- The average selling price of luxury apartments has plunged 40%
- Mid-end apartments’ average selling prices fell 30%
- The average selling price of low-end apartments dropped 27%, according to Colliers International.
This follows almost three years of house price falls in Vietnam.
Apartment prices in all segments in Vietnam continued the rush to find the bottom during the first quarter of 2012, with demand low, and economic growth weakening. Average house prices dropped 6% during the first quarter. In Indochina Plaza Hanoi or Star City, prices fell by an average of 11% q-o-q.
Colliers’ estimates, though made in the absence of official house price statistics, are supported by Savills Vietnam, which estimates that in the first quarter of 2012 prices of mid-segment apartments plunged 9% q-o-q. Other property experts like CB Richard Ellis Vietnam and DTZ Research confirm that property prices are in freefall in Vietnam, especially in Hanoi and Ho Chi Minh City.
In Q1 2012, the average asking price of apartments was VND26 million (US$1,230) per square metre, according to Colliers International. On the other hand, the average selling prices ranged from VND14.6 million (US$690) to VND42.4 million (US$2,000) per sq. m.
According to DTZ Research:
- Asking prices for affordable condominiums ranged from VND10.6 million (US$500) to VND20 million (US$950) per sq. m. in Q2 2012
- For middle segment condominiums asking prices ranged from VND20 million (US$950) to VND35.9 million (US$1,700) per sq. m.
- For high-end condominiums, asking prices were above VND35.9 million (US$1,700) per sq. m.
Recent statistics show a staggering number of unsold housing units in Vietnam’s two biggest cities. In Hanoi, the number of unsold apartments is about 40,000 units, and it has reached 20,000 units in Ho Chi Minh City.
During the year ending in Q1 2012, the supply of apartments increased by 37% to 119,000 units, according to Colliers International. New apartment supply increased by 32% y-o-y, while the supply of existing apartments rose by 44% y-o-y in Q1 2012.
Vietnam has a substantial number of bad loans. One out of every ten loans in the banking system has stopped paying, according to the central bank. Fitch Ratings believe the percentage of bad loans might be much higher. The total value of outstanding real estate loans in Vietnam is VND180 trillion (US$8.5 billion), though down from peak levels of VND280 trillion (US$13.2 billion).
Many residential projects have stalled in mid-construction (an example being the Saigon Residence, a high-end residential building in Ho Chi Minh’s centre). Many property developers have delayed launching projects.
In an effort to bolster demand:
- A VND5 trillion credit package was given to homebuyers by the Vietnam Bank for Industry and Trade (Vietinbank).
- An exemption of about 10% of the value added tax (VAT) for home buyers is being proposed by the Housing and Real Estate Market Department.
- The local government in Ho Chi Minh City has proposed opening the property market to overseas Vietnamese.
- The State Bank of Vietnam (SBV), the country’s central bank, slashed the refinance rate was lowered from 11% to 10% in July 1, 2012, the fifth consecutive monthly fall this year, as inflation cools. The discount rate was also lowered from 9% to 8% and the overnight inter-bank rate from 12% to 11%.
House price falls are expected to continue in coming quarters, according to Colliers International.
“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,” says KP Singh, General Director of DTZ Vietnam.
The Vietnamese economy grew by 4.38% in the first half of 2012, its most sluggish rate for three years. Real GDP growth is expected to slow to 5.1% in 2012, from 5.9% in the previous year, according to the IMF.
Analysis of Vietnam Residential Property Market »
Gross rental yields figures for apartments in Hanoi and Ho Chi Minh are therefore unavailable, due to insufficient data.
Capital Gains: Income from transfer of real estate is taxed at a flat rate of 25%. Taxable capital gains are computed by deducting the acquisition costs and incidental expenses from the gross sales proceeds.
Inheritance: Inheritance exceeding VND10 million (US$475) is taxed at a flat rate of 10%.
Residents: Residents pay tax on their worldwide income at progressive rates, from 5% to 35%.
Rent: The rent can be freely negotiated by both parties. It is usually fixed for the duration of the lease term, typically 1 to 2 years. Rents are paid well in advance and interest is charged on late payments.
Tenant Security: If payment is delayed by 15 days, the landlord has the right to terminate the tenancy agreement by sending a 3-day written notice to the tenant. The landlord is entitled not to return the security deposit and to charge the tenant one month's rent penalty.
While the economy is growing fast, consumer prices are rising much faster. Overall inflation for 2010 was 18.7%, much higher than the government target of 8%, according to the General Statistics Office (GSO).
To combat inflation, the government imposed price controls on key commodities such as electricity, coal, cement, fertilizer and other goods - to no avail. In addition, the State Bank of Vietnam (SBV), the country’s central bank, repeatedly hiked interest rates last year. In June 2012, consumer prices rose by just 6.9% from a year earlier, the lowest rate in three years.
The country’s economic growth slowed to 4.38% in the first half of 2012, its most sluggish rate in three years, according to the GSO. Real GDP growth is expected to slow to 5.1% in 2012, from 5.9% in the previous year, according to the IMF.
Vietnam’s banking system is now facing a large amount of bad debt. Much of the money lent during the credit boom (2009-2010) is now considered bad debt, much owed by the huge state enterprises. Non-performing loans may be 8.82% of banks’ outstanding debt as of June 2012, according to Giau, the head of the National Assembly’s Economic Committee. Most banks are now unwilling to lend money.
In September 2012, Moody’s Investors Service downgraded the country’s credit rating, as well as that of eight Vietnamese banks.
Prime Minister Nguyen Tan Dung, who has been in power since 2006, has relied on state-owned companies to spark economic growth. State-owned Vinashin, originally a shipbuilder, expanded to a wide array of industries including tourism and animal feeds. However, it almost collapsed in 2012, with its total debt reaching US$4.5billion, 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.
PM Dung is now facing questions in parliament. During the National Assembly address held last October 22, 2012, PM Dung apologized to the public for government’s mistakes in managing state-owned firms.
“I seriously recognize my great political responsibilities as head of the government and sincerely admit mistakes to the National Assembly, the Party, and the people for shortcomings and weaknesses of the government in management and regulation, particularly in checking and monitoring operations of state- owned conglomerates and corporations,” Dung said.
In an effort to boost the economy, SBV slashed its key interest rates in July 1, 2012 for the fifth consecutive month this year. The refinance rate was lowered from 11% to 10%, the discount rate from 9% to 8% and the overnight inter-bank lending rate from 12% to 11%.