Last year marked a new high for the residential sector in Ho Chi Minh City, according to new research from CBRE Vietnam.
In line with the continued expansion of the economy, market confidence started to pick up. This was clearly proven through well-attended launches, increasing sales volume and price improvements throughout 2015.
Developers were confident and rushed to either release new projects, or repackage pending projects with a new design. During 2015 approximately 41,787 units were launched to the Ho Chi Minh City market across all segments, 2.2 times of that of 2014.
Last year also saw a strong resurgence of the high-end segment in the city, with major projects clustering along the Metro Line 1. This rapid transit system is currently under construction and has triggered residential launch activities in the Eastern part of the city, including Binh Thanh District and District 2.
The city also welcomed its first biggest condominium projects – Vinhomes Central Park (10,000 units, Binh Thanh District) and Masteri Thao Dien (3,745 units, District 2) however, in terms of launched supply, the affordable segment still accounted for the largest share of 35.8 percent.
While well-located high-end projects target mostly buy-to-let investors due to their high rental yield ranging between 6 percent and 8 percent gross, affordable ones proved to be a good choice to the majority of end-users with limited affordability, according to CBRE.
Demand wise, market sentiment was strong and steadily improved over the quarters. The number of sales transactions reported was a new record high at 36,160 units, almost double that of 2014. The top tier segments (luxury and high-end) witnessed big improvements in sales volumes, expanding by 135.6 percent from last year compared with 81.2 percent of the lower grades (mid-end and affordable).
While the growth of sales transactions for the mid-end and affordable segments has been slower than that of ttop-tier ones, these segments still accounted for the majority of total sales (54 percent) as they target at end-users, or real demand.
Average pricing on both primary and secondary fronts has improved over the quarters and at a stronger pace towards the year end.
The revised Law on Housing and Law on Real Estate Business came into effect from July 1, 2015. The new policy allows and encourages foreigners to own properties in Vietnam by providing more extended rights. Since then, the market has reported a significant level of interest from foreigners into major, high-profile projects from reputable developers in both Hanoi and Ho Chi Minh City.
Strong supply and demand for top-tier properties
After a long downturn caused by the bubble burst, since H2 2013, the Ho Chi Minh City residential market started to see positive signals in both supply and demand, especially in the top-tier segments (high0end and luxury). These two segments together accounted for 30.6 percent of total launched supply. Supply wise, during the crisis between 2011 and 2012, the luxury and high-end segments were those that suffered most due to the overall affordability and opportunistic nature. Prime-grade condominiums started to pick up by H2 2014 as developers were bullish to hold ground-breaking and launch events.
Since then, top-tier segments have been nearly tripled in terms of new supply, totalling at 16,674 units by the end of last year. This is four times higher than that seen in 2007, reflecting how big the current market size is compared with the last cycle peaking during 2006 – 2007.
Phu My Hung Corporation (Taiwan) and VinGroup (Vietnam) are the biggest developers who have continually introduced new products in the south and the east respectively. These areas are also the most active buy-to-let clusters with healthy rental yields.
During 2014 sales picked up with 5,767 units (versus around 1,000 units in 2011 – 2012). Sales momentum remained strong in 2015 and reported a new record (13,586 sold units), double 2014.
Looking forward, significant large-scale high-end and prime luxury projects are expected to be launched in the next two-three years. CBRE Research estimates that more than 18,200 top-tier projects will be launched in 2016 and a number equivalent to 2015’s supply during 2017. However, new launches will drop significantly in 2018 due to lack of prime sites as every developer is hurrying to catch the peak until H1 2017.
Are we still peaking or have we peaked?
In terms of demand, absorption in 2016 is expected to be slightly lower than 2015 since new launches will carry a much higher asking price and buyers need time to get used to such price level. Top-tier take-up may slow in 2017, especially in the second half of the year when the market sentiment run out of steam. Then it will be cut by half in 2018 as new top-tier projects being launched this year are mostly the long, pending ones at less popular districts.
However, CBRE noted that 2018’s market-wide take-up might be at the same level to 2014 due to the balance from lower-end products.
Stabilised price levels expected in the mid-term
Since 2014, prices in primary market has been on the rise, though at a modest rate. CBRE Research data showed that after decreasing largely by 20.4 percent in 2010 (compared with the peak in 2008), prices have gradually increased over the quarters. Primary prices of premier homes now range between US$ 2,033 and US$ 4,197 per sqm depending on location.
Looking forward to 2016 and beyond, CBRE Research expects that price growth rate could be strongest in 2016 (with an uptick of 17.2 percent) and may slow in 2017 – 2018. With more discerning buyers and an abundant supply, developers are cautious with their price increases in order to ensure sales schedule as planned. Therefore price growth will mostly come from new, top-tier properties at very prime locations asking between US$ 7,500 and US$ 10,000 per sqsm (luxury projects in the existing central business district) and US$ 2,500 to US$ 2,900 per sqm (large scale high-end projects in the expanding CBD or in District 2 during 2016 and at Phu My Hung New Town in District 7 in 2017). From 2018, new premier properties will be scattered in other less favourable districts leading to a modest drop in primary prices.
Will foreign buyers enter the market?
The crackdown on foreign housing ownership, in addition to developers’ promotional sales programs, are reaping results after several months of execution. CBRE Vietnam is seeing notable interest from Singaporean, South Korean, Japanese and Malaysian buyers who live and work in Vietnam, mostly buy-to-let investors.
HCMC’s yields are very attractive, compared with other mature markets. The ready pool of tenants, especially near the international schools, also helps investors to quickly fill vacant apartments.
Vingroup, a listed local developer with the biggest land bank in Vietnam, reported a deposit receipt for more than 400 units from foreign buyers at Vinhomes’ Central Park, particularly at their luxury block (Landmark 81). Anecdotal evidence also showed that other premium, high-end projects in good locations, with adequate facilities and developed by prestigious investors have attracted many foreign buyers. One project has even reached the cap applied to foreign buyers (up to 30 percent of total units) only four months after its official launch.
However, CBRE Research does not expect an abrupt change in sales to foreigners during 2016.
