Real Estate Market and the Dark Side

 Continuing the general downtrend of the previous quarter, the real estate market has ended up the third quarter with many dark markings, especially the segment of housing and apartment. The market supply keeps increasing robustly while the market demand keeps being obstructed, driving many investors into standstill and disorientation. However, far and near, the market still sees the highlight when the office-for-lease segment is quite confident with its plan. Vietnam Business Forum has a brief on developments of these two segments in the third quarter.

Apartments segment has not yet seen any positive signs as the supply continues to increase considerably while the demand of the market has not improved, driving many projects to price reduction in order to create liquidity. Following the trend of the previous quarter, this quarter witnessed many projects provide raw packet delivery to reduce the asking price. As a result, up to 75 percent of supply in the first quarter was offered at less than US$ 21 million/m², the most affordable price since 2008.

Demand for housing is limited. Due to growing concerns about the economy, consumers tend to make accumulation rather than investment. According to a recent survey by Nielsen, the concern about the economy which has exceeded the unemployment fear has become the biggest concern of Vietnamese consumers in the second quarter, 2012.

 

According to the statistics of the real estate management and consulting CBRE Vietnam Company, consumers are saving about 15 percent of their income, while only one percent is spent on investment, which has largely reduced the cash flow into real estate.

 

Secondary asking price continues to fall by five percent against the previous quarter, prolonging downward trend which started from the fourth quarter, 2011. Now that the current market belongs to the buyer, the market recovery is greatly dependent on the purchasing power and customers’ psychology.

 

 Giving assessment on the market prospect, Richard Leech, Managing Director of CBRE stated that the economy will not see any good sign until 2013. It will continue to undermine the confidence of consumers, causing them to find their own safe shelter by increasing savings/ accumulation instead of making investment. People have money but no investment is injected into real estate. The change is expected only when the economy has good progress, thereby helping the market reverse itself.

 

For the land segment land in urban areas, it is most likely that a new base price has been set. The market is pricing the project with the new rate of around 18 percent lower than the same period in 2011. Price of completed and going-to-be-completed projects has the lowest reduction. Meanwhile, there are almost no transactions with delayed projects.

 

In terms of demand, according to a recent survey by CBRE, 86 percent of consumers are interested in possessing a house with the value equal to or less than five billion dong. Meanwhile, 68 percent of projects are currently offering products at a price equal to or above five billion dong, and only 32 percent of projects offering products at price below five billion dong. Most of these projects are still in the early stage of development. Moreover, the purpose of buying house was changed from speculation (only 17 percent) to residential and leasing one (83 percent.

 

Corporate restructuring has been taking place far and wide since investors are facing numerous difficulties in settling outstanding debts and limited housing demand. Therefore, some enterprises whose main business activity is not real estate trading has ceased its investment in this area. The investors are under review of business strategy so as to make it suitable with the target of the customers and the type of product offered for sale. In addition, the investors are sparing no efforts to improving their sales and customer care service.

 

CBRE Vietnam believed that in the next two years, investors will continue to focus on corporate restructuring and adjustment of business strategy as the current market is expecting products of better quality and more reasonable price. In 2012, it is estimated there will be around 7,000 units that will be completed. It is also predicted that many projects will become the “deserted” ones unless their prices can meet the buyers’ affordability.

 

 Office-for-lease supply continued to increase in the third quarter, 2012. One class A building namely Indochina Plaza Hanoi and three class B including Vinafor Building, HL Tower and 28-story buildings in Thang Long International Village have put into operation, providing an additional area of 48,500 m² office space to the market. The notable is the fact that Crown Office Building (13 310 m²) has ceased renting and transformed into self-use operation model after Viettel Corporation is acquired from the old investor Tran Hong Quan Co., Ltd.

 

Though supply increases robustly, filling rate still slightly increases by nearly one percent against the previous quarter. This shows that lease demand tends to be on the rise. Actual lease area in the market in the third quarter, 2012 stay quite high, reaching over 34,000 m², only slightly lower compared to the second quarter, 2012.

Lease price reduction is the main reason contributing to the improved filling rate and higher actual lease area. In particular, at Class A buildings in the central area, lease price has dramatically reduced more than ever before. The average reduction level was 3.6 percent and even nine percent for some projects compared to the second quarter, 2012

 

 On the contrary, the lease price of the Class A buildings in the western area is relatively stable after a deep decline in the second quarter, 2012. For Class B buildings, the downward trend continues across all the areas. In particular, the western areas and other suburban areas witnessed the highest price drop, down by 6.7 percent and 6.9 percent respectively against the previous quarter...

 

The lease price continues to fall but has no sign of bottoming out. Therefore, investors are expected to apply different strategies to overcome the crisis and continue to develop their projects. Some investors accept lower profits by reducing lease price and/or continue to provide incentives for tenants to increase the filling rate. Meanwhile, some investors choose to resell the entire project. The recent deals include the case that Viettel Group acquired Crown Office building or Techcombank acquired court Tower B, Vincom City Towers. CBRE predicts that the buy-to-self-use trend will continue to appear in the coming time. The acquisition should be seen as a proper way to restructure the portfolio rather than reflecting weak financial capacity of the investor.