CBRE Releases Q2 2016 Quarterly Report Highlights For Ho Chi Minh City Market

Ho Chi Minh City, June 29, 2016 –

Vietnam’s economy continues to be on the stable path with improving performances of gold, currency and stock. Since the end of last year, VN-Index has strongly recovered from the 570-level to the current 620-level. Although VN-Index had a bad day when Brexit happened on June 24th and decreased by almost 2%, the stock market quickly recovered. Similarly, local gold price increased to more than VND35 million and currency exchange decreased to lower than VND22,000 for 1 USD. Adding to the positive economic picture, average Consumer Price Index (CPI) is reported to increase by only 1.72% y-o-y, equivalent to an average monthly increase of less than 0.4%, while the interest rate is stable at 6.5%. However, there are still some issues left for the country to tackle. Bad debt is on the rise again (2.62% as of March 2016 vs 2.55% as of end 2015) as the result of Vietnam’s recent move of loosening credit to stimulate private sector and government spending. The country is now finding solutions including offering cash prize and consulting world bank; it needs keep an eye on this issue in the future.

In Q2 2016, Vietnam continued to receive good amount of FDI, both in newly licensed projects and capital increased projects. In six months, there are 1,145 newly licensed projects with the amount of committed FDI of US$11.3 billion, an increase of 105% y-o-y. Similar to Q1 2016, most of FDI went into manufacturing (71% of total FDI) while real estate ranks the second with almost 5% of total FDI. In terms of FDI origins, South Korea continues to lead with almost US$3 billion invested in six months; notably, LG Display Co., Ltd. invested US$1.5 billion into an OLED project in Hai Phong. Other significant investment deals include Samsung investing US$300 million in a 21-storey building in Hanoi, TNR Holdings and a Russian partner signed the memo regarding implement a US$300 million project in Hanoi and SynGience (Singapore) invested US$18 million in DepotMetro Tower – Tham Luong.

GDP in Q2 2016 is reported to be 5.52% (a slight improvement from Q1 2016’s growth of 5.48%) and the number of new foreign investors registering in Vietnam stock market was 630 in the first five months of 2016, an increase of 200% on a yearly basis. For real estate, according to Ministry of Planning and Investment, Vietnam welcomed 596 new businesses in the first three months of 2016, an increase of 146% y-o-y. Looking forward, Vietnam is still in a good shape to improve GDP growth rate in next quarters, though the level of 6.7%, set in the beginning of year, may not be guaranteed. Real estate market, similarly, also expects more dynamic activities and welcomes more foreign investors in the next quarters.

Condominium for sale

In Q2 2016, the condominium market saw a continued strong increase in launch supply, adding 10,107 units, up by 20% q-o-q but a minor drop of 9% y-o-y. Interestingly, this quarter reported the highest number of new launches in the mid-end segment, which account for 41% of total new supply. The luxury segment came in second with 22%, driven by the most-awaiting Vinhomes Golden River at the historic Bason site. After the official launch of Vinhomes Golden River with an active involvement of around 5,000 eager sales agents, the market dropped in terms of new launches for luxury and premium high-end projects as developers chose to ‘wait-and-see. This riverfront project reported an encouraging sales result of 8-year worth of combined sales of luxury projects in HCMC since 2006.

The review quarter witnessed a decreasing sales volume of 5,887 units, a cutback of 45% and 35% on both y-o-y and q-o-q basis, respectively. Net absorption plunged by 17 percentage points y-o-y and 9 percentage points q-o-q to 16% in Q2. This led to the first concern on the over-supply fear when the sales volume could not catch up with the new launch every quarter. In addition, CBRE Vietnam’s residential closed deals reported a notable shift from end-users to investors for both buy-to-let and capital gain purposes in the last 12 months. And the pent-up handover with a growth rate of 200% y-o-y in the next 18 months also put a question mark on the potentiality of the rental market, where a large number of existing buyers are signing SPA and wish for later healthy rental yield.

The second concern associate with recent legal disputes between developer and the residents, ranging from using their units as collateral, handing over the unfinished building to land dispute between the land owner and the developer. These issues pose great risks to buyers. On a more positive note, however, with larger new supply, the mid-end projects posted the highest proportion in sales for Q2 2016, accounting for 37% of combined sold units. Such record proves that buyers prefer new products; the more developers launch, the higher chance they can sell.

Sensing the quiet market sentiment, developers dropped the asking prices to US$2,009 psm, down by 1% y-o-y and 0.3% q-o-q. On the other hand, the selling price of luxury segment hiked 2% thanks to Vinhomes Golden River.

Looking forward, Ms. Dung Duong, Director of Research and Consulting, commented, “Despite the quiet Q2, CBRE expects that the market will regain its momentum in the second half of 2016 as some developers plan to launch their new projects. We have noticed some new interesting ones including the second phase of Diamond Island Premier Residence - Hawaii developed by Kusto Home; Empire City by a joint venture between Tien Phuoc, Keppel Land, Gaw Capital and Tran Thai; Palm City by a joint venture between Keppel Land, Tien Phuoc, Tran Thai (District 2), Millennium by a joint venture between Vinh Hoi Investment, Phat Dat Corporation and Thao Dien Investment (District 4), and Sunwah Pearl by Sunwah Group (Binh Thanh District).”

Retail market

In Q2 2016, HCMC retail market welcomed Lotte Mart Go Vap in Go Vap District, adding 27,410 sm of NLA to the city’s total existing supply. This is the fourth shopping centres opened in Go Vap District and also the fourth Lotte Mart opened in HCMC. The shopping centre included three floors with fashion/F&B on the first floor, supermarket/food court on the second floor. The third floor is going to be opened in July and will comprise of cinemas and a car parking lot. The reviewed quarter also witnessed the closure of Parkson Paragon shopping mall in District 7 after five years of operation. This event continues to reflect the market’s need of remerchandising mentioned in previous quarters as seen at Union Square and Vincom Centre B for renovation and welcoming new brands, which would significantly change some floors’ plans.

Rental rate in CBD stayed flat in Q2 2016 while that in non-CBD area decreased by 4% q-o-q due to the opening of Lotte Mart Go Vap, whose average rental rate is about US$25/sm/month, lower than the market average. Also in non-CBD area, rental rate of department stores slightly increased by 1% in Q2 2016 with the closing of Parkson Paragon. Vacancy rate was improved across all retail formats with market’s vacancy rate decreased by 1.4 ppt q-o-q. The retail format that experienced the most improvement in terms of vacancy rate is department stores (down by 2.5 ppt q-o-q), again, due to the closure of Parkson Paragon, which previously was reported to be vacant about 30%.

Vietnam has witnessed strong penetration from foreign retailers, most recently is Big C being acquired by Thai-based Central Group in April 2016 for US$1 billion. According to a study by CBRE Asia-Pacific, Vietnam ranks 42nd in terms of percentage of retailers’ representation in the country in 2015, which is two steps higher than last year’s ranking. As a result, a lot of M&A deals were done in the retail market. These M&A deals are expected to continue in the future for reasons: (1) Modern retail format in Vietnam is still limited, even compared to other regional South East Asian countries; (2) In Vietnam, there are still a lot of minimart/convenience store brands, which usually get consolidated when the market gets more mature; (3) some foreign retailers prefer to do joint-venture and cooperation with local ones to avoid “Economic Need Test”. The expansion of foreign retailers is good for consumers on one hand but on the other hand, can intensify competition between local and foreign retailers. Besides, later this year, the market is expected to welcome Aeon Mall Binh Tan, Saigon Centre (Phase 2) and Union Square, which promises to bring new brands to the market.

Office market

The office market observed no new building in Q2 2016. However, the long-pending building which was expected to open by the end of 2016 by Saigon Giai Phong Newspaper building finally resumed its construction work. Once completed, the developer will occupy most of the building and will only lease out 8,000 sm. By the end of 2016, the HCMC office market will welcome a new wave of supply in decentralized area, with Mapletree Business Centre in District 7 as the most notable project. CBRE anticipates that these buildings will change the market in both rent and vacancy rate.

The unchanged supply allowed HCMC office market to absorb the remaining space in both Grade A and Grade B. The vacancy rate dropped by 3.5 ppts in Grade A; resulted in its net absorption at 1,158 sm NLA. Compared to other mature buildings, new Grade A office towers completed after 2009 improved the most thanks to its prime location and competitive rents.

Grade B buildings in decentralised and centralised areas both improved their performance. The vacancy rate of Grade B went down by 4.2 ppts with net absorption increased by 4,871 sm thanks to good leasing activities at Pearl Plaza. Based on CBRE transactions, most of the deals were for relocation and expansion. Tenants renewed and expanded in their old buildings. For relocation, tenants moved to better office space which offered a reasonable price.

Rents did not improve significantly. Recorded rents were stable in Grade A. Landlord in mature buildings decided to maintain their current rents to stay competitive with new Grade A supply and the centralised Grade B buildings. On the other hand, rents of Grade B slightly increased by 0.6%; mostly from buildings in decentralized area.

Based on CBRE’s enquiries, Banking and Finance, Logistic and Technology still remained the most active sectors during the first half of 2016. Most of CBRE enquiries were from Asia Pacific which was account for 53%.

Source: CBRE