CBRE Releases Q2 2016 Quarterly Report Highlights For Da Nang City Market
Da Nang, June 1, 2016 –
Vietnam started 2016 with GDP’s real growth rate at 5.46% y-o-y, which is lower than the 6.03% growth rate recorded in Q1/2015. Decrease in Vietnam’s GDP growth rate is due to the slowdown of some big economies such as Japan, China and EU, as well as the instability of the global finance/money markets, some of which are experiencing negative interest rates and suspended multiple times in the review quarter. In such conditions, Vietnam’s average CPI went up by 1.7% y-o-y, reflecting a less optimistic economic environment. This hike in CPI was also partly due to increasing price in consumers’ goods during Tet holidays. However, this effect has not affected the lending rates and interest rates, which are reported to stay flat since last quarter.
Global crude oil started to pick up in the last few days of March, reaching USD38/barrel - an increase of more than 25% compared to the level in February. Although the current crude oil’s price is much lower than its peak in 2014, this hike sent some positive news in the middle of Vietnam’s poor economic performance. Along with better crude oil’s price, Vietnam’s stock market received positive signal with VN-Index reached 561 in the last trading day of March. Such achievement assures that 2016 will be a comeback year for Vietnam’s stock market.
CBRE notices dynamic activities across most sectors in the Vietnam real estate market. FDI into Vietnam reached more than USD4 billion, of which 6% went into real estate, equivalent to 11 newly licensed real projects with USD239.8 million. Major investment foreign investment deals in Q1 2016 were from the following sectors: Residential (TNR Holding bought TNR Tower in Hanoi with USD110 million, Keppel Land bought Empire City from Empire City Ltd. In HCMC), Hospitality (Hyatt and Thaigroup bought US$165 million hotel in Hanoi), and Industrial/Logistics (Herberton, Samsung increased capital in manufacturing plants in industrial parks). Looking forwards into later 2016, trend of M&A activities is expected to continue, market will welcome more new players who might drive the Vietnam market to another new high.
Da Nang Economic Overall
Da Nang started 2016 with a decent GDP growth rate of 7.1% y-o-y, higher than the country’s average of 5.5%, yet lower than the level observed in 2015 and 2014, which were 9.8% and 9.3%, respectively. Similar to 2015, services and manufacturing, which account for 64% and 33% of city’s GDP, contribute the most to the growth in the review quarter. In terms of price index, the city witnessed an increase in Consumer Price Index (CPI) in Q1 2016 of 0.88%, which is higher than 2015’s record low level. CPI is expected to continue rising in in near future, mostly from transportation group, due to increase in fuel price. A slight increase in CPI is a sign of good consumption in the city. In the first four months of 2016, retail and services increased 7.2% y-o-y at reached VND21,000 billion.
Compared to other developing cities in Vietnam, Da Nang is the decreasing level of FDI throughout the years, despite the city’s good ranking in terms of Provincial Competitiveness Index (PCI). One explanation for this fact is that Da Nang usually turns down some FDI proposals that may cause environmental issues to the city. For example, in 2015, the city declined to implement two textile/dying projects from a Taiwanese company and a South Korean company for this very reason. Despite the slowing FDI, Da Nang is still able to secure some significant projects in other industries such as: Da Phuoc Urban Area (US$250 million), a mixed-up township near City’s Memorial (US$200 million). It is noted that these FDI projects are from South Korean investors, the biggest investor in the city, thanks to signed free trade agreement between Vietnam and South Korean. The investment level from South Korea is expected to continue rising significantly in the future.
Looking forwards, Da Nang will continue investing in developing technology/education/science projects and funds. Among the rapidly improving infrastructure, Da Nang is channeled to become the business, commercial center of central Vietnam and the event city of Vietnam and the surrounding regional area.
Second home market
The condotel market in the first half of 2016 showed a strong increase in new supply with 2,436 units from six projects, 89% of which comes from high-end sector such as Vinpearl Riverfront Condotel Da Nang, Ariyana Beach Resort & Suite Da Nang, Alphanam Luxury Apartment, Ocean Suite (Block B), FHome (Block A), and Cocobay Ocean Condotel. The total supply of condotel increased to 3,084 units, of which high-end developments accounted for the largest proportion of 76%, followed by the mid-end (16%) and luxury segment (9%). In the early of Q3 2016, two more projects are expected to come online: Tourane Condotel and Condotel Central Coast Da Nang, adding more than 800 units to the condotel market.
New supplies caused the average asking price of high-end projects to go down by 4.8% and mid-end projects increased slightly by 0.4% compared to Q4 2015 while prices at luxury projects kept unchanged. Developers offer small discounts to early buyers at new launches from 3% to 5%.
In terms of sale activities, as of end of May 2016, those projects that were launched in the beginning of the year recorded an average sale rate of 63% while projects that were just launched a month ago still have a low sale rate. Buyers from Hanoi and northern cities dominate the second home market in Da Nang. This group accounts for approximately 75% - 85% of successful transactions and most of them requested to access to rental pool program.
In terms of future launches, 1,629 units from six projects are expected to be launched in the next six months, most of which are for mid-end segment.
For second home villas, the review quarter saw no new supply in the market. Market supply stayed unchanged at 788 units from 14 projects. It will welcome 16 villas from Nam An Residence phase 2 in early Q3 2016.
In Q1/2016, the average sales rate of luxury and high-end segment showed an upward trend of 5.9 percentage points and 9.4 percentage points compared to Q4 2015. Showing the same trend, several successful transactions help to increase mid-end segment sale rate by 1.2 percentage points q-o-q. Successful transactions happened mainly at specific projects such as Furama Pool Villas, Premier Village Da Nang, Naman Residence, The Point and Vinpearl Resort & Villas Da Nang 2. Projects with guaranteed yield on a rental pool programme can be more attractive to potential buyers due to profits from rental pool programmes. Mr. Marc Townsend, Managing Director of CBRE Vietnam, commented, “Overall, both the condotel and second home markets saw lively movement in sales activity in 2015 and first half of 2016, especially in increasing sales rates at launched projects. In particular, vacation projects managed by well-known operators and offering fixed annual returns are proving attractive to investment buyers.”
Market average asking prices stayed unchanged in the review quarter. Asking prices are expected to remain stable at most projects in the next quarter. Developers will continue offering incentives to encourage prompt payment. Asking prices for Da Nang’s second-home villas range from US$250,000 to US$2,000,000 each in which the largest proportion 57% are from US$500,000 – US$900,000. This was followed by units in the price range of US$900,000 - $1,000,000 (23%) and those in the price range above US$1,500,000 per unit (14%).
Condominium for sale
The condominium for sale market started 2016 with a strong increase in new supply. In the first half of the year, there are 1,000 newly launched units, an increase of 44.6% y-o-y. Most of this comes from mid-end and affordable projects which account for 78.9% of total supply. In the first quarter of 2016, there were 936 new affordable units which came from Muong Thanh Son Tra Condo & Hotel. Regarding location, most condominium for sale projects located in the CBD (1,103 units) which account for the largest proportion of the total supply (34.6%), followed by coastal area (33.2%) and CBD-fridge (32.2%).
The asking price of the high-end segment remained unchanged at US$1,623 psm. The average asking price of mid-end developments was US$826, showing the highest increase of 3.7% y-o-y. The asking price at affordable projects was US$ 656, a decrease of 7.7% y-o-y due to the launching of Muong Thanh Son Tra Da Nang (US$600 – 700 on average).
In the first five months of 2016, CBRE recorded an estimated 1,000 sold units in the condominium market, surged by 74.6% y-o-y. Affordable segment witnessed the largest sales volume (45.8%), followed by mid-end (36.3%) and high-end segment (17.9%). The affordable segment recorded the highest number of sales at Muong Thanh Son Tra Condo & Hotel and this helped to increase the average sales rate in this segment from 63.5% in 2015 to 87.6% in the review quarter. The sales rate of mid-end developments increased from 78.7% in 2015 to 82.6% in the review quarter. This was due to high sales volume at Harmony Tower, Da Nang Plaza, F-home and The Monarchy. Over 60.0% of clients who bought condominiums in the CBD are from Da Nang while the majority of coastal condominiums are purchased by buyers from Hanoi, HCMC and other cities in Vietnam.
Regarding outlook, Mr. Marc Townsend, commented:” Asking prices are expected to remain stable at most projects in the next quarter. Developers will continue offering incentives to encourage prompt payment. Notably, The New housing law which came in to force on 1st July 2015 will bring opportunities for those who are interested in the real estate market in Viet Nam. Under the new law, foreigners who are allowed to enter Vietnam are also able to own condominiums and are able to lease, mortgage, contribute as capital, gift, bequest, exchange, etc. Although as CBRE has observed, the number of successful transactions made by foreign buyers has not increased dramatically due to a need for clarification on the legal situation, though there is clear foreign interest in the vacation property market.”
In the first five months, Da Nang welcomed a total of 1,471 new rooms from one five-star hotels, four four-star hotels and six three-star hotels, increasing the accumulated three- to five-star supply to approximately 11,275 rooms, of which three-star hotels make up the largest proportion of 41%.
According to Da Nang Department of Culture, Sports and Tourisms, in Q1 2016 the city welcomed 1,040,169 tourist arrivals, of which international tourists accounted for 35%. This represented a y-o-y increase of 15.1% for international and 20.3% for domestic arrivals. Da Nang City authorities announced recently that it would coordinate with airlines to upgrade charter routes to Da Nang into regular routes. In May 25, Bangkok Airways launched its new route between Da Nang and Bangkok, helped to increase the direct international air routes into 25 routes, including 11 regular direct flights and 14 charter flights. This proposed upgrade is expected to bring a greater number of tourists to Da Nang.
In Q1 2016, the ADR of five and four-star hotels reached US$ 173.04 and US$58.73 per room per night respectively. Compared to Q1 2015, this represented an increase of 12% for the five-star segment and 5% for four-star hotels. In terms of occupancy rate, the five-star and four-star segment had an average occupancy rate of 63.3% and 50%, an increase of 3.9 ppt and 0.3 ppt respectively.
To welcome APEC 2017, the construction of internationally branded hotels has been accelerated. The market will welcome new international hotel brands including Sheraton, Marriot and Hilton.
Recently, new hotels have started to spread out to beachfront areas. The trend of developing new properties on the beachfront is expected to strongly increase in the future. From 2016 to 2018, the market is expected to welcome more than 3,000 new rooms from 16 under-construction projects. Of these, over 90% will be beachfront properties.