Which Property Segments Will Money Flow into?

The latest report of CBRE Vietnam notes that confidence in real estate had been strengthened, reflected through a soaring in the number of newly offered projects as well as trading volume. Estimated across all segments, there were 41,787 apartments offered for sale in Ho Chi Minh City and 28,283 in Hanoi. Most are from the premium and luxury segment, of which quality was varied depending on investors’ definition.

 

The premium and luxury apartments had had the most spectacular comeback since the financial crisis in 2012; up to 16,674 units were offered for sale. Along the Metro Line No. 1 in eastern Hanoi, there were 6,000 apartments, of which most of the high-end projects were located at the central and western edges. These buildings targeted investors who wished to buy for sublease, exploiting the high profitability rate of about 6-8 percent.

 

The reasonable price segment also claimed a large part of the supply and was the number one choice for most buyers who wished to buy housing.

 

Price growth was expected to peak in 2016. As buyers were becoming more and more selective while supply got more plentiful, investors needed to be cautious when raising prices if they wanted to reach their sales targets. Prices would be driven mainly by new projects in “golden” locations and the expanded central area, offered at the range of US$2,500-10,000 /m2 for Ho Chi Minh City and US$1,600-3,500 /m2 for Hanoi.

 

In terms of demand, the rate of consumption in 2016 was expected to be slower than in 2015, and would fall in 2017 and 2018 for both markets.

 

According to CBRE, foreigners were still evaluating the domestic property market before making decisions. However, professionalism, language proficiency and convenience of payment would be among important requirements if investors wished to capture this new group of buyers.

 

Due to the immaturity of the real estate market of Vietnam, which was still on its way of development, a large proportion of transaction is for the land development stage of projects, of which nearly half of the transactions and investment were for multi-purposes projects, including housing. This segment would remain popular, driven by abundant demand from a large population and high urbanization rate.

 

CBRE experts said that in 2016, in terms of commercial property, leasing offices would continue to be the main target. Hanoi and Ho Chi Minh City markets continue getting much attention and would be the main destinations of the foreign investment flow once TPP comes into effect.

 

Resort properties would be kept busy as Vietnam continued to emerge as a new vacation hotspot, while industrial real estate was expected to grow strongly as multinational corporations expand production in Vietnam to take advantage of the TPP agreement and other trade advantages.

 

Strict barriers to major retail markets would push new rivals to acquire existing portfolios in joining plans and expand their markets.

 

Also according to CBRE experts, in 2016, the macroeconomic situation was expected to further improve. National GDP structure would gradually shift from agriculture, forestry and fisheries to processing, construction and services. Thanks to positive fundamental factors, various trade agreements signed recently, and cheap labour, Vietnam would continue going strong in attracting foreign investment.

 

However, competition in the region would get fiercer and the government would be forced to adjust policies accordingly, especially on taxation, in order to maintain competitive advantages.

 

“In real estate, leasing operations will continue growing. Recorded price rise and occupancy rates have shown steady growth across market segments. In short, the real estate market of housing and commercial apartments in Vietnam is recovering most significantly since the global financial crisis in 2008. However, in order to protect the interests of foreign investors, Vietnam must enhance transparency in project approval and keep a close eye on competent authorities. Investors should also learn the investment objectives and direction of this customer group to keep the foreign investment flow strong,” noted CBRE experts.