Sparkling Hope from Property Market

In 2012, the apartment market saw a 65 per cent drop in new supplies from the previous year. Despite poor liquidity in the past year, the number of completed apartments continued to increase, reaching the highest level in five years.

 

The real estate market slumped in 2012, resulting in oversupply, buyer’s market status and broad discounts. The market also saw a strong shift in customers’ interests from the secondary market like in previous years to the primary market. Reinvestments for construction fell short because investors could not sell their products, forcing primary project investors to slash prices. This placed considerable pressure on the secondary market. As of late 2012, many projects cut offering prices by 40 per cent from their initial prices.

 

According to statistics from CBRE Vietnam, a high-profile property management company, Hanoi currently has 20,500 apartments that remain unsold. This is the result of unsuccessful efforts of investors to sell their products. Given existing inventories and projects in the progress of completion, according to industry experts, the market will need from 1.5 years to 4 years to consume this entire supply.

 

Investors and the people now prefer sitting on the sidelines of the market, because many are still hoping for a further decline in the next year. This will make it harder for project investors to sell their products, especially when many investors in Ho Chi Minh City recently agreed not to further slash apartment prices. Therefore, the effectiveness of big discount strategies is being questioned.

 

As market development has not improved, real estate businesses think that financial pressures will cause the market to decrease by about 10 per cent in 2013. Liquidity will remain low, mainly concentrated on projects with particularly attractive prices in relation to their competitors and with good construction progress. To boost the demand, it is believed that the discount may amount to 30 per cent - 50 per cent to attract buyers to return to the market. Thus, 2013 will be a challenging year for investors.

In 2012, the office market in the capital city of Hanoi received more supplies, although fewer than the previous year, but the commercial area still reached 106,500 square metres. The western part continued to be a hot spot of the office segment, as it supplied up to 50 per cent for the market.

 

The top priority for increasing the occupancy rate forces investors to lower rental rates. Office buildings in the western region had the fastest decreases, with the biggest drop recorded at 18 per cent.

 

These moves reduced the vacancy rate across the market. Grade A office buildings reported vacancy rates dropping from 37 per cent at the end of 2011 to 21 per cent at the end of 2012. The vacancy rate at Grade B buildings slid from 26 per cent to 23 per cent in the period. New leasing very impressively consumed 91,000 square metres in 2012, the second highest in eight years.

 

In 2013, according to CBRE’s forecasts, supply will continue to increase, thus placing a heavier pressure for continued rate discounts in this segment. In addition, the transfer of office projects will be on the rise because investors need to restructure their portfolios.

 

Economic slowdown caused great difficulty in the retail space segment, when a series of customers shut down their business and returned retail space. The rate of closures is higher than that of openings. The supply plunged compared with 2011 with only two new commercial centres put in operation, namely Indochina Plaza Hanoi and Melinh Plaza Ha Dong, adding a net rental area of 50,000 sq. metres.

 

At the fourth quarter of 2012, the vacancy rate of retail space was 14 per cent, an increase of 2 per cent over the same period of 2011. In 2013, the market will have about 700,000 sq. metres, mainly from two trade centres, namely Vincom Mega Mall (Royal City and Times City) with about 46,000 sq. metres of rentable area, and Trang Tien Plaza which is expected to go into operation in the first quarter of 2013 and attract high-grade and luxury international fashion brands.

 

Like the retail space segment, the vacancy rate of apartments for rent was also high in 2012, reaching 25 per cent.

 

In 2013, according to property experts, the rented apartment demand is expected to surge in the western part of Hanoi, especially supplies with rent of less than US$2,000 because many offices have moved there. Rents are more likely to fall in the context of continued economic difficulties.