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Nicklaus Design BRG Legend Hill Golf Resort, Hanoi, Vietnam

April 12, 2016

Apartment For Sale

In Q1 2016, a total of 4,318 new units were launched from 16 projects, an 18% decrease as compared to Q1 2015. Notably, 11 out of 18 projects are from mid-end segment, supplying 49% of total launch.

A total 4,048 units were recorded sold during this quarter, indicating active sales activity, although this represented a soft decrease of 5% y-o-y. It is noted that high-end and mid-end segments dominated sales in this quarter, with market shares of 48% and 36% respectively. Low-end segment saw a dip in sales, which could be attributed to the recent changes in the implementation of VND30 billion package. The credit facility of 30 billion package would soon expire by June 2016, according to Circular 11/2013/TT-NHNN, which has started affecting buyers of the affordable sector. Another regulation change that may have impact on the residential market is the proposed draft amended Circular 36 regarding limits and ratios of bank financing to the property market. The proposed amendments include lowering the ratio of using short-term capital for medium-and long-term loans, and increasing ratio of asset risk of property loans. This aims to continually improve risk management in banking system and encourage credit flow into other industries rather than property. As the property market is perceived to have been recovering, with supply and prices growing again, the amendment also aim to lift off some of the support previously lent to the industry during a more challenging time. In a good way, the change would help restrain liquidity risk in the property market as well as in the banking system, especially in a potential rising interest rate environment. However, the change, if approved, would also create difficulties to property developers, investors, and buyers, especially as types of financing among local developers are currently limited largely to bank financing.

In terms of pricing, it is noted that some projects in good locations and accommodated with sufficient amenities and facilities have increased their prices. However on average, only primary prices of mid-end segment increased 2.9% while those of high-end and low-end saw declines of 0.3% and 7.8% respectively. On the resale front, average market prices have improved across high-end, mid-end and affordable sectors, however declined in luxury sector q-o-q as some luxury projects that have been aging have lower resale prices.

Moving forward, the West and South West still gather the most in terms of number of units, accounting for 75% of total supply. Besides, Ba Dinh district is expected to welcome three high-end projects, supplying 488 units. Given strong supply in the pipeline and a seemingly strong sales, market might be stabilizing after experiencing unprecedented growth in 2015.

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Landed Property

There was one new launch in the first quarter of 2016, the Botanica in Vinhomes Gardenia provided 154 terraced houses, 38 villas and 172 shophouses, significantly increasing supply in Tu Liem district. This is one of a few landed property projects that introduce shophouse units.

Shophouse concept was previously introduced to Hanoi market with the launch of Truc Street and Cuc Street in Ecopark in 2011. Since then, there have been 1,182 shophouse units launched from 4 projects. A shophouse usually has part or entire of the house designated for retail area, which potentially increases value of the house due to commercial leasing possibility. Owner of a shophouse could lease out part or all of the house for retail business, while the rest of the house could be used for or rented out as a residence. Turning this concept into a success requires a combination of factors including a proper merchandise mix and tenant mix, strong leasing capabilities, and professional operation management.

In Q1 2016, average prices on the secondary market decreased 1.3% q-o-q and 1.5% y-o-y. Ha Dong district, which is quickly emerging as Hanoi’s new residential cluster, supported by improving infrastructure connection, enjoys positive price increases, up 5.5% q-o-q and almost 15% y-o-y. Cau Giay district and Hoai Duc district also enjoy modest price growth of under 5%.

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In the next quarters of 2016, significant projects, including the Manor Central Park (Hoang Mai) and Starlake (Tay Ho), are expected to bring about new products of high quality from reputed, experienced developers. Landed property market is expected to continue improving as buyers have become more discerned, and developers have come to accommodate. Projects that have just been re-started or under-construction will be paying more attention to developing their supporting facilities, amenities, management service and marketing strategies as these have been recognized as critical factors in sustainably attracting buyers.

Office

In the first quarter of 2016, one Grade A office entered the market, TNR Tower with 52,800 sqm NLA, significantly increased Grade A stock by 15%. By the end of Q1 2016, total office space in Hanoi reached approximately 1,158,000 sqm, in which Grade A and Grade B account for 36% and 64% respectively. It is noted that one Grade B in Tu Liem district is available for lease in this quarter, expected to enter the market in the next quarter with approximately 30,000 sqm.

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During the review period, Hanoi office market still saw relatively strong demand, primarily from local occupiers, with net absorption of 37,320 sqm, up 26% q-o-q and 8% y-o-y. Vacancy rate for Grade A went up by 5.8 percentage point (ppts) compared to the previous quarter, reaching 18.2%, while that of Grade B went down by 1.8 ppts q-o-q, reaching 9%.

As new project offered promotional rental rates which are softer than market average, average asking rents of Grade A buildings in this quarter posted a decrease of 4.2% q-o-q, achieving US$28.1 per square metre per month (psm pm). Grade B buildings, on the other hand, saw a slight increase in rental rates of 0.3% q-o-q. Increases in rents mostly occurred in buildings in the West, located in area with well-developed infrastructure.

Looking forwards, approximately 290,000 sqm is expected to come on stream throughout 2016. It is also worth noting that about 72% of this expected supply is in the west, which continues to put pressure on rents in this area. CBRE forecasts that 2016 will be year of Grade A buildings as no more Grade A building will enter the market in 2015. Rental rates of Grade A buildings, especially in the West and Midtown are becoming increasingly reasonable, which enables tenants to lease high-quality office space for the same budget for Grade B’s in CBD. Tenants in technology, electronic, IT and Banking, finance, insurance still lead the market in terms of office expansion. In 2016, outsourcing sector is expected to grow, occupying more space and renewing longer lease terms, as there are more manufacturing facilities located in Vietnam.

Retail

There was no new project in the first quarter of 2016. Up to present, total retail space in Hanoi reached approximately 705,000 sqm, provided by 19 shopping centres, two department stores, and nine retail podiums.

Average vacancy of Hanoi’s retail centers increased from 10.2% in Q4 2015 to 11.5% in Q1 2016, as at the beginning of the year, some leasing contracts with tenants expired, leaving vacant space in some shopping centers.

In terms of rents, limited supply in the CBD enabled rents to slightly improve by 1.8% q-o-q. One project in the non-CBD temporarily closed, partly helping boost rent up by 3.2% q-o-q. Large pipeline of retail podiums in residential projects in non-CBD area in the coming years should caution existing and upcoming shopping centres’ operators as pressure is expected for both rental rates and vacancy levels.

Looking forward, in 2016, new shopping centers are becoming affordable, targeting middle class, therefore rentals might not be as high as those in the past. Vingroup will continue to lead market share of retail space with several upcoming projects in various locations. In near future, other projects developed by foreign players, including Gamuda, Ciputra may offer rentals at or lower than market average levels also due to non-prime locations.

In the first quarter of 2016, CBRE Asia Pacific released a report titled “Retail hotspot in Asia Pacific 2015”. According to this report, cross-border retail activity in Asia Pacific continued to intensify in 2016 but growth was confined to gateway cities. The top five markets accounted for around 60% of new entrants, up from 54% in 2014. Underpinned by strong consumer demand for retailtainment, retailers from the Coffee and Restaurants sector accounted for 33% of new entrants in 2015, compared to 22% in 2014.

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Serviced Apartment

In Q1 2016, no new serviced apartment supply was recorded in Hanoi, with a total of 3,239 units (Grade A – 2,308 units, grade B – 931 units). By unit type, 2 bed rooms units have highest supply (more than a third of total supply), followed by 1 bedroom and 3 bedroom type with 27% and 23% market share respectively.

Average asking rent remained largely unchanged for both Grade A and Grade B at US$31.4 psm pm and US$22.1 psm pm, respectively. Developers of Grade A serviced apartments were more flexible in rental policy to increase occupancy rate, while average asking rates for Grade B were more stable. Accommodation in Tay Ho area still commands higher rates than in other districts it continues to be a preferred residential neighborhood for expats in Hanoi.

In terms of market performance, both occupancy rate and rental rate went down slightly, resulting in a slightly lower RevPAR (Revenue Per Available Room). Occupancy rate hits 83.6%, down 2.3 ppts q-o-q. Rental rates decreased by 1.0% q-o-q to US$28.6 psm pm (US$2,880 per unit pm). As a consequence, RevPAR in Q1 2016 was down 3.6% q-o-q and 5.1% y-o-y. That said, serviced apartment market in Hanoi is considered to be relatively stable with strong demand drivers moving forward following increasing foreign investment flows. Certain international operators of serviced apartments have indicated expansion plan to cater to such expected demand.

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© 2016 CBRE Group Inc. We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make no guarantee, warranty or representation about it. It is submitted subject to the possibility of errors, omissions, change of price, rental or other conditions, prior sale, lease or financing, or withdrawal without notice. We include projections, opinions, assumptions or estimates for example only, and they may not represent current or future performance of the property. You and your tax and legal advisors should conduct your own investigation of the property and transaction.

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