Ho Chi Minh City, April 02, 2015 –
In Q1 2015, Vietnam's economic growth increased to an annual rate of 6.03%, the highest rate for the last three years. The country’s growth model continues to be driven by increasing industrial production and foreign investment. 80% of FDI capital, mostly originating from South Korea, was invested into the manufacturing and processing industry. With average wages still well below those of some of its Southeast Asian neighbours, many companies have shifted their off-shore plant to Vietnam in order to become more cost-effective. Mobile phones have become Vietnam's main export item thanks to investment from Samsung, contributing 14% of total export value. Following Samsung, LG Electronics Inc. will soon shift its television production from Thailand to Vietnam for logistical and efficiency reasons. For the first three months of 2015, South Korea surpassed 32 other countries and territories to become Vietnam’s leading source of FDI.
ANZ has revised its GDP growth forecast for Vietnam in 2015 and 2016 upwards, to 6.5% for both years from the previous 6.2% and 6.4% respectively. This increase is attributed to a recovery in domestic demand, especially Vietnam car sales. For the first two months of 2015, the total number of cars sold has increased by 173% y-o-y while total retail sales reported their fastest growth since 2012.
The inflation rate was controlled below 3%, supporting a further cut of the open market operation rate to beef up domestic demand. Interest rates including both the deposit and lending rates have been adjusted downward significantly from the beginning of the year. The mortgage rate has decreased by 1.5% - 2% on average to 7.5% - 8% for the first 12 months of the loan term. Recently, with the stronger U.S. dollar, the Vietnam dong has become one of the strongest currencies in the Asia Pacific region due to the oil price slump and government control. Both decreasing interest rates and stronger currency are expected to attract more foreign investors to the nation.
In line with economic recovery, the real estate market ranked second in terms of total FDI into Vietnam, accounting for 9% of the total. In 3M 2015, 19,000 companies were newly registered nationwide, an increase of 4% y-o-y while newly registered real estate companies were up 49% y-o-y. Local developers plan to boost their reputations by publicizing. This includes Novaland (to IPO by end of 2015), FLC Group (plan to list shares in the Singaporean stock market) and Becamex IDC.
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2015 opened with a strong new launch of 5,150 units across all segments, an increase of 300% y-o-y. This proves that market sentiment has improved significantly as the first quarter of the year is usually quiet due to the long Tet holidays. The most active segment was still high-end, mostly due to the continued launches of massive projects such as Vinhomes Central Park by VinGroup, Masteri Thao Dien by Thao Dien Investment and Scenic Valley by Phu My Hung Corporation. Having acquired eight development sites during 2014, Novaland also joined the race with a quick roll-out of Tower A of RiverGate, the second launch of The Tresor, Tower TB1 of Botanica, and the first three towers of The Sun Avenue, totaling 756 units for the first three months.
Mr. Marc Townsend, Managing Director of CBRE Vietnam, commented on this trend, “After many years of the market being quiet, we have started to see a strong come-back with projects which are now bigger in terms of size, scale, segment and complexity. By looking at the high-end segment, we can see an interesting correlation between price levels in the primary market and the average size of project launches”.
In the period 2007 – 2008, when selling prices of high-end properties hit record levels, the average launch size ranged between 364 – 572 units per project. The average launch size decreased in line with the slide in price, reaching only 165 units per project when the price hit its lowest point in 2012. But as soon as the price started picking up again in 2013, average launch size also gradually increased. Since late 2014, the average launch size has been getting close to 500 units per project.
In terms of stepping up to the higher-end segment, take Nam Long Investment Corporation as an example: last week they signed a partnership with two investors from Japan to develop the first so-called “Premium Affordable Housing” project – Flora Anh Dao in District 9. Mr. Marc Townsend further highlighted, “So after ten years of developing the famous E-home brand, the developer is now reacting to the improving market and has decided to upscale their products. These are still affordable to the mass of buyers but premium in terms of finishing levels, design and ambience.”
Sales momentum remained positive with sales agents working until close to the Lunar New Year and buyers going out and buying right after the holidays. More than half of the above new launches were sold out. Encouragingly, the review quarter saw nearly 6,500 units absorbed, an improvement of double y-o-y. The affordable segment reported the highest absorption in the first three months, up by 17% q-o-q.
On the other hand, we noticed slower sales in the high-end segment, with an approximate drop of 30% - 40% q-o-q. There was some concern that this was the first sign of oversupply in this segment, but Mr. Marc Townsend continued to explain, “It is too early to worry about the larger-than-normal supply in the high-end category. What concerns me more is prices and whether these remain affordable for the mass market”.
CBRE observed that primary prices have increased by 3% - 5% q-o-q at some particularly well-located projects with improved infrastructure and high potential for buy-to-let tenants. However, this has not happened across the board. Even developers with good track records have been cautious in increasing, or stepping, their prices. Marketwise, the high-end primary price edged up to US$1,717 psm, a modest increase of 1.6% q-o-q and 3.6% y-o-y. With such minor changes, everything is still under control. However, it is notable that at projects witnessing slower sales, the commission scheme for brokers has been revised down which has led to a reduction in their enthusiasm and commitment.
“When the market was inactive, brokers were willing to stay with the same developers but as the market improves, they will start looking for the best package offered. So in 2015, in light of the gradual recovery of the residential sector, good brokers will be most sought-after by head-hunters,” Mr. Marc Townsend concluded.
The first quarter of 2015 has started well with average retail rents starting to pick up slightly in both non-CBD and CBD locations. This was due to gradually increasing occupancy rates compared to the same period last year in some shopping centres such as Vincom Center B, Union Square and good take-up rates at newly open centres including Vincom Thu Duc and Saigon Square 3. The average occupancy rate has remained healthy at 75% - 80% despite the negative effect of the economic crisis and increasing levels of supply. Both Vincom Thu Duc and Saigon Square 3 reported high occupancy of 70% on opening.
During the quarter, both local and foreign retailers performed well. Vincom Retail aggressively expanded the Vinmart+ chain, including mini-supermarkets and convenience stores, VinFashion and are planing to open two new brands VinPro (electronics outlet) and VinDS (department store) in 2015. Strong expansion was also reported from Aeon Group (Japan) and two other retailers from Thailand (BJC and Central Group) via cooperation with local retailers. Notably, Aeon Group bought 30% of Fivimart and 49% of Citimart to promote their products and to consolidate and expand their distribution systems. BJC bought Family Mart and aims to expand to 300 stores by 2018 while Central Group acquired 49% of Nguyen Kim Trading JSC, a Vietnamese electrical appliance chain.
According to CBRE Research, F&B retailers displayed the strongest growth in APAC while luxury and business retailers were the most active. In Q1 2015, apart from Vincom new retail brands, the HCMC market welcomed hai new foreign entries: the luxury Italian fashion brand Gucci and Hollys Coffee (Korea).
In a consumer survey CBRE conducted in August 2014, interviewing 1,000 consumers aged from 18 to 64 and split equally between Hanoi and HCMC, 25% of respondents said they expect to shop less often in a store. 45% - 50% of respondents said that they would shop online via desktop/laptop or smartphone/tablet more often than they do now. It is surprising that an even greater proportion of consumers (69%) aged from 55 to 64 actually think that they would use their smartphone/tablet more frequently to buy non-food items. Ms. Dung Duong, Head of Research and Consulting, CBRE Vietnam commented that although the outlook for the bricks-and-mortar format still remains upbeat, shopping centre operators must be aware of the challenges posed by online retail. This is crucial for shopping centre management and related areas such as marketing. It is suggested that retailers and landlords should take advantage of this trend and do more online selling and advertising via social media and their Business to Customer (B2C) websites. In addition, CBRE recommends landlords to adapt their strategy to boost both e-commerce and offline business activities by leveraging “big data”, which can track levels of consumer engagement, implement Online to Offline (O2O) strategies, and create simple and useful applications for those who want to shop via their smartphone/tablet.
Q1 2015 has seen positive correction in the office market. Positive net absorption and decreases in the vacancy rate have been observed in both Grade A and Grade B. The office market welcomed one new building in the review quarter, the Robot tower in Grade C while there were no new Grade A or Grade B buildings.
The HCMC office market remained stable in the review quarter in both the CBD and in decentralized districts. Demand from the market keeps increasing due to improvements in the global and Vietnamese economic situation. This was compounded by limited supply which helped to reduce the vacancy rate.
The Grade A vacancy rate showed a slower level of improvement compared to Grade B. In Q1 2015, the Grade A vacancy rate decreased by 0.3% versus 2.2% in Grade B. Compared to Q1 2014, the Grade A and B vacancy rates in Q1 2015 decreased by 1.9% and 3.8% respectively.
Net absorption in Q1 2015 decreased q-o-q for both Grade A and B. The Grade A net absorption decreased by 31.7% versus 20.7% in Grade B. The net absorption increase was also recorded in Lottery Tower, which was introduced in the last quarter and still has good performance in net absorption.
In terms of rent, Grade A and Grade B rental rates saw small changes compared to Q4 2014, with a decrease of 3.4% in Grade A and a marginal increase of 0.4% for Grade B. In the Grade A segment, as new supply will arrive in the next quarter, landlords softened their rents slightly in an effort to fill up buildings. In the Grade B segment, most buildings managed to maintain their rent. Rent increases were also witnessed in some new and good quality buildings.
Based on CBRE’s enquiries, in Q1 2015 relocation and expansion were the most popular reasons for moving office because the economy is improving and Vietnam is once again an attractive option for investors. CBRE's enquiries also show that small to medium office sizes (0-400 sm) were most attractive in the first quarter of 2015. Top three most actives sectors in Q1 2015 were insurance/banking, logistic and technology.
Regarding new supply quality, Ms. Dung comments “The Office market will ignore new supply with low quality even though they are waiting for new supply." Notable projects coming online in 2015 include Vietcombank in Q2 Lim Tower 2, Viettel Office and Trade Centre and SSG in Q3 – all will provide opportunities for tenants looking for more than 1,000 square meter floor plates. In 2015, rents in mature buildings are expected to be stable or even to increase slightly. Newly completed buildings, however, will need to offer competitive rental rates to attract occupiers.