HO CHI MINH CITY – 09 January 2020 –
HCMC Condominium Market
In 2019, condominium recorded a significant drop in new launch supply and a new pricing level across the market. There were many reasons that lead to new launch supply reduction, however, the main issue was slow licensing process for new and amendment projects. On the other hand, product features and marketing campaign were used effectively by developers to attract buyers in the period of limited supply.
In terms of segment, mid-end segment accounted for the highest proportion of new launch units in 2019 at 67%. High proportion of mid-end segment in the last three years maintained the market balance compare to 2015-2016 period when there was a large supply of high-end segment. High-end segment ranked second with 25%, followed by luxury with 6%. There is no new launch supply in the affordable segment for the last three quarters. This segment accounted for 2% of new supply in 2019.
Although the new launch supply in luxury segment was improved in the last two years with new projects in District 1 and Thu Thiem area in District 2, this segment accounted for only 3% of total supply. In 2019, only two new projects compare to five new projects in 2018. In the past, this segment was led by local developers (due to their competitive advantage in securing prime land bank). In recent years, joint ventures with a foreign partner is having an increasing presence, with strong funding backup and proven track records in developing luxury products.
Luxury residential products, which are mainly located in the “golden sites” of the city, are still very attractive to a niche market thanks to its unique offering. The sold rates of newly launched projects in this segment in recent quarters are all above 70%, especially those in the Thu Thiem area which even achieved absorption rate near 100% in a short period after launch. Luxury products are being chased after by both local and foreign investors. According to successful transactions closed by CBRE in luxury segment in the past five years, 68% of buyers are local with many belongings to the millennial generation. Foreign buyers from CBRE transactions are mainly from South Korea, Taiwan, Singapore and China.
Aligning with the condominium market, the luxury segment selling price increased significantly in the recent years. The average selling price of this segment was US$6,308 psm in Q4 2019, increase 10% y-o-y. This price improvement was not only due to the possession of prime locations but also improvements in product quality. Developers in this segment putting a lot of effort into product research and development, trying to incorporate international trends and quality standards (green building, smart home, imported branded materials, etc.). In addition, the branded residence trend, which can increase the uniqueness and long-term value of the product, is being followed closely by luxury developers in Vietnam. Some notable brands that have appeared in the region are Ritz-Carlton, Four Seasons, Mandarin Oriental.
Comparing to regional markets, the price of luxury segment is catching up with those developed markets in the region such as Bangkok; yet, the market is still appealing to the investors due to limited supply and being one of the leading countries in terms of price growth potential in the region. In addition, HCMC’s inventory of luxury segment is about 700 units while Hanoi is recorded none, compared to 30,000 units in Bangkok and 8,300 units in Singapore.
Limited landbank in the central area associated with the restrictive legal framework on issuing development certificate for projects in the CBD (at least to 2020), will narrow new launch supply in luxury segment within the area in the next couple of years. New supply will be mainly from the next phases of the currently developed projects. On the other hand, District 2 will have some new projects such as The River, Mozac, and Thao Dien Green, with small scale to target high-income earners. From 2021 to 2022, Thu Thiem NUA is expected to be the new hub for luxury apartments of HCMC
Primary prices will continue to increase due to lack of supply. Luxury segment is expected to have price increase of 10% y-o-y. Prices for high-end and mid-end segments will increase 5% y-o-y, due to new supply and the high price level in 2019.
Looking forward, Ms. Duong Thuy Dung, Senior Director of the Valuation, Research and Consulting department, notes: “Licensing issue and credit tightening continues to be the main challenges for the condominium market in 2020. Buyers will face difficulty in buying a condominium unit not because of what they can afford but rather what they can’t find. On the other side, developers are well-positioned to increase profits thanks to the shortage of existing condos for sale.”
In terms of luxury apartments’ trends, Ms. Dung perceives: the future trend of luxury segment will mostly concentrate to the resident’s experiences. The projects will provide hotelisation services and allow the residents to enjoy the hotel-like and eco-friendly lifestyle as a daily basis. Additionally, luxury no longer means spacious, rather it is a state of mind.”
Notes on CBRE condominium ranking criteria:
· Luxury: projects that have primary prices over US$4,000 psm
· High-end: projects that have primary prices from US$2,000 psm to US$4,000 psm
· Mid-end: projects that have primary prices from US$1,000 psm to US$2,000 psm
· Affordable: projects that have primary prices under US$1,000 psm
Selling price excludes VAT