March 07, 2016
HO CHI MINH CITY
2015 marked a new height for residential sector
In line with the continued expansion of the economy, market confidence started to pick up. This was clearly proven through well-attended launches, increasing sales volume and price improvements throughout 2015. Developers were confident and rushed to either release new projects, or repackage pending projects with a new design. In 2015, an approximate of 41,787 units were launched to the Ho Chi Minh City market across all segments, 2.2 times of that of 2014.
2015 also marked a strong come-back of the high-end segment, with major projects clustering along the Metro Line 1. This rapid transit system is currently under construction and has triggered residential launch activities in the Eastern part, including Binh Thanh District and District 2. The city also welcomed its first biggest condominium projects – Vinhomes Central Park (10,000 units, Binh Thanh District) and Masteri Thao Dien (3,745 units, District 2). However, in terms of launched supply, affordable segment still accounted for the largest share of 35.8%. While well-located high-end projects target mostly buy-to-let investors due to their high rental yield ranging of 6% – 8% gross, affordable ones proved to be a good choice to majority of end-users with limited affordability. Demand wise, market sentiment was strong and steadily improved over the quarters. Sales transactions reported a new record high at 36,160 units, almost double that of 2014. The top-tier segments (luxury and high-end) witnessed a big improvement in sales volume, expanded by 135.6% from last year as compared with 81.2% of the lower grades (mid-end and affordable). While the growth of sales transactions for mid-end and affordable segments have been slower than that of the top-tier ones, these segments still accounted for the majority of total sales (54%) as they target at end-users, or real demand.
Average pricing on both primary and secondary fronts has improved over the quarters and at a stronger pace towards the year end.
Besides, the revised Law on Housing and Law on Real Estate Business came into effect from July 1, 2015. The new policy allows and encourages foreigners to own properties in Vietnam by providing them more extended rights. Since then, the market has reported a significant level of interest from foreigners into major high-profile projects by reputable developers in both Hanoi and Ho Chi Minh City.
Strong supply and demand for top-tier properties
After a long downturn caused by the bubble burst, since H2 2013, the Ho Chi Minh City residential market started to see positive signals in both supply and demand, especially in the top-tier segments (high-end and luxury). These two segments altogether accounted for 30.6% of total launched supply.
Supply wise, during the crisis between 2011 and 2012, the luxury and high-end segments were those that suffered most due to the overall affordability and opportunistic nature. Prime-grade condominiums started to pick up by H2 2014 as developers were bullish to hold ground-breaking and launch events. Since then, top-tier segments have been nearly tripled in terms of new supply, totalling at 16,674 units by the end of 2015. This is four times higher than that of 2007, reflecting how big the current market size is compared to the last cycle peaking during 2006 – 2007. Phu My Hung Corporation (Taiwan) and VinGroup (Vietnam) are the biggest developers who have continually introduced new products in the South and the East respectively. These areas are also the most active buy-to-let clusters with healthy rental yield.
In 2014, sales picked up with 5,767 units (against around 1,000 units in 2011 – 2012). Sales momentum remained strong in 2015 and reported a new record (13,586 sold units), doubled 2014.
Looking forward, significant large-scale high-end and prime luxury projects are expected to be launched in the next 2-3 years. CBRE Research estimates that over 18,200 top-tier projects will be launched in 2016 and a number equivalent to 2015’s supply in 2017. However, new launch will drop significantly in 2018 due to lack of prime sites when every developer is hurrying to catch the peak during 2015 – H1 2017.
Are we still peaking or have we peaked?
In terms of demand, absorption in 2016 is expected to be slightly lower than 2015 since new launches next year will carry a much higher asking price and buyers need time to get used to such price level. Top-tier take-up may slow down in 2017, especially in the second half when the market sentiment might be out of steam. Then it will be cut down by half in 2018 as new top-tier projects being launched this year are mostly the long pending ones at less popular districts. However, 2018’s market-wide take-up might be at the same level to 2014 due to the balance from lower-end products.
Stabilised price levels expected in the mid-term
Since 2014, prices in primary market has been on the rise, though at a modest rate. CBRE Research data shows that after decreasing largely by 20.4% in 2010 (as compared to the peak in 2008), prices have gradually increased over the quarters. Primary price of premier homes now ranges between US$2,033 – $4,197 psm depending on location.
Looking forward to 2016 and beyond, CBRE Research expects that price growth rate could be strongest in 2016 (with an uptick of 17.2%) and may slow down in 2017 – 2018. With more discerning buyers and abundant supply, developers are cautious in price increase in order to ensure sales schedule as planned. Therefore, price growth will mostly come from new top-tier properties at very prime location asking between US$7,500 – $10,000 psm (luxury projects right in the existing CBD) and US$2,500 – $2,900 psm (large-scale high-end projects in the expanding CBD or in District 2 in 2016 and at Phu My Hung New Town in District 7 in 2017). From 2018, new premier properties will be scattered in other less favourable districts, leading to a modest drop in primary prices.
Will foreign buyers enter the market?
The crackdown on foreign housing ownership, in addition to developers’ promotional sales programs, are reaping results after several months of execution. We are seeing notable interest from Singaporean, South Korean, Japanese and Malaysian buyers who live and work in Vietnam, mostly buy-to-let investors. HCMC’s yields are very attractive, compared to other matured markets. The ready pool of tenants, especially near the international schools, also helps investors to quickly fill up their vacant apartments.
Vingroup, a listed local developer with the biggest land bank in Vietnam, reported a deposit receipt for over 400 units from foreign buyers at Vinhomes Central Park, particularly at their luxury block (Landmark 81). Anecdotal evidence also shows that other premium high-end projects with good locations, adequate facilities and developed by prestigious investors have attracted many foreign buyers. Even one project have reached the cap applied to foreign buyers (up to 30% of the total units) four months after its official launch. However, CBRE Research does not expect an abrupt change in sales to foreigners in 2016.
Positive market sentiment expect to continue in 2016
2015 has been a positive year for the entire residential market. An estimated total 28,283 units have been launched to the market across all the different segments, 70% higher than that of 2014. Developers were confident and more bullish on the market and rushed to release either old projects at a new positioning or new projects that have been put on hold during the market crisis.
2015 marked a come-back of high-end and luxury segments, with major high-end projects in the CBD-fringe and the West. Besides, affordable segment still accounted for a considerable share of approximately 30% in terms of supply. While high-end projects in good location target mostly buy-to-let investors, affordable projects proved to be a good choice to majority of end-user buyers due to their affordability.
Demand wise, market sentiment was positive throughout the year and improved over the quarters. An estimated total 21,102 units have been sold across the segments over the year. High-end and luxury segments saw improvement in their shares of total sales over the quarters and ended the year at approximately 32% of total sales, which rate was historically below 20% in the past years.
While the shares for mid-end and affordable segments have been lower than those of 2014, these segments still account for a majority in total sales, due to their affordability and targeting more end-user buyers.
Pricing has shown the same performance pattern like HCMC, but at a moderate pace.
Strong supply and demand for top-tier properties
After a long cold winter from 2012, since H2 2014, the Hanoi residential market started to see positive signals in both supply and demand, especially in the investment grade properties – high-end and luxury segments. These two segments altogether accounted for 18% of current market supply.
Supply wise, prime grade condominiums started to pick up by end of 2014, as developers were quick to gauge the window of opportunity for launch, and started to quickly get their land bank ready for launch and development.
A total of 1,481 of prime units were launched in 2014. In 2015, in line with the strong recovery in market sentiment, as many as 6,365 high-end and luxury units are launched to the market, which is four times higher than that of 2014. Majority of the units launched are in good location, in CBD-fringe, just 10-minute drive to the current CBD, which is still favoured by local buyers. Vingroup’s Park Hill project with over 3,000 units released has been a major new launch for 2015.
Prime-grade properties in good location near the current CBD have always been favoured by local buyers for their good rental yield potential. During the time of crisis 2012 and 2013, high-end and luxury segments were those that suffered most due to affordability and opportunistic nature. In 2014, sales picked up with total 2,319 units being sold (as compared to less than 500 units per year in 2012 and 2013). The strong sales momentum remained in 2015 with 4,800 units being sold in these segments.
As the opportunistic segments see the strongest demand in an uptrend market, premier properties are mainly absorbed by buy-to-let investors since the properties are in prime locations and can command good rents from foreigners working in the city.
Looking forward, Hanoi also expects significant large-scale high-end projects to be launched in the next 2-3 years. CBRE Research estimates that over 6,000 prime grade apartments will be launched to the market in 2016, a similar level to 2015. Pace of new supply of high-end and luxury apartments added to the market might slow down in 2017 and 2018 respectively.
In terms of demand, absorption in 2016 is expected to be at the same level as 2015, and may slow down in 2017 and 2018 as a new market cycle would begin.
Limited future supply for prime homes
Top-tier properties are much attached to a prime location. The declining supply of prime homes is mainly due to lack of available land and timing. Supply of prime grade properties usually soars in an uptrend market. As market slows down, developers tend to release units that are more affordable.
Stabilised price levels expected for next few years
Prices in both primary and secondary markets have seen upward trend since 2014. CBRE Research data shows that after going down approximately 22% in 2013 (as compared to the peak in 2010), prices have gradually increased over the quarters since 2014.
Primary price of prime homes are currently in the range of US$1,600 – US$3,500 psm, depending on locations, while resale price hover between US$1,500 and US$3,850 psm.
Looking forward to 2016 and beyond, CBRE Research expects that prices would stabilize and grow at a modest level. Since the buyers are now more discerning and supply is abundant, developers are also cautious in increasing their selling prices in order to ensure sales schedules go as planned.
CBRE Research expects that price growth rate could be strongest in 2016 and may slow down in 2017 – 2018.
Changes as foreign buyers enter the market
With the market becoming more open and internationalized and overall pricing still attractive compared to other matured markets, it is expected that more foreign buyers will show interest in the Vietnam market as more guiding laws are issued to direct the stakeholders involved.
Despite notable interest from foreigners who live and work in Vietnam, the number of sales to offshore foreigners to date has been limited. Unlike local buyers who are familiar with the market, foreigners, when buying home abroad, ask many questions regarding the administrative process, potential capital gains and rental yield. They look far into the future and are concerned about any potential implications related to re-selling their assets when the time comes.
Therefore, developers still need to prepare for the battlefield at a new height: Professionalism, language proficiency and ease of payment are mong key matters in a changing market.