DTZ Research: Challenging year ahead for property market in Ho Chi Minh City

VNRE – • Office occupancy rates saw a slight increase because of limited new supply, but rents continue to slide 

• Slower performance in retail sector against previous quarter, especially in nonCBD areas affected by low traffic and where the bulk of pipeline supply is located 

• Demand for condominiums remains weak despite declining lending rates

Vietnam: Notwithstanding a moderation in inflation and credit loosening measures enacted by the government, the property market as a whole remained subdued as a poor showing of economic indicators – including a sluggish GDP growth of only 4% in Q1 2012 – and other factors kept consumer and investor confidence low.

Office rents continue to slide despite increase in occupancy rate 

According to a recent report released by DTZ Research, office rents in Ho Chi Minh City (HCMC) have not shown any significant improvement in Q1 2012.

Office supply in HCMC at the end of Q1 2012 is estimated at approximately 1.38 million sq m net lettable area (NLA). The increase in supply over the quarter was only around 1,400 sq m NLA, with no major completions, compared with 42,000 sq m of new supply in the same period last year. That may be a reflection of the slowdown of many construction projects as economic, market and funding conditions affect the ability and desire of developers to continue a fast pace of construction. 

As a result of the lack of new space coming online, average occupancy across all grades of office accommodation increased slightly to 81.3%, up from 81.0% at the end of 2011. There is approximately 259,000 sq m of vacant office space across HCMC. 

Grade A occupancy remained lowest compared to other grades of offices, although this rate increased to 76.0%, up from 74.0% in Q4 2011. As there has been no new Grade A stock completed since the Bitexco Financial Tower in Q4 2010, the city’s most recent Grade A properties have been filling up while established Grade A properties have been maintaining occupancy rates. These newer properties have been largely attracting tenants from Grade B buildings by offering them competitive rates against the tenants’ current accommodation. As a result, Grade B occupancy rates have fallen by half a percentage point to 82.0%, while Grade C accommodation remained at an average of 83.0%.

Rental rates so far in 2012 followed the downward trend of 2011 throughout all grades. Average rents softened by 1.5% quarter-on-quarter (q-o-q) to USD23.40 per sq m per month. Average Grade A rents also fell from USD33.00 to USD32.60 per sq m per month in the quarter. 

Le Nguyen Thi Thuy Trang, Manager of DTZ Occupier Services, commented: “After a tough 2011 for landlords, office rents have not shown any significant improvement. While we expect occupancy rates to continue increasing slowly, we anticipate that pipeline supply will outstrip net absorption thus leading to a softening of rents and another challenging year ahead.” 

Occupancy rates fall and downward pressure on rents in retail sector 

There were no major shopping centre or department store completions in HCMC in this quarter, with the only retail centre completed being the Central Mall in District 8 which provided approximately 11,000 sq m GFA of supermarket, food and beverage retailing. As at the end of March 2012, there was a total supply of approximately 235,000 sq m of shopping centre accommodation and 97,000 sq m of department store accommodation. 

Average occupancy rate fell throughout HCMC by 0.8% during Q1 2012 to approximately 88.8%. This drop was driven by non-CBD areas where retailers are finding low retail traffic. 

Average department store and shopping centre rents showed a softening over the quarter, reflecting increased competition from landlords to attract and retain tenants. The downward pressure on rents is particularly pronounced in non-CBD locations, where most of the pipelinesupply (around 70% before 2014) is located. In these areas many retailers are still unsure of the capacity and willingness of local populations to spend in modern retail centres. 

KP Singh, General Director of DTZ Vietnam, commented:  “Though rents will continue to moderate over 2012 as international retailers cut back on expansion plans due to global economic issues, there are nonetheless some positive signs which could justify cautious optimism for the industry. In Q1 2012, the Vietnam consumer spending rose by 21.8% compared with the same period last year, while the total retail sale is targeted at USD$113 billion for 2012, an increase of 18.5% compared with 2011. Increased consumption ought to bode well for the sector.”

Demand for condominiums low despite declining of lending rates

There were a number of new completions in the quarter, totalling 3,700 units. The highest profile condominium completion was Xi Riverside in District 2, which provided over 250 units to the market. At the end of Q1 2012, the stock of condominiums in HCMC is approximately 54,000 units from 205 completed projects. 

In terms of market conditions there was little change in the new year, with demand levels very low despite finance rates on bank loans reducing to around 18.5% on average. 

As a result of this, developers have delayed launching units for sale, with no major launches during the quarter. The construction progress of many residential projects has also ground to a halt, as developers continued to be pressurised by issues surrounding finance.

Asking prices in Q1 2012 continued to fall as a result of market conditions. Throughout the city, average unit prices softened by around 2%, driven by reductions in the high- and mid-end segments of the market. Developers are increasingly likely to offer discounts, while further incentives remain in the market to entice buyers. At present this has not stimulated the market. Asking prices during the quarter for affordable condominiums ranged from USD500 to USD950 per sq m and between USD950 and USD1,700 per sq m for mid-end units. High-end accommodation prices were priced upwards of USD1,700 per sq m.

If all future projects at the planning stage or under construction are delivered, this will provide approximately 60,000 new units before the end of 2014. However it is likely that delays will occur given market conditions. The condominium market outlook remains bleak for the rest of the year, as purchasers continue to wait for both finance rates and prices to fall further. 

Source: DTZ and UGL Services

Quarter 1/2012 report – HCMC

VNRE – Real Estate Highlights

• Inflation is stabilising and this should culminate in further decreases in interest rates. These could help to increase the market liquidity and breathe some activity into the current stagnant market.

• The foreign direct investment (FDI) inflow into the local property sector has regained the top position in terms of newly registered capital in the Q1/2012 after a long period of sharp decline due to market conditions.

• Knight Frank remains conservatively optimistic about the real estate market in 2012 and it will be interesting to monitor whether the recent positive news for Vietnam’s economy translates into growth in the property sector.

Economic & Legal Update

Economic Overview

GDP

Within the first three (3) months of 2012, Vietnam’s GDP growth was approximately 4% compared with the previous quarter’s growth of 6.1%. The relatively weak first quarter figure was the lowest rate of growth in the last ten (10) years. In Q1/2011 and Q1/2010, the country had seen a growth of 5.57% and 5.84%, respectively. However, HCMC’s GDP in the first quarter of 2012 is estimated to have reached 99.384 trillion dong (according to the real prices), rising 7% over the same period last year.

CPI

Vietnam’s consumer price index (CPI) in the first quarter of 2012 saw the lowest quarterly CPI rise in the last two (2) years with the recent 0.16% rise in March.

Lending Rates

With inflation coming under control, the State Bank of Vietnam has capped deposit rates at 13% (please refer Circular No.05/2012/TT-NHNN) in order to try and improve liquidity. Lending rates have decreased 1% compared with the last quarter, currently ranging from 17% to 20%, however the access to credit in the real estate sector is still severely limited due to ongoing lending restrictions.

Balance of Payments

According to the General Statistics Office, the trade deficit of Q1/2012 stood at US$251 million, equal to 1% of total export turnover. Total export turnover is estimated at US$24.5 billion, an increase of 23.6% compared with the same period of 2011.

Foreign Direct Investment

According to the Foreign Investment Agency (FIA), in the first three (3) months of 2012, Vietnam attracted approximately US$2.63 billion, equal to 63.6% of the same period of last year. Of which, the newly licensed capital of US$2.26 billion (120 projects) equal to 77.2% of the same period of last year and there are 29 projects that have increased their capital contribution a further US$368 million, equal to 30.4% of the same period of last year.

Within first three (3) months of 2012, disbursement capital was approximately US$2.52 billion, equal to 99.2% of the same period of last year. Specifically, the real estate industry attracted the highest capital, equal to 45.5% of the total registered capital, which is positive news.

In the first three (3) months of 2012, HCMC’s FDI attracted 59 newly licensed projects, with total capital approximately US$39 million, a decrease of 96.5% compared with the same period last year. Also, there are 19 projects that have increased their capital contribution a further US$20.4 million, equal to 62.2% of the same period of 2011.

Legal Update

Circular No. 05/2012/TT-NHNN

Circular No.05/2012/TT-NHNN dated on 12 March 2012 amending and supplementing a number of articles of Circular 30/2011/TT-NHNN dated on 29 September 2011 stating the maximum interest rate applicable to deposits in Vietnamese Dong of organizations, individuals at credit institutions and foreign bank’s branches. According to this Circular, the maximum interest rate applicable to monetary deposits and deposits with a term of less than one month is 5% per annum, whilst the maximum interest rate applicable to deposits with a term of one month and more is 13% per annum. Regarding Vietnamese citizen’s credit funds alone, they are able to fix their maximum interest rate applicable to deposits with a term of one month and more at 13.5% per annum. This information is expected to reduce the lending rate in near future.

Apartment For Sale

Market Performance

After the Tet Holiday period, the apartment for sale market in HCMC continued to witness low transaction rates. The affordable segment still is the best performer in Q1/2012.

Many developers have decreased their selling prices in the primary market to urge the selling rate. More developers are also seeing the benefits of introducing different promotion and incentive programs. For example, we have seen the developer– Thu Duc House of the Truong Tho project in Thu Duc District handover the apartment to the buyer even though only 50% of payments have been completed and then offer a further 5% discount on the sale price. Another case is the Quang Thai Apartment project in Tan Phu District where once the buyers make the 95% payment of the total apartment value, the developer will make then give a 12% discount directly on the selling price. Besides the direct discount, some developers still offer flexible payment schedules, bank loan support, interest incentives, etc. This indicates that at the current time this maybe an opportune time for buyers in the affordable bracket with real demand.

The selling price for new projects launched in this quarter ranges from VND13.9 million (US$665) to – VND24.5 million (US$1,170) per square metre.

The secondary market continues to be slow and is under further pressure due to the incentives being offered in the primary market.

Supply

Approximately 2,300 apartment units were launched in HCMC in Q1/2012. The affordable sector constituted the majority of new supply with 86% of total stock.

Two (2) large projects have launched to the market including Khai Hoan Paradise, Nha Be District (838 units) and The Easter, District 9 (648 units). Both of them are in affordable segment and have significantly increased supply. The only mid-end project launched in this quarter is Hyco 4 Tower, Binh Thanh District.

The majority of new supply offered to the market in Q1/2012 came on line in suburban districts such as Binh Tan, Nha Be, Tan Binh and District 9.

Demand

The affordable apartment segment ranging from VND11 million (US$526) to VND20 million (US$957) was still favoured by the buyers with real demand during this period.

From the end of February until now, many local and international commercial banks have slightly decreased the lending rates and widely offer loans for home buying with the interest rate at 17% – 20%. This is expected to be the good sign for the real estate market.

Outlook

In Q1/2012, there are four (4) new future projects contributing approximately 1,800 apartment units to the future supply. This figure is less than half of the number of new future projects announced in the last quarter.

Overall, 53 projects bringing 23,500 units are planned over the next 3 years in HCMC. In which the majority is located in Districts 2, 7, 9, Tan Binh, Tan Phu and Thu Duc.

Knight Frank Comments

There is a trend of changing architecture designs or even changing the development uses of the projects. It is considered as temporary solutions of developers in the difficult time of the property market.

The affordable and mid-end segment continue to be planned in the business strategies of many international developers such as Capitaland, Indochina Land.

Villa, Townhouse, and Land Plot For Sale

Market Performance

The landed property market in the previous quarter was highlighted by positive sales of the Chateau villa in Phu My Hung. Whereas the majority of the villa and townhouse market remained stagnant due to the Tet Holidays and market conditions. The affordable land plot segment continued leading the market with new supplies and reasonable levels of awareness from the buyers.

There were no new projects launched during the quarter. The demand witnessed a bright point in Phu My Hung Urban Town. Their newly launched project, The Chateau, generated high interest with multi-million dollar luxury riverside villas complete with fully established amenities area. They achieved a reported sale rate at 50% of the total launch within 2 months. This is considered a desirable rate during this stagnant period.

The market performance during the last quarter partly reflected the character of the current demand. The cash rich people and owner occupiers are the two main drivers of real demand in the market. They are more cautious regarding location, existing community, infrastructure and service amenities in the immediate area, and the capability of the developers to fulfill their commitment.

The land plot market in HCMC has seen some interest generated mainly from District 9 and Nha Be District projects notably Nature Land and Anh Tuan. The common rate of transaction is below VND11,000,000/m2 (US$500/m2) with land plots below 150m2 in size the most preferred.

The surrounding provinces of HCMC including Long An, Dong Nai and Binh Duong, continued experiencing relatively high transaction rates compared to HCMC. Dong Nai achieved the highest sales volume with new launches including Dragon City II and Gold Hill. These projects offered affordable prices at under VND5,000,000/m2 (US$250/m2). The expectation of improvements in facilities in the future is the most likely main driver of the buyers. The Binh Duong area continued to enhance its reputation by confirmation of the new investment memorandum of understanding from Japan Investors which would dramatically facilitate the ambition of Binh Duong.

Outlook

We are aware that new supply in the following period is about 500 units. However, the demand is expected to remain relatively weak and buyers are likely to be cautious in any purchasing determination.

We witnessed some positive factors regarding to the macro economy and key sectors that may seed some confidence in the following period. Firstly, the action of lowering the deposit rate to 13% by the SBV that may diverse slightly the free cash to other assets. The slight improvement of the stock market should also enhance the investor confidence. The minor inflation increase during the quarter is a positive sign compared to 2011.

Our outlook regarding the land plot and villa market remains conservatively optimistic. However, it is yet to be seen whether the positive recent signs in the economy translate into growth into the residential sector.

Knight Frank Comments

We are witnessing that many buyers are now adopting a ‘wait and see’ approach, whereby they want to see the developer fulfill their obligations to provide infrastructure and amenities etc before purchase.

The neighbouring provinces of HCMC that offer affordable land lots are expected to continue to achieve relatively good sales volumes.

Serviced Apartment

Market performance

There is no major new supply to enter the market in Q1/2012. Xi-Riverview Palace project located in District 2 has released 40 units of serviced apartments. This is a high—end apartment for sale building comprising 270 units and other amenities such as gym, mini golf course, restaurant, swimming pool and tennis court. Facing a difficult market for selling high-end condominium’s units, the developer has changed the function of 40 units to serviced apartments.

The market performance in Q1/2012 has seen no major changes compared to Q4/2011, albeit for a marginal decrease in rental rates this quarter. The average rental rate is around VND620,000 -VND735,000/m2/month (equal US$29.5 – US$35)/m2/month) for Grade A stock and VND410,000-VND525,000 m2/month (equal US$19.5-US$25/m2/month) for Grade B.

For example, Ha Do Compound located in District 10 has decreased the rental rate approximately 10% to 20% for all the unit types.

The occupancy rates of established buildings remain high at over 90% for Grade A and 82% for Grade B. Buildings that have entered market in recent quarters have also seen positive signs. For example, Saigon Pavillion has reported over 25% occupancy after only two (2) months of operation.

Having an international operator is very important to serviced apartment complexes as these buildings can benefit from their global client network and brand image. Most Grade A serviced apartment buildings are managed by international operators or real estate agencies. However, the majority of Grade B buildings are operated with in-house management.

Frasers Hospitality has signed an operating contract with a building located in the Saigon South New Urban Area, District 7. This building comprises 8,000m2 for serviced apartments and 2,500m2 for retail and plans to open in September 2012.

Ascott Limited has signed an operating contract with Binh Thien An Real Estate to manage the serviced apartment component of the Diamond Island project.

Competitors

Buy – to – let apartments and villas are the main competitors of serviced apartment buildings, particularly placing pressure on the Grade B serviced apartment market.

Outlook

Throughout 2012, there are many Grade A serviced apartments planned to enter the market, which will culminate in a large future supply. Thus, these new supplies will give more options to tenants and put pressure on rents as the Grade A stock in the prime area are nearing full occupancy at present.

We are also witnessing more small boutique serviced apartment buildings of around 10 units enter the market in the CBD which have been formed from large townhouses.

Knight Frank Comments

The continuous demand trend is for smaller units due to changing work force dynamics regarding single employees and short term contracts.

We are seeing a trend whereby developers of Grade A future stock are seeking the services of international management companies before launch. This was not always the case in Vietnam.

Retail

Demand

Despite tough economic conditions forecasted by economists this year, demand for goods and services of consumers still remains at a high level which has been keeping heat in the market.

According to Research and Markets (2012), Vietnam is amongst the five most profitable retail markets in the world. The Ministry of Industry and Trade just announced an impressive figure for retail revenue growth of 29.3% in 2011 in comparison to the number for 2010. The Ministry Predicts goods and services sales will escalate by on average 20% in the next five years.

Notably, the Vietnam retail market appears to be remarkably attractive to foreign investors. In Q1/2012, Takashimaya —a Japanese retail group signed an agreement with Keppel Land Watco on a long term lease for approximately 15,000m2 of retail space at Saigon Centre (Phase 2) – equivalent to approximately 30% of the total retail space for lease of the project.

Another retailer from Japan—AEON group, who announced AEON—Tan Phu Celadon Shopping Mall last quarter, inaugurated a convenience shop chain—Ministop in HCMC. Co-operating with Trung Nguyen, the company plans to open 30 shops in 2012 and forecasts to reach 500 shops throughout Vietnam in five (5) years time.

The two (2) announcements above has brought renewed optimism to the market.

Supply

With thousands of metres of retail space entering the market in previous quarters not being occupied, supply for retail space continues to increase in the first quarter of 2012.

Centre Mall inaugurated in early January became the first services complex in Binh Chanh District and injected approximately 11,528m2 into the market including Satramart Supermarket and 70 cosmetic, fashion, pharmacy, food and café kiosks.

Moreover, there are three projects that have commenced construction during the quarter. Details of the projects are as follows:

• SC VivoCity Shopping Mall developed by Saigon Co-op and Mapletree. SC VivoCity is phase 1 of Saigon South Place Complex located on a 4.4ha development site in District 7. Saigon Co-op will co-operate with NTUC FairPrice to develop an 8,000m2 supermarket—Co-op Xtra at the basement of the project.

• Lega Fashion House, District 10 with a total GFA of 60,000m2, developed by Ocean Group, Gia Dinh Investment and Legamex. The project is a complex comprising fashion mall, fashion catwalk, cinema, conference centre, food court and office for lease.

• Cong Hoa Garden in Tan Binh District with 3 floors of retail space. Developed by Kinh Do Real Estate, the project also has an apartment and office component.

Bitexco Group has commenced the Ben Thanh Towers project this April. It is expected that the project will provide a total GFA of 138,000m2 for serviced apartment, office and retail for lease component by 2015.

Outlook

With a significant increase in supply for retail space in future, it is natural to assume that there will be pressure on rental rates.

Knight Frank Comments

There is no question that the announcement of the arrival of Takashimaya will raise the level of retailing in HCMC. This is great news for the future retail market in Vietnam.

In general, occupancy levels remain high and more international retailers are looking to enter the country, however disposable income remains an issue for many shoppers, which could lead to some retailers reducing their profit margins.

Ofice

Market Performance

London, UK – Newly-released figures from Knight Frank show that HCMC and Vietnam is sliding in the world ranking global index for prime office rents from 19th (Q1/2011) to 29th (Q1/2012) with average Grade A rents at VND668,800/m2/month(US$32/m2/month) exclusive of management and VAT. Interestingly, our Asia-Pacific neighbours are trending in the opposite direction with notable improvements being Perth, Sydney, Mumbai, Beijing and Shanghai.

Demand for offices still remains as many occupiers seek an upgrade in premises and/or some cost savings, all be it many companies are consolidating rather than expanding at the moment and requirements are being driven by tighter fiscal budgets dictated by their overseas headquarters. The supply provided by Bitexco Financial Tower (BFT) and Vincom Center has set a precedence for companies such as Ernst & Young to upgrade premises from Grade B (Saigon Riverside) to Grade A (BFT) and a prominant international bank to relocate back to District 1 (Green Power Building) from District 3 as the respective companies sought either better grade premises and better locations for their businesses in relatively cash neutral situations.

More developers are looking for additional methods to recoup their capital in a stagnant market to offset debts. This paves the way for cash rich occupiers or foreign companies looking to diversify liquidity away from their respective countries and consider the mid to long term benefits of Vietnam. Over Q1/2011 this is evidenced at Petroland Tower in Phu My Hung which has reported 80% long term lease sales which is the equivalent of 16,000m2. This technique of long term lease (known as strata sale) is very common in Australia sometimes when the office market is flooded with supply and the office rental market is struggling.

Outlook

Prime rents have remained relatively stagnant for the last 6-9 months, excepting for a couple of anomalies and therefore have we found a market rent which will now stabilise and be impacted by more macro factors rather than micro factors in-line with our Asia-Pacific counterparts?

In a developing market we are still largerly influenced by supply, more than a developed market due to the % increase one development will impact on the market. With Saigon One Tower, Times Square, Le Meridien and Presidents Place all due for completion this year this would indicate there could be a further reduction in the market rent. We believe the market rent for prime offices is unlikely to come under significant downwards pressure all be it the incentives that are expected to be available for those Tenants looking at moves over the next 12-18 months.

Important recent announcements in the office market:

• Bitexco’s Ben Thanh Tower to commence in April. The construction is expected to be completed by 2015. Known as Ben Thanh Towers, the developments will comprise a GFA of 138,256m2 and 55 floors, including 18% for office component.

• Pico Plaza in Tan Binh District announced to commence in Q2/2012 with 10,000m2 for office space for lease. The project is developed by Pico Corp.

Knight Frank Comments

We do not expect a further drop in prime market rent, however when analysed over the lease term the effective rent will be lower and there will be variances between buildings if the tenant is preferred to take professional advice and shop around. Bigger variances will tend to be the developments with higher vacancy rates.

Source: Knight Frank Vietnam

Challenging market conditions in Q2 2011 for Ho Chi Minh City property market, says DTZ Research

Rents continue to fall in office market

VNRE – According to a recent report released by DTZ Research, the office sector in Ho Chi Minh City (HCMC) remains a challenge in Q2 2011.

Rents throughout all grades of office softened during the quarter, albeit at a slower rate than Q1 2011. Average Grade A rents in the CBD fell by 1.3% quarter-on-quarter (QOQ) from USD33.75 to USD33.30 per sq m per month. Average rents for Grades B and C offices also fell during the quarter by approximately 2.3% and 2.0% respectively.

The average occupancy in the second quarter was 82.5% across all grades of office accommodation, an increase from around 79.8% at the end of Q1 2011. Occupancy continued to be lowest for Grade A office accommodation at approximately 66% although it is an increase from 63% in Q1 2011. This low occupancy is largely due to the continued high vacancy in recently completed Grade A stock. Grade B and C stock had higher occupancy rates at over 80%.

The current stock in HCMC rose to approximately 1.23 million sq m (NLA), with approximately 255,000 sq m (NLA) of new supply forecast for the remainder of 2011.

Trang Le, Manager of DTZ Occupier Services department, commented, “Office landlords for all grades are still facing challenging times at the end of the first half of 2011. In addition to reduced rental rates, tenants are being offered increasingly flexible terms when negotiating their leases. These incentives include increased rent-free and fit-out periods, stepped rents or complimentary parking spaces. We are seeing the trend of many tenants across HCMC looking to use this period to upgrade to office space with higher specifications.”

Consumer confidence drops but occupancy rates remain high and rents stable in HCMC retail sector

The first half of 2011 was marked by a fall in consumer confidence due to fears about the economy. While consumer spending increased by 22.6% in the first 6 months of 2011 compared to the same period of 2010, the General Statistics Office of Vietnam estimates that if price rises were excluded the growth would be just 5.7%.

Nevertheless, occupancy remained at high levels, at approximately 98% in the CBD, having fallen by 1% in the last quarter. Overall, occupancy across HCMC dropped 1.0 percentage-point to 93.5%, with non-CBD areas seeing occupancy rates remaining stable with no new major stock completed.

Asking rents were stable in Q2 2011 for both CBD and non-CBD accommodation, with average retail rents in the CBD remaining at between USD100 and USD125 per sq m per month.

The current stock contains 38 developments providing approximately 315,000 sq m (NLA) of accommodation, while future supply is expected to be approximately 540,000 sq m (NLA) if all projects currently in the development pipeline are completed according to schedule.

KP Singh, General Director of DTZ Vietnam commented, “Although consumer confidence has fallen in the first half of 2011, we have seen a relatively stable retail property market in Q2 2011. In the short term we would expect to see occupancy rates slip slightly as new stock is completed outside the CBD. However we are still seeing many retail developers indicating that in the mid- to long-term, there are good opportunities outside the CBD where land prices are reasonable and population densities are high. In the CBD, although there has been a minor reduction in occupancy rates, vacancy levels are still very low.”

Continuing challenges throughout the condominium market due to credit restriction and high finance rates

During Q2 2011, conditions in the residential market remained challenging caused by credit restrictions and the high level of borrowing rates.

This has led to demand for condominiums slowing across all areas of the market, including the affordable end of the sector, which in previous quarters has been witnessing stronger demand than mid- to high-end units.

The lack of demand resulted in a slight reduction in average asking prices by 1.65% over the quarter. However, at present, we are seeing secondary market prices under greater pressure than primary prices. Prices in the primary market in Q2 2011 for affordable condominiums ranged from USD500 to USD950 per sq m and between USD950 and USD1,700 per sq m for mid-end units. High-end accommodation prices are upwards of USD1,700 per sq m.

At the end of Q2 2011, the supply of condominiums in HCMC is estimated at approximately 44,900 units from 174 completed projects. In terms of future supply, if all projects at the planning stage or under construction are delivered, this will provide approximately 45,000 units before the end of 2013 and 77,000 units before the end of 2015.

Lu Thanh Tu, Manager of DTZ’s Residential Sales and Marketing department, commented, “High financing rates and credit restrictions continue to dampen demand in the residential sector, and in particular for condominiums. Nevertheless, we remain confident that although the market is challenging at present, there is pent-up demand in the mid-term. If the government relaxes its monetary tightening policies and finance becomes cheaper and more readily available, we expect to see a corresponding increase in demand.”

Source: DTZ Vietnam

DTZ Vietnam Released Property Times Quarter 1-2011

VNRE – According to a report released by DTZ Research, the office sector in Ho Chi Minh City (HCMC) remains a challenge going into 2011.

Rents and occupancy rates, which fell through 2010, have continued to see downward pressure during Q1 2011. Occupancy rates fell from 81% to 79.8% by the end of the quarter, while average rental rates declined by approximately 6%. Grade A property has seen a particularly challenging quarter as rents for this accommodation fell by 6.25% quarter-on-quarter (QOQ) from USD36.00 to USD33.75 per sq m per month. Grade A occupancy rates ended the quarter at approximately 63%.

The current stock in HCMC rose to approximately 1.18 million sq m (NLA), with approximately 42,000 sq m completed in 2010. Approximately 245,000 sq m (NLA) of new supply is forecast for the remainder of 2011.

Trang Le, Head of DTZ Occupier Services commented, “So far 2011 has seen a continuation of challenging conditions in the office sector. There is still a large amount of empty space across HCMC, which is creating a favourable market for tenants. With an increase in choice of accommodation, tenants are demanding more value for their money. However there is still some demand in the market, so it is essential for landlords to make their buildings more attractive to tenants by differentiating themselves in terms of quality, pricing and incentives”.

CBD occupancy rates remain high while rents show slight increase in retail sector

Retail sales in consumer goods and services continue to show improvement with Q1 2011 consumer sales increasing on a year-on-year (YOY) basis by 22.6% against the same period in 2010.

Occupancy rates remain close to full occupancy in the CBD, where retail space is limited compared to demand. Outside the CBD, average occupancy rates fell slightly by around 1 percentage-point to approximately 91.5% across all types of retail accommodation, as retailers continued to show their preference for CBD locations. Overall occupancy across HCMC rose by 1 percentage-point to 94.5%.

As a result of high demand for CBD retail space, average retail rents in the CBD rose in the quarter to between USD100 and USD125 per sq m per month.

The current stock contains 38 developments providing approximately 310,000 sq m (NLA) of accommodation. In terms of future supply, if all projects currently in the development pipeline are completed according to schedule, approximately 530,000 sq m (NLA) of new supply will be available before the end of 2013.

KP Singh, General Director of DTZ Vietnam commented, “At present supply is still limited in Ho Chi Minh City, particularly compared to the high demand in prime locations with large amounts of footfall. We are therefore positive about the upcoming prospects for the retail sector in these areas. Outside the CBD there are higher vacancy rates, and rents have fallen slightly in the first three months of 2011. With much of the forecast development pipeline being in outer districts, successful developments in these area will have to be carefully planned and implemented, with issues such as target markets and leasing strategies being of utmost importance in creating a successful retail development.”

High finance rates and restrictions on credit continue to slow demand in the condominium sector

In general the residential market has remained much the same as the previous quarter. Demand for condominiums continues to be subdued with high finance rates, high inflation and potential for further dong devaluations causing many potential purchasers to adopt a wait-and-see attitude.

Nevertheless, asking prices remained stable in the first quarter. Prices in Q1 2011 for affordable condominiums ranged from USD500 to USD1,000 per sq m and ranged between USD1,000 and USD1,700 per sq m for mid-ranged units. The majority of high-end asking prices range from USD1,700 and USD2,500 per sq m, although the highest quality properties in prime locations can have asking prices of above USD4,000 per sq m.

At the end of Q1 2011 the total supply of condominiums in HCMC is estimated to be approximately 41,500 units with only around 300 units completed in the quarter.

In terms of sector outlook, demand is expected to be slow for much of 2011 with investors continuing to remain on the sidelines while interest rates remain high. Given this we expect affordable housing projects to continue to lead the way for 2011 with demand largely from end-users.

Lu Thanh Tu, Head of DTZ’s Residential Sales and Marketing commented, “The condominium market continues to suffer in Q1 2011 as a result of high finance rates and credit restrictions which have kept speculators on the sidelines. However if projects are well marketed and have strong differentiating factors and branding then it is still possible to sell many units.”

Source: DTZ Vietnam

Weak Dong could hit Vietnam’s real estate market

VNRE – Vietnam’s real estate prices have risen this past year, but a number of factors have recently brought uncertainty to the market .

The first factor has been falling US dollar reserves and the weakening Vietnamese dong (VND), due to high inflation.

Due to the managed-float exchange rate regime, dollar reserves are quickly drying up as the government, under pressure from double-digit inflation, sells foreign currencies to keep the exchange rate within a band. The currency is depreciating, and as it falls further, more people want to convert their money into dollars or gold. This has serious repercussions for the housing market, because most real estate transactions are quoted and concluded in US dollars. If the supply of dollars dries up, the real estate market could grind to a halt.

Hyperinflation in the late 1980s to early 1990s led to the use of gold, measured in taels, for house purchases. Without the use of gold or US dollars, sacks of paper bills would have been needed to purchase a small house or pay rent.

With gold prices rapidly rising in the mid 2000s, the real estate market was at a standstill until the shift to US dollars. Many real estate developers set-up their prices in US dollars to ensure that their profits are not affected by exchange rate fluctuations. Thus, exchange rate-related risks are passed on to homebuyers. Even 100% Vietnamese-invested residential developments post prices and require payment in US dollars.

Decree 71

The second issue was last August’s implementation of Decree 71/2001/ND-CP (Decree 71), providing guidance on the November 2005 Law on Residential Housing. Decree 71 aims to discourage speculative real estate investment. Intended to minimise risks for buyers, Decree 71 requires clearance from the Prime Minister for large-scale developments.

Uncertainty over the implementation of Decree 71 caused developers to accelerate construction of some projects and the purchase of lands, lead to huge price spikes in some areas, while flooding other areas with new supply.

In HCMC, Vietnam’s economic center, residential resale prices in all segments have been steady for the past two years, according to CB Richard Ellis Vietnam.

• In the low-end market, the average asking price was US$726 per sq.m. in Q3 2010
• In the high-end segment, the average asking price was US$1,898 per sq. m. in Q3 2010

On the other hand, Hanoi residential resale prices were up 9% on average during the year to Q3 2010, at US$1,837 per sq. m.

• In the low-end segment, average asking prices jumped 24% y-o-y to Q3 2010, but were up a mere 2.2% from the previous quarter.
• Prices in the luxury and high-end segment fell 1% during the quarter to Q3 2010.

AVERAGE ASKING PRICE (Q3 2010)
Hanoi Secondary Market	US$ per sq. m.	q-o-q change (%)	y-o-y change (%)
Luxury segment	3,009	-0.16	2.33
High-end segment	1,924	-0.61	9.75
Mid-end segment	1,349	1.37	15.1
Low-end segment	977	2.21	24.09
Total	1,837	0.29	9.02
Source: CBRE Vietnam

In the third quarter of 2010, the average price of villas located in posh residential areas in Vietnam range from US$1.5 million to US$2 million while villas in new neighbourhoods are priced at US$250,000, according to local real estate analysts.

Under the Ordinance on Foreign Exchange Management, all transactions done in Vietnam must be in VND. However, most real estate projects, especially luxury villas and apartments, are quoted in US dollars. These include projects like:

• Keangnam Landmark Tower, at US$2,800 to US$3,300 per sq. m.
• Indochina Plaza Hanoi, at US$2,800 per sq. m.
• Sky City Tower, at US$2,300 per sq. m.
• Mulbery Lane, at US$1,800 per sq. m.
• Parkcity, at US$3,000 per sq. m.
• Usilk urban area project, at US$1,000 to US$2,000 per sq. m.
• Mipec Tower, at US$1,000 to US$2,000 per sq. m.
• Thanh Cong Tower, at US$1,000 to US$2,000 per sq. m.
• Discovery Complex (302 Cau Giay street) project, at US$1,000 to US$2,000 per sq. m.

Viet Kieus can now buy unlimited property, just like resident Vietnamese

Decree 71 also contains revisions to the Housing Law allowing Viet Kieu (overseas Vietnamese) to possess as unlimited property just like Vietnamese citizens. The new regulations are expected to create more demand in the housing market. About 70% of the 4 million Viet Kieu retain their Vietnamese nationality, according to the Ministry of Construction.

In addition, even if a Viet Kieu has given up his Vietnamese nationality, he is still given the same homeownership right, provided that:

• He has invested under the Law of Investment
• He is married to a Vietnamese citizen living in the country
• He is working in Vietnam as a cultural activist, scientist or has special skills and he has made contributions to the country

Before the new decree took effect, Decree 81, already in force, allowed certain Viet Kieu to buy property. However after 9 years of implementation, only 140 Viet Kieu had bought houses in their own names, due to red tape.

It is however unclear if the new decree will address the problems of corruption and red tape. In addition, many overseas Vietnamese prefer to purchase property under the names of relatives to avoid tax liabilities and other obligations.

Decree 71 also mandates that residential housing projects with a total of 2,500 housing units (incl. villas, detached houses, apartment buildings, new urban zones and mixed use projects) must be approved by the Prime Minister. Any amendments to the project must also be approved by the Prime Minister. This can potentially lead to delays and more red tape.

Perpetual Lease

In theory, freehold land does not exist in Vietnam. Land can only be leased, even by Vietnamese; though in reality many leases seem to be for indefinite terms. “Buying” land is technically a transfer of leasing rights. The creation of a perpetually renewable lease means that Vietnam now has one of the most open property markets in Asia.

However, the 70 years lease period allowed to foreign investors was reduced to 50 years in 2009.

Under-served low-end market

Demand for affordable housing has risen in recent years, given a rising population, rapid migration from rural to urban areas, and rapidly improving living standards. The demand for affordable houses is now outstripping supply, as residential development has largely focused on high-end customers.

According to RNCOS, a global market research company, many Vietnamese do not have their own houses and more than 70% of households live in temporary wooden houses. RNCOS estimates that Vietnam is deficient of about 20 million permanent housing units.

In Ho Chi Minh City, the country’s largest city, only 14% of the total supply of luxury apartments was sold in the first eight months of 2010, according to a survey conducted by Cushman and Wakefield Vietnam.

On the other hand, about 670 units of newly-built apartments in Hanoi were sold in the 2nd quarter of 2010, or about 48% of the supply in the primary market in the capital, according to Savills Vietnam, a UK-based research firm.

vietnamese and overseas Vietnamese account for about 70% of homebuyers in the country, while the rest are foreigners, according to Nguyen Kim Son of BTA Development Investment.

Supply increases

In the 3rd quarter of 2010, the total supply of condominium units in Hanoi was 75,235 units, up 4.5% from the previous quarter, according to CB Richard Ellis Vietnam. In addition, about 3,000 additional units are expected to be completed in Hanoi in the last quarter of 2010.

TOTAL SUPPLY OF CONDOMINIUM UNITS (HANOI)
	Q2 2010	Q3 2010	Q-O-Q CHANGE (%)
Luxury segment	2,186	2,186	–
High-end segment	12,709	14,005	10.2
Mid-end segment	44,403	46,392	4.5
Low-end segment	12,671	12,652	–
Total	71,969	75,235	4.5
Source: CBRE Vietnam

Just like in the capital, other areas in Vietnam are also experiencing an increase in supply. There were around 11,200 newly-built apartments available for sale in the southern city in the 2nd quarter of 2010, up 24% from the previous quarter, according to Savills Vietnam.

In addition, about 28,500 apartments currently under construction are expected to be completed in the next two years. The government also constructed low-income apartments which will be available for sale by the end of 2010.

Underdeveloped mortgage market

The Vietnamese mortgage market is still relatively underdeveloped, with majority of homebuyers paying in cash. In an effort to boost the housing market, developers are now starting to work with banks to offer mortgages to buyers.

However, high interest rates and strict loan procedures are still hindering the local mortgage market from flourishing. The loan-to-value (LTV) ratio rarely exceeds 50% of the appraised value of the property. The term period is usually 15 years.

In the first 9 months of 2010, the average lending rate was 13.5%, up from 12% in 2009. To curb inflationary pressures, the base interest rate was raised by 100 basis points to 9% in November 2010, from 8% since December 2009, based from figures released by the central bank, The State Bank of Vietnam.

Rents up, yields high

In September 2010, the average rent for high to mid-end condominium units in Vietnam was US$10 per sq. m. However, the local rental market is very diverse, with rents differing in each city.

Hanoi has the most expensive housing in the country, with average asking rent at US$30.31 (VND587,311) per sq. m. per month in Q3 2010, up 5.9% from a year earlier, according to CB Richard Ellis Vietnam.

In Hanoi, a 170-sq m. apartment has an expected rental yields of 7%, according to local real estate developers. On the other hand, a same sized apartment located in Ho Chi Minh City has higher rental yields of about 9%.

In Ho Chi Minh City, the overall rental vacancy rate was 16.5% in the 3rd quarter of 2010, slightly up from 16% in 2009, according to the latest report from CB Richard Ellis Vietnam.

High GDP growth, higher inflation

In the 3rd quarter of 2010, the country’s GDP growth rate accelerated to 7.2% y-o-y, up from 5.8% and 6.4% in Q1 and Q2 2010, respectively. In 2010, Vietnam’s economic growth is expected to exceed 7%, up from the previous projection of 6.5%. The country’s GDP growth was 5.3% in 2009 and 6.3% in 2008.

While the economy is growing fast, consumer prices are rising much faster. Overall inflation for 2010 is at 11.8%, much higher than the government target of 8%, according to the General Statistics Office (GSO). The government had already imposed price controls on key commodities such as electricity, coal, cement, fertilizer and other goods to no avail.

Rating agency downgrade

In December, rating agencies downgraded Vietnam’s foreign currency bond ratings. Moody’s lowered its rating from Ba3 to B1 (four steps below investment grade), while S&P rated Vietnam at BB- (three steps below investment grade). They both kept the outlook as negative, implying the future downgrades can be expected.

In their report, Moody’s pointed to the increased risk of a balance of payment (BOP) crisis in Vietnam because imports are outpacing exports. Foreign reserves are being depleted because of capital flight and the effort to defend an overvalued currency. Other factors leading to the downgrade were high inflation, excessive bank lending and the near-collapse of the state-owned Vinashin.

Originally a shipbuilding company, Vinashin expanded to a wide array of industries including tourism and animal feeds. As of June 2010, its total debt reached US$4.5billio, roughly 4.5% of Vietnam’s GDP. The government said that it will not bail out the company but provided zero-interest loans for the salary of its employees.

Source: Global Property Guide

Good Q2 growth to spur property market

Vnre.blogspot.com – Positive signs in HCM City’s economy in the second quarter should enliven the real estate market, according to a property services provider.

Marc Townsend of CB Richard Ellis said at a Thursday meeting that HCM City continued to be a key driver for the national economy, which was shown at the 11 per cent year-on-year GDP growth in the second quarter.

The industrial and construction sectors even represented a high rate of 11.3 per cent. Meanwhile, retail spending continued to strengthen substantially by 34.6 per cent over the 2009’s second quarter.

Infrastructure projects including East West Highway, Thu Thiem Tunnel and Saigon Bridge 2 will also be drivers to the property market.

According to CBRE, the HCM City office market, across all grades, saw an increase in gross floor area (GFA) of 9.6 per cent during the second quarter thanks to nine new buildings contributing 124,584sq.m. Vincom Centre alone represented almost 76,000sq.m.

With companies unwilling to pre-let speculative developments, the addition of Vincom Centre resulted in a jump in Grade A vacancies to 31.9 per cent. By contrast, Grade B market saw the vacancy rate decrease to 10.3 per cent, despite the addition of two new buildings which provided 25,600sq.m.

Absorption continued to be strong and improved significantly on Q1. The second quarter saw 72,726sq.m of absorption, bringing the total in first half of 2010 to 130,739sq.m, close to the 154,458sq.m absorbed in the whole of 2009.

Given the arrival of Vincom Centre and the promotional rates that were offered to the rental rate for Grade A buildings decreased to US$37.51 per sq.m per month, from $39.60 in the first quarter.

This increase in space and decrease in rental prices was reflected in the Grade B and C office markets which saw rental rate decreases of 7.95 and 3.12 per cent reflectively.

Meanwhile another property service provider Savills Vietnam noted that by the end of 2010, the office market is expected to receive about 20 office buildings with total 153,000sq.m.

District 1 is still the economic centre of the City, so occupancy accounts for the highest market share at around 49 percent. District 7, especially, Phu My Hung Area, has invested heavily in infrastructure and the population has strongly increased, resulting in an expected 20-per-cent increase of office demand.

Rental rates

Retail rental rates within the central business district hit an all time high of $120.90, increasing from $100.50 in the first quarter.

Vincom Centre added 58,000 sq.m or an additional 39.5 per cent of retail space to the CBD, giving homes to new retailers to the Vietnamese market including Just Cavalli, Jimmy Choo and BCBG.

Away from the CBD, rental rates showed a decrease in the period under review, decreasing by 3.3 percentage points to $46.2 per sq.m per month. Given the increase seen in the first quarter this shows that there is some fluctuation within the non-CBD market and that ultimately retailers are retaining their preference for CBD locations.

According to Savills, Q2 recorded four new retail centres: Vincom Centre Shopping Mall, Lotte Mart Phu Tho, Maximark Ba Thang Hai, and Co-opmart Phu Tho, with around 113,000sq.m.

At present, there are six department stores, 19 shopping centres, six retail podiums, 61 supermarkets and three wholesale markets in the city with a total area of approximately 602,000sq.m.

Occupancy rate this quarter for the whole of the retail market was at 96 per cent, a slight increase of one percent q-o-q.

This year 100,000 square metres of new supply is expected to enter the market while 2012 and onward will be big years as 429,000 square metres of new supply are expected with the completion of some major projects.

Apartments for sale

Evidence from real estate trading floors and CBRE sales teams suggests that in the quarter under review enquiries for purchases increased by approximately 25 per cent.

The period saw a record 17 projects launched, with the affordable sector accounting for over a half. These projects spread across 12 different districts.

Binh Tan District, Binh Thanh District and District 2 are the top three districts for primary supply with market shares of 14, 14 and 12 per cent respectively, according to Savills.

Meanwhile, there are approximately 49,400 apartments in the city’s secondary market, an increase of 2,160 units compared with Q1 2010. District 7, Binh Thanh and District 2 remained the top three districts in the secondary market by number of units with market shares of 25, 12 and 10 per cent respectively.

Savills said the average price of the whole market this quarter was approximately $1,370 per sq.m, an increase of nearly 40 per cent compared to $980 per sq.m in Q1, with Grade A price increasing 68 per cent mainly due to the launching of new projects with high prices in good locations.

Source: VNA

HCMC: master plan of development to 2020

According to the master plan of development to 2020, Hồ Chí Minh city will have 22 export processing 2and industrial zones with 5.918,47 ha of area.

Vietnam Food Retail

Rising affluence along with increasing awareness about branded food products will trigger food retail sales in Vietnam to grow above 20% CAGR during 2010-2012, predicts RNCOS.

According to our latest industry research report “Vietnam Retail Analysis (2008-2012)”, the retail sector in Vietnam is much smaller as compared to other developing economies in Asia, but it has shown strong fundamentals and buoyant expansion in comparison of its neighbors like India and China. Government’s support and increasing consumer confidence have resulted in positive outlook for retailers in Vietnam over the previous years. The report further identifies that food retail industry, in particular, will continue to post extraordinary growth during 2010-2012 on the basis of strong market fundamentals discussed and analyzed thoroughly in the report.

The study reveals that food is the most important component of retail sales in the country, accounting for about two-thirds of the total sales. Traditional food retail channels are dominating the market at present, but government’s decision to allow 100% entry to foreign players under WTO commitment will lead modern retail to realize unrealistic growth in the food retail segment which is poised for around 20.3% CAGR during 2010-2012.

Apart from food products, non-food retailing is also growing fast in the country, representing nearly one-third of the total retail sales. We anticipate that increasing consumer expenditure on non-essential items such as clothing, electrical and DIY (Do-It-Yourself) goods along with various other factors, the non-food retail will register double-digit CAGR during our forecast period.

“Vietnam Retail Analysis (2008-2012)”, is the outcome of our extensive research and thorough analysis on the burgeoning retail industry and its components. The report also discusses the market structure, current and past market performance and factors critical to the success of the retail industry in Vietnam. It includes statistics and analysis on industry sub-segments such as clothing, footwear, cosmetics, furniture, consumer electronics, household cleaning products, etc. In addition, provincial-level retail industry analysis has also been covered to facilitate a balanced research outlook.

Most importantly, the report also gives industry forecast based on correlation of past drivers, challenges and opportunities for expansion. In this way, the report presents a complete and coherent analysis of the Vietnam retail industry and will prove decisive for clients.

Source: RNCOS

About RNCOS:

RNCOS specializes in Industry intelligence and creative solutions for contemporary business segments. Our professionals study and analyze the industry and its various components, with comprehensive study of the changing market behavior. Our accuracy and data precision proves beneficial in terms of pricing and time management that assist the consultants in meeting their objectives in a cost-effective and timely manner.

Vietnam Infrastructure Report Q3 2010

Research and Markets has announced the addition of the “Vietnam Infrastructure Report Q3 2010” report to their offering.

The Vietnam Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Vietnam’s infrastructure industry.

The construction sector in Vietnam did not make as much headway this quarter as expected, as neighbouring states started to see a turnaround thanks to stronger economic performance. As a result the industry value for the year has been revised down to VND126trn (US$6.57bn) for 2010. Growth over the forecast period is now also expected to be reduced with the industry valued at VND260trn (US$13.91bn) in 2014. This nonetheless represents a more than doubled industry value in the space of four years.

Major infrastructure projects were thick on the ground this quarter, as both transport and energy developments were announced. In March 2010, Vietnam’s Prime Minister Nguyen Tan Dung, approved US$18.09bn for the construction and development of the road system in the country. The plans include development of over 5,000km of roads within the country. In the power sector, Vinh Tan 3 Energy Joint Stock Company (VTEC) was approved to develop the country’s largest thermal power project. The project, worth US$2.5bn, is expected to start in late 2011 and the plant is likely to come online in 2014- 15.

Vietnam’s business environment continues to be an issue for the country and this quarter saw it slip one place in the regional rankings. Although its business environment score stayed more or less static at 50.8 other countries in the Asia Pacific region started to see stronger growth as economic conditions improved.

The country’s infrastructure market scored well; however, downside risks from market volatility and country risk dragged down the overall score.

Corruption still remains a problem for Vietnam and is likely to continue to impede infrastructure development until government reforms can change the landscape. With increased foreign investment on the back of attractive growth rates there are signs that the country is now moving in the right direction in invoking structures to improve the business environment such as public private partnership (PPP) regimes.

Source: Research and Markets

Contact: Research and Markets
Laura Wood, Senior Manager
press@researchandmarkets.com
U.S. Fax: 646-607-1907 – Fax (outside U.S.): +353-1-481-1716

Vietnam: A rising star

Remarkable growth makes its economy one of Asia’s best performers

Vietnam’s economic growth was remarkable prior to 2008. From 2002 to 2007, it maintained respectable annual economic growth of above 7%, comparable to the growth of China and India. In 2007, the country’s gross domestic product expanded by 8.5%; the third consecutive year it surpassed the 8% growth benchmark.

However, things were not as smooth as before. In the first half of 2008, Vietnam’s economy went through a rough patch. Rampant inflation, a rapidly widening trade deficit, a sharp stock market downturn and worrying signs of a lack of confidence in the currency had raised concerns of an economic meltdown. This was followed by the global financial crisis in the second half of 2008.

Despite the rapid downturn in market sentiment in 2008, Vietnam’s economic outlook is not entirely gloomy. All thanks to Vietnamese leaders who historically have responded pragmatically when times were tough.

In the first half of 2008, the authorities unveiled measures to fight inflation. Dramatic increases in policy interest rates, increases in capital reserve requirements for banks and mandated bond purchases by banks were efforts by the State Bank of Vietnam to control spiralling inflation. Within a year, many of the economic issues plaguing Vietnam in 2008 had abated. The inflation which peaked at 28.3% year on year in August 2008 had drastically moderated to 2% in August 2009 and is no longer a pressing concern. The threat of massive depreciation of the Vietnamese dong is over. Trade deficits have also moderated from a peak of US$3.73 billion in April 2008 to US$1.25 billion in July 2009.

Vietnam appears to be weathering the global economic crisis better than many other Asian countries. In 2009, its real GDP growth is expected to be third largest in Asia – after China and India. This is in part strengthened by the government’s stimulus measures, including tax breaks and an interest-rate subsidy programme, which provided a massive boost to lending.

Vietnam’s housing market in its infancy

The Vietnamese real estate market is growing in tandem with its healthy economic progress. Lack of supply amid growing demand for quality real estate space has and will continue to drive development and price growth in the coming years.

Demand for housing is supported by healthy fundamentals that include:

Favourable demographics: With a population of over 85 million people, Vietnam is the 13th most populous nation in the world. Its population boasts a high overall literacy rate and is relatively young and well educated, all of which translate into a potentially attractive consumer market.

Rapid urbanization: With Vietnam’s large and growing population, the trend, as with all other developing countries, is one towards increasing urbanisation. According to the United Nations (UN) Population Division, while only 85 million people lived in urban areas in 2005, that figure is expected to grow to 90 million in 2010 and to over 102 million in 2020. This works out to be a growth of over one million people in the urban area every year. Rapid urbanisation generates huge demand for real estate space, providing accommodation for the growing urban population as well as to house economic activities.

Rapid urbanisation also means that cities such as Ho Chi Minh City and Hanoi, are experiencing faster population growth. With relatively higher population densities, apartments and condominiums will become an increasingly common form of residential development in these cities.

Growing affluence: In tandem with economic growth, income has also grown rapidly in the past few years. Personal disposable income rose by close to 85% from US$260 in 2002 to US$480 in 2008. According to the Economist Intelligent Unit’s forecast, income will grow by 6% each year over the next five years. In addition, it should be noted that unreported income and wealth may be substantially more than official figures.

The role of overseas remittances in driving the wealth and affluence of the Vietnamese should also not be ignored. Overseas remittances are an important source of additional income that serves to improve the living standards of the people, especially in key cities. According to the Overseas Remittance Management Department of the State Bank of Vietnam, money sent by overseas Vietnamese to their relatives via official channels amounted to US$7.2 billion in 2008. Increasingly, this money has been ploughed into real estate investments.

Property as choice investment: Property ownership is considered a sign of wealth, a form of savings and a long-term investment. With the limited number of avenues for financial investment, investment in property is considered fairly attractive when land and properties maintain a steady growth rate. Moreover, property investment will offer capital preservation.

Favourable developments in the legal and regulatory environment: Property ownership regulations were liberalised in 2001 when the Vietnamese government first allowed certain groups of overseas Vietnamese to own houses in Vietnam. The housing law was further liberalised in 2006 when more categories of overseas Vietnamese were allowed to own properties. Subsequently on September 1, 2009, the law was relaxed again. All overseas Vietnamese are now allowed to own houses, expanding the pool of potential buyers in the residential market.

In another significant development, the National Assembly passed a resolution relating to foreigners purchasing property in Vietnam. According to the resolution, with effect from January 1, 2009, foreign individuals and enterprises who meet certain criteria will be eligible to own apartments in Vietnam for a period of 70 years. This will give an upside to the property market in Hanoi and Ho Chi Minh, especially given the large number of foreign organisations and individuals residing in these cities.

Housing market performance in brief

The global economic slowdown, Vietnam’s high inflation rate and Government policy moves to curb inflation have resulted in the first down cycle in Vietnam’s modern real estate era and increased caution among investors, developers and other market participants.

The residential sector in Hanoi and Ho Chi Minh City have seen capital values fall significantly, particularly in the luxury condominium market. However, the second quarter of 2009 witnessed a turnaround in the prices of all condominium segments after four quarters of continuous decline. In the third quarter of 2009, the prices of low to high end condominiums continue to gain momentum. In Hanoi, the condominium prices went up by 8% to 11%, while prices in Ho Chi Minh increased by 1% to 3%.

Article contributed by Dr Boaz Boon and Neo Poh Har of CapitaLand’s research team
Data source: CBRE, Consensus Forecast & CapitaLand Research