Is Apartment Market Likely to Face Collapse?

Recently, prices of apartments have dropped steeply in all segments, particularly from medium-end to high-end segments, as a result of massive sell-offs.

 

In the midmarket segment, apartment projects in Ha Dong district, Hanoi are being offered at VND19-24 million per square metre. Typical projects include CT1 Ngo Thi Nham Apartment (VND22 million per square metre), Nang Huong Apartment (VND25-26 million), Bac Ha Apartment (VND26-29 million), Van Phu - Victoria Apartment (VND21-22 million), and Xa La New Urban Zone (VND22-24 million).

 

In the upmarket segment, prices declined sharply. For instance, The Manor is being put for sale at US$2,600 per square metre; the 88 Lang Ha Apartment is being sold at US$2,400 - 2,600 per square metre; Usilk City Apartment (Le Van Luong) is offered at US$1,080 - 1,200 per square metre. Particularly, some investors are selling high-class Keangnam apartments at just US$2,200 - 2,400 per square metre, compared with the original price of US$3,000. 

 

Giving reasons for the massive sale of condominiums, Professor Dang Hung Vo said that our concept of apartment housing is not right. Hence, when apartments play their proper roles, investors will fall into deadlock.

In essence, apartment houses are for middle and low-income earners.

 

An apartment building shares a public space where any action, even in the smallest one, will affect the surrounding residents. The rich live in villas or semidetached houses.

 

Life in apartment houses should not be understood as high-class because everything, from corridors, elevators, playgrounds and parking lots are shared. For this reason, none can upgrade or adjust the apartment, even if they have money, without permission from the owner and their neighbours.

 

Therefore, the concept of high-class apartment exists in only Vietnam and investors use this notion to sell apartments at higher prices. A lot of moneyed people purchase apartments as an act of speculation, aiming for wider margins in the future. Over time, houses are traded again and again. This is the reason why apartment prices go far beyond their intrinsic values and apartments go against their own nature.

 

Other countries have apartment standards and laws, but this is not the case in Vietnam. There are no specific standards in our country. In Hanoi, the capital of Vietnam, more than 50 percent are branded upscale condos projects like Mandarin Hoa Phat, FLC Landmark, Starcity Le Van Luong, Lancaster and Thang Long Number One. These do not include a series of inactive high-class apartment projects because investors do not have enough money to proceed.

 

To make their high-class apartment projects different from ordinary residential buildings, investors install some luxury items on their projects, which lead to higher construction costs and eventually selling prices. Previously, most apartment deals are reached by speculators.

 

And, when the apartment market is frozen as now and apartments revert to their natural roles – accommodation for low- and middle-income earners – investors will fall into deadlock.

 

Speculators are being forced to sell apartments to settle bank loans and avoid paying instalments. But, if prices are lowered to the rates affordable for low- and middle-income earners, they will suffer losses because a lot of apartments are built with high-class standards.

 

“I think the collapse of the apartment market, especially upmarket segments, is likely. In the coming time, a series of high-grade apartments will be forced to lower their prices,” said Professor Dang Hung Vo.

 

At a business review meeting in 2011, Mr Peter Ryder, CEO of Indochina Capital Corporation, said: Oversupply is seen in all real estate segments, not just high-class one.

 

The boom of the apartment market a few years ago led to the current oversupply, particularly upscale segments where selling prices are as high as VND30-45 million per square metre.

 

The latest property market research report conducted by the leading property consultant and manager CBRE Vietnam shows that some 7,500 apartments have been put up for sale in the past three months (nearly equal to half the supply in 2010). Particularly, selling prices have slid slightly (less than 5 percent) in all four segments: Luxury, high-grade, medium and popular.

 

According to the survey, 70 percent of projects have reduced prices; 20 percent are holding prices and 10 percent have very few deals. The decline in the secondary market is around 10 - 15 percent.

 

Currently, many investors have turned to midmarket housing segments. Indochina Land, the developer of high-end property projects like Indochina Plaza Hanoi and Hyatt Regency Danang, also announced its investment in the medium segment. Saigon South Park Residences complex, its largest project in 2011 with 1,000 - 1,200 housing units, focuses on medium apartments.

 

Professor Dang Hung Vo said sell-offs will offer the chance for homebuyers to purchase good properties.

 

“Without market, investors will switch to low-cost housing options instead of high-class segment. Backlogs remain in a great number; thus, they must even accept a loss now to avoid future losses,” said Mr Vo.

Mr Peter Ryder, CEO of Indochina Capital, added that the real estate market has been brought to difficulty because of adverse impacts of inflation, interest rate and credit squeeze.

 

“The key is now the competitiveness of project products. If the products have good locations, nice designs and reasonable prices, there will be niche on the market. Therefore, this will be an opportunity for buyers to choose the best products,” said Mr Ryder.

 

Despite hardships in Vietnam in 2011, Indochina Capital still achieved positive growth in both construction and sales, worth more than US$40 million.

 

Most of Indochina Capital projects are still selling well. The Indochina Plaza Hanoi has sold over 250 apartment houses out of 386 units, bringing in US$80 million. The project will transfer the houses to buyers from January 2011. The office and commercial centre is scheduled to start operations in March 2012.

 

Covering an area of 20 hectares, Hyatt Regency Danang Resort & Spa in Danang City has 183 apartments, 27 three-bedroom villas, and a 200 room five-star hotel. After the successful debut in 2009, the project ended the year 2011 with another success with 14 deals concluded with a total value of over US$8.8 million. To date, 90 percent of apartments have been sold.

 

Montgomerie Links (a luxury villa complex in Danang) and The Estates with 66 villas with individual swimming pools designed with international standards also sold well. In the first offering in April 2011, The Estates found customers for over 50 percent of villas in the first phase.

 

Six Senses Con Dao which consists of 23 hotel villas, 15 three- and four-bedroom villas, and 12 luxury one-bedroom villas, reported to sell nine out of 15 three- and four-bedroom villas and three out of 12 one-bedroom villas in the launch in November 2011.

 

In 2012, Indochina Land will introduce Saigon South Residences, a villa project in District 9, Ho Chi Minh City, and another one in Hanoi.