Property Market Warming Up

As reported by the Ministry of Construction, as of September 20, the total value of real estate inventory was about VND59,395 billion (down 53.8 percent compared to the first quarter of 2013). CBRE statistics showed that in the first nine months, the number of apartments sold in Ho Chi Minh City reached nearly 24,000 units, exceeding the previous record of 17,000 units set in 2014. Similarly, in Hanoi, CBRE said apartment sales hit nearly 15,000 units, a record since 2009.

 

Only two years ago, the number of unsold apartments seemed to be large enough to crush the market, now, the market has gotten strong enough to digest a huge amount, reducing the pressure on the market.

 

According to Savills Vietnam, in the first 9 months of 2014, the apartment supply in Hanoi reached 6,800 units, more than the total number of apartments opened for sale in 2013 (about 6,700 units). 2014 witnessed the phenomenon of real estate businesses with big inventories rushing to open sale. Now, there aren’t many apartments with beautiful locations which are ready for occupation in inventory. Even apartments that are in the process of finalizing have been convincing clients, improving the liquidity of many inventory projects.

 

The inventory in Ho Chi Minh City is also shrinking, compared to 2012, the real estate inventory has dropped 76.5 percent, from 14,490 to 3,402 units - according to the Ho Chi Minh City Department of Construction. This was partly an influence of the policy allowing the conversion from large-area apartments to social housing or service apartment. The post-conversion figure was around 8,175 units according to statistics. The city currently has 11 projects under this conversion program of exchanging commercial apartments of large area to units of smaller area, with total post-conversion figure of 7,810 units.

 

The cycle of an apartment project typically lasts about three years. Many projects stalled three years ago due to financial difficulties now have been restarted and launching sales since the beginning of the year, inventory therefore has been reduced. Entering the fourth quarter, Hanoi haven’t had many projects offered, while demand continues going strong, indicating the prospect of a supply shortage for apartments of good location and ready for occupation. One consequence is that buyers have been paying prices with an increasing gap.

 

In addition to a strong consume power toward unsold apartments, the market also recorded a new plentiful supply. Hanoi apartment market have many attractive projects such as the HH3 Linh Dam, the Green Star Pham Van Dong, the Vinhomes Nguyen Chi Thanh, the Gemek Tower Le Trong Tan and coming soon is the Home City Project of Van Phu Invest, and FLC Complex 36 Pham Hung.

 

Fuelled by active trading, apartment prices have recorded an increase of about 15 percent, hitting the level of 2010. Prices in Ho Chi Minh City also showed a significant rise as transactions are heating up again.

 

According to Mr Nguyen Trong Ninh, Chief of Housing and Real Estate Market Management Agency (Ministry of Construction), after many solutions aiming at removing obstacles, the property market was gradually recovering and the volume of transaction had been increasing continuously since the beginning of this year. Property prices had been on the rise, but with no signs of bubbles.

 

A recent report of CBRE Vietnam showed that in the third quarter, the real estate markets in Hanoi and Ho Chi Minh City continued positive growth. According to this group, as the market continued down the path of recovery, and was expected to welcome more luxurious and high-end projects from investors eager to seize opportunities, the premium segment was likely to continue getting good news in the remaining months of 2015 as well as early 2016.

 

Hanoi had a total of approximately 9,160 newly offered apartments. Among them, high-end apartments continued taking up a big proportion, with nearly 3,000 units accounting for about 32 percent of newly opening. Besides the well-known name of Park Hill Premium, in the fourth quarter, Hanoi real estate market also received the luxury supplies from big projects such as Goldmark City (North Tu Liem), Gold Silk (Ha Dong), Trang An Complex (Cau Giay), MK with Imperia Garden (Thanh Xuan), FLC Twin Tower (Cau Giay) and Sun Square (South Tu Liem).

 

The number of premium apartments offered for sale in Hanoi in the first nine months claimed 25 percent of total units opened for sales, compared with 20 percent of the first six months. Successful transaction volume of luxury apartments accounted for 29 percent, up from 25 percent in the first six months.

 

 

A similar situation can be observed in Ho Chi Minh City, where luxury apartments also showed impressive figures in the increase of both number of projects offered as well as in consumption.

In terms of demand, the market is always hungry for high-end apartments of well-invested projects, which are well-constructed and fully furnished with high-end materials. The market always has a considerable proportion of customer that has demand for this segment.

 

However, the rapid rise of the luxury segment is posing a risk to the market’s sustainable development. The market remains unstable, at times hot, at times frozen, supply - demand is not consistent with market demands. Keep in mind that the real estate market has been frozen for years with a huge amount of premium apartments lying in inventories, particularly in Ho Chi Minh City, of 14,400 unsold units since 2012, 80 percent was luxury apartments of large areas. An indigestion of luxury apartment supply can shorten the recovery of the market.

 

Despite all the warning of excessive supply, businesses continue to invest heavily in this segment seeking big profits, as demand for these apartments for living or sublease remains high. Investors argue that initiating new projects at this time is to prepare for the market recovery in the next five years. However, an irrational apartment structure might lead to a more vulnerable market.