Opportunity for Vietnam Real Estate Market to Lead the Region

2:19:15 PM | 11/7/2019

Savills Vietnam has just published a study and assessment of Vietnam's real estate market. According to the study, Vietnam has a population of 94 million, ranking third in ASEAN but the urbanization rate is still the lowest in the region at 36% in 2018, this is the basis for Savills to believe that Vietnam's real estate market has the potential to overtake its neighbors.

According to Savills, two big cities including Hanoi and HCM City, have contributed significantly to the financial growth as well as the operation of the country’s real estate market in the past 10 years. These are also two cities with the population accounting for 17% of the national population and the highest urbanization rate among ASEAN countries.

Rapid population growth in urban areas has created a large demand for housing. At the same time, reducing household size combined with the number of single person households has led to formation of new households, this is also a reason for the rapid increase in housing demand. Currently, the main supply of the market still comes from low-end apartment projects, which also reflects the fundamental factors of the macro economy and population.

According to Savills’s report, in the period of 2014 - 2018, the number of apartment transactions has increased significantly in both HCM City and Hanoi.

Accordingly, in HCM City, the number of real estate transactions in the past five years increased by an average of 44%/year with the peak reaching 49,000 transactions in 2018. The absorption rate also reached 87%, the highest level in the last five years. The development could be seen most clearly in the low-end segment, which is considered a Grade C segment of the market. In the period 2014-2018, this was the main segment of the market when accounting for 60% of the total market transactions. Future supply in this segment is also quite large, so it is expected that Grade C apartments will continue to lead the market in the future.

In the Hanoi market, the number of housing transactions in 2018 also increased by 20% compared to 2017. Contrary to the HCM City market, in Hanoi market, the mid-end segment is also considered a Grade B segment accounting for 61% of the total number of transactions, while the Grade C segment accounted for only 31% of the market, up 6% year-on-year. Grade A segment contributed 8% to the market due to high selling price and limited supply.

In the past three years, the trading volume of the Grade A segment has also been improving strongly, attracting domestic and foreign investors with competitive valuation and attractive rental rates. The number of rich people in the country is growing rapidly, which is supporting the middle and high-end segment to develop, and this is the basis for assessing the potential of high-end and luxury segments in the next phase.

At the same time, the easing of regulations on real estate ownership for foreigners has also blown a new wind into the market in recent years, the number of foreign buyers has increased sharply. In 2018, Hanoi and HCM City markets recorded a large demand from international customers; a large number of Grade A housing projects quickly reached the expected rate of 30% at the time of opening sale.

Regarding the real estate price trend in the coming time, Savills representative said that in 2018, the average selling price in HCM City is US$1,600/m2, an average increase of 10%/year in the last five years due to price increases in all segments. Grade A real estate recorded the highest price increase thanks to new supply achieving higher project standards; Grade B and C also recorded price increases but at a slower rate.

In Hanoi market, 2018 recorded an average price of US$1,300/m2 (an increase of 1% compared to 2017); Grade A segment also recorded the highest price increase. Because Grade B supply is quite abundant, many developers have offered competitive prices to maintain revenue. The number of Grade C transactions increased thanks to increasing demand for affordable housing, while investors also offered more flexible payment terms, discount programs and promotions to attract customers.

Regarding the market prospect in the coming time, Savills believes that, with high FDI and appropriate monetary policies, they will create a belief that Vietnam's real estate market will continue to develop; Supply is expected to increase in major cities to meet market demand. It is forecast that by 2020, most of the supply in HCM City will fall into the Grade C segment; while Grade B is expected to continue to lead Hanoi market.

Luong Tuan