HO CHI MINH CITY – 29 March 2017 –
FDI continues to be a key catalyst of Vietnam’s economy. Total registered capital of newly & additionally financed projects and the investment in the form of capital contribution, share purchase in the first quarter of 2017 reached US$7.71 billion, an increase of 77.6% from the same period last year, with big contribution from increased investment of SamSung Display Vietnam. FDI investment into real estate was recorded at US$343.69 million, making up 4.4% of total FDI investment. Meanwhile, realized FDI capital in the first quarter of 2017 was estimated at US$3.62 billion, an increase of 3.4% from the same period in 2016.
After the ministerial meeting of TPP members in Mar 2017, it seems that the prospect of TPP moving forward without the U.S. is not totally dead. However, to hedge itself against uncertainties in global trade, Vietnam is already in the process of seeking a one-on-one FTA with the U.S., and looking to implement its FTA with the EU early next year.
For 2017, Vietnam’s government targets to keep inflation rate below 4%, lower than the target of 5% in the previous year. This will require good coordination among various government bodies to cope with challenges from increase in fees of medical and education services as well as petrol prices.
By the end of Q1 2017, in an effort to rearrange their capital structure, many commercial banks in Vietnam increased their interest rate on long-term VND certificate of deposits, which can reach as high as 9.2% (1%-2% higher than before). This development is something to be closely watched, given deposit rate in Vietnam has been kept at a consistently low level in recent years. It is expected that eventually there will be some upward pressure on interest rate on loans, which may have an impact the real estate market.
The Condominium market started the first quarter of 2017 quietly with a reduction in new launches and sold units across all segments, especially in the High-end and Luxury segments. In Q1 2017, the market welcomed 5,083 units from 21 projects including six new projects, decreasing by 44% q-o-q and 49% y-o-y. The Mid-end segment accounted for 52% of the total newly launched units in the review quarter. Newly launched units in the High-end segment dropped significantly by 72% q-o-q. This trend was also observed in the first quarter in 2015 while developers were reviewing their projects and strategies. CBRE believes that the number of launches will return to the usual level in subsequent quarters.
Interestingly, for the first time, the West took the lead from the East and the South with 1,821 units, accounting for 36% of total new launches. Three out of six projects in the West were launched for the first time. The East areas was in the second place with 1,523 units.
In terms of sold units, sales momentum was down with 6,501 units sold, decreasing by 47% q-o-q and 29% y-o-y. This downward trend was mostly due to a lack of options on the supply side. Mid-end products accounted for 67% of sold units in the review quarter.
Average sales price reached US$1,595 psm, an improvement of 6% q-o-q and 13% y-o-y. Selling prices improved by 7.9% in the High-end segment thanks to good quality projects especially in the District 2 area.
Regarding demand, buyers are more confident and the affordability is increasing. Based on CBRE successful deals, the average deals value increase by 18% q-o-q and 22% y-o-y. The average unit size was 109 sm, increase 28% y-o-y. Buyers showed more interest in three-bedroom units with these accounting for 42% of total number of transaction compared to 31% in Q1 2016. The market is more balance between three buyer groups. The overall proportion has shifted to end-users group. End-user buyers accounted for 31% of total number of transaction in Q1 2017. This number is only 23% in Q1 2016. CBRE also observed more foreign buyers and more Westerner such as Canada, America, France.
Looking forward, the general improvement in infrastructure (the Nguyen Van Cu and Nguyen tri Phuong bridge connection line with Vo Van Kiet Boulevad) and public facilities such as the Nhi Dong 3 Hospital in Binh Chanh District will attract the interest of the market to the West of HCMC. The market is also waiting for a large scale affordable project from VinGroup in The East. The Luxury market started slowly in the first quarter of 2017 with no new projects, however, this will change soon as a number of quality projects are expected to be launched in the next three quarters.
Legal updates: Circular no. 31 regarding condominium ranking officially became effective on 15 February 2017. This is applicable to completed projects only at the request of the developer/ management committee or at least 50% of unit owners.
Notes on CBRE condominium ranking criteria:
The landed property market is usually most active during the first quarter of the year due to the Tet holiday. In the review quarter the landed property market welcomed five new projects, adding over 500 units to existing supply. All new supply was clustered in the East of HCMC with four projects in District 9 and one project in Thu Duc District. In coming quarters, we also expect to see new supply coming on line in the South and the East of the city. Among the five new projects launched in the review quarter, those in established areas each launched more than 100 units while the others each launched around 50 units.
In Q1 2017, average selling prices were quite flat across the market. While District 2’s average selling price increased by 1.4% q-o-q and District 9’s by 1.9% q-o-q, other decentralized districts such as Binh Chanh District, Go Vap District and District 12 witnessed their selling prices increasing by 1.5-3% q-o-q. As expected selling prices of land plots witnessed bigger increases compared to ready-built villa/townhouses in the same areas. In active areas in District 2 such as Thanh My Loi and Binh Trung Dong Ward, selling prices went up 16%-40% q-o-q while in Nha Be District, Thu Duc District, Binh Chanh District and District 12, selling prices increased by as much as 25% q-o-q. In district 9, land plots in Phu Huu Ward and Phuoc Long B Ward are no longer perceived as offering good value and investors are currently focusing on Long Truong, Dong Tang Long Ward, etc. Per sold rate, 50%-90% of newly launched units were sold out with most sales activities occurring at projects in more desirable locations. As a whole, the market absorbed more than 850 units, an increase of 14% q-o-q.
Looking forwards, thanks to future bigger-scale projects in all areas of the city along with infrastructure projects that will help to improve connectivity to the current CBD, selling prices are expected to increase even further. However, unlike the booming period of 2007, we believe investors are now more cautious and thorough in doing their homework prior to executing their trades, and thus will create a safer and more stable market. In addition, the State Bank of Vietnam’s action in increasing control over credit lending policy (as seen in Circular 06) will also help the market maintain its stability in the long run.
After a year of record high levels of new NLA, HCMC welcomed two new projects in the first quarter of 2017: the bazaar-like Sense Market 23/9 in District 1 and a retail podium, CBD Home Premium, in District 2. Both projects are small in scale and added only 17,500 sm of NLA to the market. While Sense Market 23/9 was fully occupied, CBD Home Premium had only its fourth floor occupied by Snow Town, an entertainment anchor tenant, while the other floors are still fitting out.
Rental rates were reported flat in most areas and formats in the review quarter. The exception was department stores where rental costs decreased by about 5% q-o-q as this retail format attracted less interest from new tenants. In other formats, rental costs only varied between 0.1-1.2% q-o-q. Net absorption was 6,862 sm NLA in the review quarter due to limited new supply and the vacancy rate was 7.92%, which was 1.16 ppts higher than the previous quarter. However, the current vacancy rate improved by 2.57 ppts compared to the same period last year. A notable change in vacancy rate was seen in the retail podium format due to the CBD Home Premium podium being only 25% occupied. As a result, the vacancy rate in District 2 increased by almost 15 ppts. Other districts experiencing increases in vacancy rates were District 9 (2 ppts) and District 1 (1.5 ppts). The vacancy rate in District 1 went up due to Vincom Centre Dong Khoi having the majority of its leasing area under renovation. The vacancy rate in Binh Thanh District and Thu Duc District recorded good improvements at 4.3 ppts and 7.9 ppts, respectively.
The number of new tenants joining the retail market is expected to be lower in 2017 than it was in 2016, partly due to a lack of quality new supply. However, the market is still looking forward to welcoming big names such as H&M and 7-11, both of which offer affordably priced goods. Meanwhile, convenience stores such as Minigood, Miniso, Mumuso, etc. continue to expand, attracting young customers who are looking for foreign goods at reasonable prices.
There was no new supply for Grade A in the review quarter and one new project in Grade B: Saigon Giai Phong Newspaper building. This new building brought an additional 5,404 sm NLA to the market. The Viettel Complex did not officially come online in the review quarter despite being completed and currently undergoing interior and exterior fitting out for the first tower. Viettel Complex is expected to be opened in Q2 2017. Good construction progress was observed at both Grade A (Deustches Haus and Saigon Centre Phase 2) and Grade B (Etown Central) projects. Looking forward, we expect to welcome 147,196 sm new NLA during 2017.
Market performance was stable in Q1 2017 with slight increases in rents for both grades. Grade A recorded US$ 37.00, increasing 1.2% q-o-q and 3.6% y-o-y due to limited supply in the CBD which continues to drive up rental rates. Grade B recorded US$ 22.00, increasing by 4.8% q-o-q and 11.5% y-o-y. Rental rates in Grade B increased due to an overall lack of leasing space.
The vacancy rate dropped in both grades, with Grade A reaching 6.4% and Grade B 2.6%. The Grade A vacancy rate dropped 1.7 ppts q-o-q and increased 1.9 ppts y-o-y. The increase y-o-y is due to leasing space at Mapletree Business Center that has yet to be completely absorbed. The Grade B vacancy rate dropped 0.2 ppts q-o-q and 1.7 ppts y-o-y with the Ha Do building quickly reaching full occupancy.
Net absorption in the review quarter was healthy, with Grade A at 5,318 sm NLA and Grade B at 6,547 sm NLA. Positive net absorption is due to new properties introduced in Q4 2016 continuing to fill up.
Regarding tenant trends based on CBRE’s enquiries, this quarter saw IT and Logistics companies on the lookout for expansion with 12% of total enquiries. Enquiries from banking remain strong, accounting for 7% of total enquiries. The preferred leasing space is still 100 – 300 sm, accounting for up to 45% of total enquiries. There has been a surge in demand for spaces larger than 1,000 sm, which accounted for up to 19% of total enquiries (compared to only 7% last year). A lack of new letting activity is still being observed while relocation for expansion is still the main driver for the movement of tenant.
Looking forward, the market is becoming more upbeat with opportunities for growth both in supply and rental rates. As the market reaches a point of equilibrium between demand and supply, rental rates will become more competitive between buildings, especially in the CBD. Decentralization is also a developing theme with new projects coming online in District 7 and District 9.
No new serviced apartment supply was introduced in Q1 2017. The Ascott Waterfront and Saigon Plaza continued to delay their openings while Mapletree changed the function of one of its two under-construction towers in District 7 to commercial residency (RichLane Apartment). This stressed the current difficult conditions in the serviced apartment market which has to deal with competition from buy-to-let alternatives (i.e. non-serviced apartments). In general, and for the same location, rents of buy-to-let properties are only half or one-third those of equivalent serviced apartments.
The market was still benefitting from limited supply in the review quarter and maintained a good occupancy rate (95% for Grade A and 91% for Grade B). There were some minor fluctuations but asking rents were still on a generally upward trend. With the TPP now on hold, the outlook for the serviced apartment market will be constrained even though the economy is shifting its focus to RCEP.
However, the serviced apartment market in District 1 focuses on a defined niche marke which includes management level employees from multinational companies, consultants with contracts in Vietnam and staff in development assistance programmes, etc. District 1 has a prime location and distinctive selling points and therefore, we do not expect any significant change in this segment of the market. In contrast, serviced apartment projects in other districts will need to have branded operators, at least for the first few years, to be able to survive. Looking forward over the next three years, there will be an additional 832 units in 2017 and 986 units in 2018-2019. Most of these have branded operators such as Oakwood, Sherwood, Ascott, Citadines and Hammon Developments.