square meter.
While sales growth is strong, the number of units launched in HCMC actually went down 19 percent year-on-year in 2017. There was a total of 31,000 units launched, according to CBRE Vietnam, of which the mid-end segment accounted for 64 percent—a 14 percent increase year-on-year. Meanwhile, high-end units made up 21 percent of the supply, a decrease of 10 percent year-on-year, with only one luxury project launched in 2017. CBRE defines high-end as between USD1,500 and USD3,500 per square meter, and luxury above USD3,500.
This focus on the lower-end segments gives the market more balance, agreed Hang Dang, managing director of CBRE Vietnam. “The market is more stable now,” she said, “with developers becoming more cautious and careful with new projects. The absorption rate is good and there’s a wider range of products.”
Jones Lang LaSalle’s country head, Stephen Wyatt, said the market was being driven by some key demographic trends, especially a high urbanization rate that has averaged around three percent annually, thus increasing rental demands.
“There is still an element of investment speculation but at the root end, users are moving into these properties, which is positive,” he said. “The other part that we’ve seen is actually more Vietnamese renting than before, which is a different dynamic to the market.”
Even as product launches went down last year, demand remained high—2017 was the first time in five years that sales outpaced products launched in HCMC, with total number of sold units estimated at 32,905 by CBRE, a decrease of five percent year-on-year.
In Hanoi, which CBRE’s Dang said generally is on a market cycle one or two years behind HCMC, there were 35,000 units launched and 23,000 sold in 2017.
Market maturity is even reflected in the marketing of product launches. Lately, instead of the blaring techno and scantily clad promotion girls of yore, there’s been an increasing focus on promoting practical matters like building safety—particularly in light of an HCMC apartment building fire last March that left 13 people dead.
Mid-end and affordable units may have accounted for the bulk of recent activity, but by no means is the high-end or luxury market being left behind.
Brokers report sales rates are hitting 90 to 100 percent in high-quality products in prime locations, such as Empire City Thu Thiem (by Keppel Land) and d’Edge Thao Dien (CapitaLand). Prices have seen positive growth, but not to overheated levels. CBRE found the high-end segment recording a year-on-year increase of four percent in selling price in 4Q2017, and is projecting the high-end and luxury segment to show an increase of five percent in 2018, compared to 1.5 percent for the mid-end segment.
Foreign buyers—mainly coming from regional powerhouses of Japan, Korea, Singapore, Hong Kong and increasingly China—are concentrating on the luxury and high-end segments of the market, which are still priced far below comparable products in their home countries. Current regulations allow foreign buyers to purchase up to 30 percent of units in a condominium property.
In 2017, the total proportion of buyers for units CBRE sold was split almost 50-50 between foreign and local buyers. Interest is off the charts, affirmed Hang Dang. “Our offices in markets from Hong Kong to Shanghai are now asking us to sell projects in Vietnam because they have so many interested clients.”
Savills’ MacGregor also noted that high foreign demand is driving a secondary sales market for some projects. “For better projects that are attractive to foreign buyers we’re seeing that 30 percent allocation very quickly absorbed,” MacGregor said, “to the extent that a foreign buyer who had purchased part of that allocation is able to sell at a premium over what the locals are selling their own apartments at.”
Hanoi, the capital, may be well known for its tranquil lakes and historic architecture but it is building new developments that are drastically altering the flavour of the city
MacGregor noted that foreign investors are not only chasing capital growth but seeing good rental yields between six- and eight percent at the mid- to high-end.
The quality of coming luxury projects are also reaching new heights. The segment was driven traditionally by foreign developers such as Keppel Land, CapitaLand and Hongkong Land, but such local developers as SonKim Land, Vinhomes and Novaland have aggressively entered the high-end market, either on their own or in partnerships with foreign firms.
SonKim Land’s Serenity Sky Villas, for example, will be one of HCMC’s most luxurious offerings. The project in central District 3 features 45 villa-style apartments with double-height ceilings and Vietnam’s first on-balcony private gardens and swimming pools. It is scheduled to come online in 4Q 2018.
Meanwhile, multiple sources have cited an as-yet-unnamed foreign-invested project slated to launch in HCMC’s CBD in 2018 that will reach a new plateau in the luxury segment, with rumoured prices reaching USD7,000 to USD8,000 per square meter.
Helping to give a sound foundation to the thriving space is Vietnam’s strong economy, among the most robust in Asia. GDP growth in 2017 was 6.8 percent, driven by strong domestic demand, record export earnings and continuing economic reforms.
This year started out with a bang, with first-quarter growth rate at 7.38 percent compared to the same period in 2017—the highest mark over the past decade. An upbeat forecast by the Asian Development Bank predicted Vietnam’s GDP growth would hit 7.1 percent for the year.
Total registered foreign direct investment grew 44 percent in 2017, hitting a record high of almost USD36 billion, with the real estate sector receiving USD3.05 billion.
It’s no surprise that HCMC and Hanoi ranked near the top of Jones Lang LaSalle’s (JLL) City Momentum Index for 2018, ranking third and sixth, respectively. The report noted both cities’ increasing integration into global supply chains for high-tech manufacturing and some of the world’s strongest growth in retail sales and air passenger numbers.
Infrastructure growth is setting the stage for the emergence of one of HCMC’s most long-awaited developments, the urban mixed-use project in Thu Thiem, directly across the Saigon River from downtown District 1.
In other regions of the country, infrastructure and other economic development are helping to spur major tourism growth in regions such as the Central Coast around Da Nang and Hoi An, and on Phu Quoc island. International arrivals to Da Nang rose 38 percent, and 72 percent in Phu Quoc in 2017. There is booming resort and hotel development in both regions, as well as fast-growing second-home markets for both locals and foreigners.
Overall, there seems to be quite a bit of ceiling left for Vietnam’s growth in the near term.
“We’re two to three years into the upturn in the market cycle,” said Savills' MacGregor. “By historical standards, we would anticipate [the upturn to last] another two to three years.”
And yet, there’s a downside to Vietnam’s incredible growth. Once vaunted for their charm, Hanoi and Ho Chi Minh City are increasingly mired in a cacophony of noise, construction, chaos, traffic and pollution as massive new condominiums are depositing tens of thousands of new residents into urban quarters not equipped to accommodate them.
“It’s moving so quickly,” agreed JLL’s Wyatt. “There are a lot of ingredients that sometimes give the feeling we might have another Bangkok or Jakarta on our hands before too long.”
Yet while change — both positive and negative — is inevitable, there’s no denying the bullish current nature of Vietnam real estate market. Vietnam itself, with its unshakeable sense of national pride and identity, is likely to retain its innate character, but the dreamlike transformation of its cities is sure to continue.
(This article originally appeared in Issue No. 148 of PropertyGuru Property Report Magazine)