What the foreseeable future holds for Vietnam’s property sector

Will the impact of the Law on Residential Housing be felt in 2016?

 

This is the conclusion of Property Reports three-part series on the rebirth of Vietnam’s property market. Read Part One and Part Two here.

By Thomas Maresca

The changing nature of buyers and the diversity and quality of developments have developers and brokers in Vietnam feeling more confident that this renaissance is not another property bubble in the making.

In addition to owner-occupiers buying with mortgages, another new addition to the housing market has been foreign owners. On 1 July 2015, Vietnam’s housing laws were updated to allow overseas investors to own up to 30 percent of units in an apartment complex and 10 percent in villa and townhouse complexes.

“With the amendment to Vietnam’s Housing Law, the country’s property market offers long term growth potential and opportunities for foreign investors,” notes Linson Lim, president of Keppel Land Vietnam. “This is an important step towards opening up the Vietnam real estate market to overseas investment.”

Hard numbers are difficult to come by, but Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association (HoREA), said they had counts of roughly 700 foreigners purchasing apartments in Ho Chi Minh City (HCMC) since the law came into effect.

“But I think the real number is higher,” says Chau.

Another key factor driving residential property growth is the major infrastructure improvements underway. The first line of HCMC’s metro, connecting Ben Thanh Market with Suoi Tien Park in District 9, is scheduled for completion by 2020. Hanoi’s first of six metro lines is scheduled for completion in 2018. In both Hanoi and HCMC, the metro acts like a magnet for property developers, with many of the major projects located in close proximity to train lines.

More: 6 facts foreigners need to know about Vietnam’s new laws

In the big picture, Vietnam’s residential property market is beginning to look a lot less like the speculative dice roll of 2005-07 and more like something that has deeper roots for growth.

“At the moment we’ve got lots of money chasing lots of stock,” says CBRE Vietnam’s managing director Marc Townsend. “And lots of buyers. So it’s a much healthier relationship, whereas before it was too much money chasing too little stock, with limited numbers of buyers.”

Nor have property prices grown to bubble-like proportions. The range of high-end properties in HCMC remains in the USD2,500-2,900 per sqm range, with the very top tier of the luxury market tipping up to around USD7,500 per sqm, per CBRE. Meanwhile, luxury condominiums routinely fetch USD7,500-10,000 per sqm. Equivalent units in Singapore can command upwards of USD25,000.

Of course, that’s not to say that there aren’t a number of potentially destabilising factors worth keeping an eye on. Townsend says he’s watching the “5 Cs”: Currency, China, Commodities, Climate and Competition.

Certainly China and the climate have already shown an ability to shock markets, with China’s early-year stock market plummet and slowing economy a drag on the region, and climate change becoming a serious threat to Vietnam’s agricultural areas – which can potentially lead to an influx refugees fleeing to urban areas like HCMC.

More: Why HCMC’s residential market will prove to be a sustainable investment

The spectre of the last bust also still haunts the market. The State Bank of Vietnam recently issued a draft of Circular 36, which looks to tighten the flow of credit to the real estate sector. The maximum ratio of short-term funds used for medium and long-term loans will be reduced from 60 to 40 percent and the risk index of receivable lending for real estate will be raised from 150 to 250 percent.

Neil MacGregor, managing director of Savills Vietnam, believes the tightening actions will benefit the market. “I think it’s a good thing that the government should be controlling credit, controlling lending to real estate developers.

“It means that the developers have to really think through their feasibility studies and make sure that they have carefully considered who their target market is before proceeding with their projects,” he adds.

“And it hopefully restrains developers launching very large-scale projects without considering phasing and other measures to bring a project to market.”

Vietnam is anticipating another round of economic development, spurred by looming free-trade agreements such as the Trans-Pacific Partnership, the impact of which is hard to project with accuracy.

There are countless moving parts necessary to keep this robust real estate market going, but with pent-up demand and macroeconomic strength fuelling the current upturn the cranes don’t look like they’ll stop turning anytime soon.

This article originally appeared in Property Report magazine’s Issue no. 136.

Source: Property Report