DTZ Research: Challenging year ahead for property market in Ho Chi Minh City
22 AprQuarter 1/2012 report – HCMC
14 AprChallenging market conditions in Q2 2011 for Ho Chi Minh City property market, says DTZ Research
18 JulVNRE – 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
17 AprRents 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
27 JanDue 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.
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
10 Jul
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
25 JunAccording 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.