Residential market’s come back
Ho Chi Minh City, January 13, 2015—The year 2014 witnessed positive movements of the Vietnam economy and the real estate market, bringing brighter outlooks for 2015. Real GDP growth rate has increased steadily from 5.06% in Q1 2014 to 6.96% in Q4 2014. Headline inflation was controlled at 4.09% on average for the year. Following decreasing deposit rate, average lending rate was adjusted downward to 10%. Stability in macro-economic environment has led to an increase in FDI, with real estate ranking second in terms of total FDI in Vietnam.
Looking forward to 2015, we can see a range of themes in different areas of the Vietnamese market:
The residential market: will continue to remain positive. Sales momentum is expected to stay strong, keeping the current pace in both Hanoi and HCMC. It is expected that new launches will continue their strong run in both cities, especially in the locations with improving infrastructure systems (Districts 2, 9, Thu Duc and Binh Thanh in HCMC, and districts in the West and South East in Hanoi). Luxury and high-end products will be sought-after, especially in Hanoi, as the stock for these segments is diminishing gradually. The active involvement of both end-users and investors (including speculators) will translate into increase sales volume. While law on foreign ownership in residential housing is expected to stimulate demand, activities on this front would be slow in near term as market players take time to assess the market movement.
The office market: Rent in established and mature office buildings is expected to be stable or even slightly increase in HCMC. Newly completed buildings, however, will need to offer competitive rental rates to attract occupiers. For Hanoi, office space in the West will continue to be under pressure due to oversupply. Occupancy rate is expected to increase thanks to economic recovery with optimistic GDP and FDI.
The retail market: will continue to see a mix of positive and negative news in the two cities. In HCMC, limited availability of space in core areas continue to support CBD average rents, while non-CBD average rents are expected to recover with increasing occupancy. Close-down of under-performed retail centres are expected in both cities. Expansion and new entrants are anticipated to drive the retail market in 2015 thanks to the changes in regulations, allowing foreign retailers to establish 100% foreign owned entities in Vietnam, which is within the framework of Vietnam commitments to WTO. However, Economic Needs Test (ENT) shall remain a barrier to foreign retailers. Restarted projects and construction of future supply will speed up, following economic recovery.
Residential Market on Steady Recovery
The revised Law on Housing, decreasing interest rates and reinforced market confidence all have supported the property market. 2014 saw a sharp increase in the number of new launches in both Hanoi and HCMC. There were a total 14,807 new units launched in HCMC, 3.2 times higher than 2013, while in Hanoi a total 16,253 new units were released, which was 2.06 times higher than that of 2013. There was an increasing trend in new launches from Q1 to Q4 of the year, showing improving market confidence from both developers and buyers toward year-end.
While high-end segment was the spotlight in the condominium market for HCMC, with over 50% of the sales volume being in this segment, mid-end segment was the key performer in Hanoi. Typical examples include Vinhomes Central Park, Masteri Thao Dien, Scenic Valley and Rivergate (HCMC), and Times City, Green Stars, Hoa Binh Green City (Hanoi). It is estimated that approximately 26,000 units were sold in both HCMC and Hanoi, a 50% increase as compared to 2013’s level.
Primary prices are on an increasing trend in both cities. Projects in prime locations saw an increase of 10%-20% as compared to 2013 due to limited stock. In the low-end segment, newly launched units were also released at an increased tag price of approximately 5%-10% as compared to units launched earlier in the year. Secondary prices went up by 2% y-o-y in Hanoi, while going sideline in HCMC.
Property prices have been much more affordable over the last five years with smaller-sized units, triggering demand from both owner-occupiers and investors. It is expected that market will continue to look positive in 2015 as more new launches or project restarts will be seen in the two most happening markets of Hanoi and HCMC.
Retail Market Outlook
Vietnam’s retail and services turnover has always maintained an average growth rate of above 10% despite the economic downturn. Solid economic growth and a rising middle class population are expected to continue to drive this retail market in 2015. On the back of this growing trend, consumer confidence will improve and further support retail sales revenue.
Close-down or renovation of some under-performed retail centres could be expected, but the coming back and new development will move toward modernized and international format and standard in order to accommodate an increasing number of international retailers.
In 2015 Vietnam will have to accede to its World Trade Organization’s obligation to permit the opening of wholly foreign-owned businesses in two thirds of the subsectors, including wholesale and retail, which will generate demand for retail space from foreign retailers entering the Vietnam market. As a result, expansion and new entrants are anticipated to drive retail market in 2015. On one hand, this is expected to boost domestic consumption, and providing consumers with more varieties of choices. On the other hand, domestic retailers need to reassess and renovate themselves in order to compete with the new entrants.
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