Vietnam's thriving property market
March 19, 2018
Full steam ahead in Vietnam! Real estate prices have been rising robustly in recent years, propelled by Vietnam's recovery from the housing bust of 2009-2013 and by a booming economy. Sales have been greatly assisted by the Housing Law and Law on Real Estate Business (effective July 1, 2015), by the law on Sell and Transfer of Real Properties (subsequently fleshed out by Decree No 99 (effective December 10, 2015) and by Circular 19 (effective August 15, 2016).
In Q4 2017 in Ho Chi Minh City (HCMH) primary market apartment prices went up by 3.6% during the year to Q4 2017, according to Jones Lang LaSalle. Secondary market apartment prices increased by 0.5% y-o-y during the same period.
The average asking price of HCMC villas and townhouses rose by 13.6% y-o-y in Q4 2017. In the secondary market, asking prices of villas and townhouses went up by 4.5% y-o-y.rose by 44% y-o-y in Q4 2017.
Villas and townhouse sales in HCMC increased by 25% both from the previous quarter and from the same quarter last year, according to Savills World Research.
In Hanoi apartment prices fell during the year to Q4 2017. Primary market apartment prices fell by 2.5% during the year to Q4 2017, according to Jones Lang LaSalle. Secondary market apartment prices fell by 6.6% y-o-y.
A continuous growth of supply in Hanoi, as well as a shift in buyer interest to mid-end and affordable segments, in part, might have contributed to the softening of property prices in the capital.
Guidelines for implementation of the Housing Law
On July 1, 2015, the Housing Law (Law on Housing No. 65/2014/QH13) became effective. It has had enormous significance.
First, foreigners who have been granted a Vietnamese visa, plus foreign investment funds, banks, Vietnamese branches and representative offices of overseas companies can now purchase residential property. Foreigners can now own all types of properties, including condominiums and landed property such as villas and townhouses. Properties owned by foreigners can be sub-leased, inherited and collateralized.
Second, overseas Vietnamese who have maintained their Vietnamese citizenship will be treated like locals and are permitted to own unlimited property in their own names. It is estimated that about 70% of the 4 million overseas Vietnamese around the world still maintain their original citizenship.
For foreign individuals the house ownership period is 30 years, but it can be extended. The new law also limits foreigners from owning more than 30% of a single apartment building, or more than 350 houses and apartments in a ward, a subdistrict-level administrative area. The Ho Chi Minh City Real Estate Association has objected to this, because of the concentration of foreigners in key districts.
The revised housing law has revitalized the property market and sent a broader message that Vietnam is open for business. "The government is looking at ensuring that Vietnam continues to be competitive, continues to be attractive to foreign investors, and to create an environment where business can thrive," said David Lim of ZICOLaw Vietnam.
Detailed guidelines on implementing the Housing Law (Decree 99) became effective on December 10, 2015. According to Decree 99, foreigners are allowed to own houses in Vietnam as long as they were able to meet these conditions:
- The foreigner's valid passport should have an entry stamp affixed to it from Vietnam's immigration authority.
- They should not be in the category of people entitled to preferential treatment or diplomatic immunity in accordance with the Ordinance on Preferential Treatment Rights and Immunities Applicable to Representative Diplomatic Offices, Foreign Consulates and Representative Offices of International Organisations in Vietnam.
On August 15, 2016 the Ministry of Construction Circular 19/2016/TT-BXD (Circular 19) which contains guidelines on the Law on Housing, and on Decree No. 99/2015/ND-CP, became effective.
- Foreigners can only own up to 30% of the total residential apartments of a particular condominium.
- As for individual houses under commercial housing projects (including villas and semi-detached housings), foreigners are allowed to own 10% of the total individual houses of a particular project.
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.
The memory of a housing bust (2009-2013)
Vietnam witnessed a prolonged housing crisis after the global crisis. Property prices plunged by double-digit figures. The government was embarrassed, banks were bankrupted, and the economy slowed sharply.
Residential projects stalled in mid-construction (an example being the Saigon Residence, a high-end residential building in Ho Chi Minh's centre). Many property developers delayed launching projects.
The banking system effectively collapsed. One out of every ten loans in the banking system stopped paying, according to the central bank, but Fitch Ratings believes the percentage of bad loans was higher.
To bolster demand, the government provided the real estate market with a US$1.4 billion stimulus package in 2013, subjected developers to placed stricter financial requirements, and bought US$8 billion of non-performing loans especially from the real estate sector. The State Bank of Vietnam (SBV), the country's central bank, slashed the refinance rate and discount rate several times, and a VND5 trillion (US$222 million) credit package was given to homebuyers by the Vietnam Bank for Industry and Trade (Vietinbank). These measures were, over time, successful.
Rental yields remain high in HCMC
Apartment rental yields in HCMC remain high at around 5.8% during the second half of 2017, according to Savills World Research's recent report.
Scarcity of land limits supply in HCMC
In Ho Chi Minh City (HCMC) new condominium supply was 15% lower than during the previous year. Most supply was in the mid-end segment, which accounted for about 60% of supplied and sold units.
Most recently launched HCMC condo units are in the following developments:
- Saigon Intela in Binh Chanh
- Topaz Elite- Phoenix 1&2 in District 8
- Tara Residence in District 8
- Lavita Charm in Thu Duc
- Masteri An Phu in District 2
HCMC's newly launched condos have the following asking prices:
- In District 2, condo prices ranged from US$ 1,700 to US$ 3,500 per sq. m. at the end of Q4 2017, according to Colliers.
- In District 7, prices range from US$ 1,100 to US$ 1,500 per sq. m.
- In District 8, condos range from US$ 850 to almost US$ 1,000 per sq. m.
- In District 9, condo prices range from US$ 990 to US$ 1,100 per sq. m.
- Other new condo projects are located in Binh Chanh (US$ 793 per sq. m.), Go Vap (US$ 1,058 per sq. m.), and Thu Duc (US$ 1,146 per sq. m.)
Newly-launched HCMC villas and townhouses:
- Louis Garden, in District 9: villas and townhouses have an average asking price of US$ 3,400 per sq. m.
- Citadel, in District 7: prices average US$ 3,300 per sq. m.
- Thao Dien Q2 , in District 2: prices of villas and townhouses average US$ 3,000 per sq. m.
- Van Xuan Dat Viet, in Binh Tan: villas and townhouses average US$ 2,300 per sq. m.
- Merita Khang Dien, in District 9: prices average US$ 2,200 per sq. m.
- Mystery Villas, in District 2: villas and townhouses have an average price of US$ 2,196 per sq. m.
- Cityland Park Hills, in Go Vap: prices average US$ 2,000 per sq. m.
- Other newly launched villa and townhouse projects in HCMC have asking prices ranging from US$ 800 to US$ 1,800 per sq. m.
In HCMC, the occupancy rate of serviced apartments was 92.2% for Grade A and 85% for Grade B apartments in Q4 2017, according to Colliers. The occupancy rates during the last quarter of 2017 were propelled by a high volume of tourists and business travellers during the period.
The city's high occupancy rate was also attributed to a scarcity of new supply in HCMC. In Q4 2017, the current stock in HCMC is about 4,200 serviced apartment units, more than 1,100 units of which are Grade A units and 3,100 units are Grade B units. During the last quarter of 2017, a new serviced apartment development "Sherwood Suites" added almost 160 units of supply in District 3, raising the total existing stock by 4.1% from the previous quarter, according to Colliers.
In 2018, the stock is expected to sharply increase, with an expected launch of around 1,280 new serviced apartment units.
SERVICED APARTMENTS UNDER CONSTRUCTION, HCMC
|Project||District||Total units||Expected completion|
|Saigon Center (phase 2)||7||200||Q1 2018|
|Oakwood Residence Saigon & Richlane Residence||2||480||Q1 2018|
|Berkley Serviced Residence||2||85||Q1 2018|
|Ascott Waterfront||1||222||Q3 2018|
|Terra Royal||3||300||Q4 2018|
|Source: Colliers International|
Property sales in HCMC, especially in the villa and townhouse market, are expected to remain positive towards the end of 2018, according to Jones Lang LaSalle. The demand for low-end segments is expected to propel future sales.
Hanoi's supply stock sharply up, hurting prices
Hanoi's new apartment supply was up by 17% during the year to 25,260 units, according to Savills World Research. Most of the increase was in the affordable and mid-end segments. The total stock of villas and townhouses rose about 15.3% on last year to 40,419 dwellings in Q4 2017, according to Savills World Research. In Q4 2017, about more than 1,290 dwellings were added to the supply from ten new projects and three new phases.
Savills expect about 26,300 units to enter the market in 2018, mostly consisting of Grade B apartments.
In Q4 2017, the average asking price of apartments in Hanoi's primary market was around US$ 1,370 per sq. m., while it was about US$ 1,184 per sq. m. for apartments in the secondary market, according to Jones Lang LaSalle. Apartments in the affordable segment can be bought at less than US$1,000 per sq. m. Mid-end apartments are at less than U$ 1,500 per sq. m., while Premium apartments cost more than US$ 2,000 per sq. m. Luxury apartments could cost more than US$ 3,000 per sq. m.
Among the newly-launched condominiums in Hanoi during the last quarter of2017, PentStudio in Tay Ho District had the highest asking price at US$ 3,500 per sq. m. Tay Ho District have three other newly launched projects with asking prices ranging from US$ 1,200 to US$ 2,000 per sq. m.
Nam Tu Liem District had three new projects in Q4 2017 with asking prices ranging from almost US$ 800 to US$ 1,200 per sq. m.
Other districts with newly launched projects in Q4 2017 include Thanh Xuan (US$ 1,500 per sq. m.), Ha Dong (US$ 920 per sq. m.), North Tu Liem (US$ 1,277 per sq. m.), Thanh Tri (US$ 1,100 per sq. m.), and Ba Dinh (US$ 1,800 per sq. m.).
Newly launched villas and townhouses in Hanoi have asking prices ranging from US$ 2,200 to US$ 4,800 per sq. m.
In Hanoi, affordable and mid-end apartments are expected to entice more homebuyers over the next year, an prices are expected to remain stable, according to Jones Lang LaSalle.
Economy to accelerate in 2018
In 2017 the Vietnamese economy recorded its fastest growth in more than ten years. The country's GDP accelerated by 7.7%, comparing Q4 2018 to Q4 2017, according to the country's General Statistics Office (GSO). For the whole year of 2017, the economy expanded by 6.8%, exceeding the government's economic growth target of 6.7%.
Vietnam's robust growth is expected to continue in 2018. Vietnamese Prime Minister Nguyen Xuan Phuc expects the country's economic growth in 2018 to be as high as 6.7%.
Vietnam has experienced three decades of uninterrupted growth, according to the International Monetary Fund (IMF).
- 1981-1990 - average real GDP growth of 5.9% per year
- 1991-2000 - average real GDP growth rate of 7.6% annually
- 2001-2010 - average real GDP growth rate of 6.8% annually
The Vietnamese government continues to ease business regulations and is pursuing a long-running privatization drive, to boost growth further.
The country's unemployment stood at 2.02% in Q3 2017. From 6.42% in 2000, Vietnam's unemployment rate has continuously declined, according to the International Monetary Fund (IMF).
In January 2018, Vietnam's annual inflation stood at 2.7%, far below the 5.2% inflation recorded during the same period last year, according to the GSO. Inflation is expected to remain below the central bank's target inflation rate of 4% in 2018, according to the Ministry of Finance.
Mortgage market lending rates have been falling
The Vietnamese mortgage market is still underdeveloped; most homebuyers pay cash. Developers are now starting to work with banks to offer mortgages to buyers, but high interest rates and strict loan procedures still hinder the local mortgage market. The loan-to-value (LTV) ratio rarely exceeds 50% of the appraised value of the property. The term period is usually 15 years.
Lending rates for short-term loans range from 6.8% to 9% as of January 18, 2018, while medium- and long-term loan rates range from 9.3% to 11%, according to the State Bank of Vietnam (SBV).
In 2016, the average lending rate stood at nearly 7%, almost the same as that in 2015, but a decline from 8.7% in 2014, 10.4% in 2013, 13.5% in 2012, and 17% in 2011, according to the World Bank.
Under-served low-end market
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 has a housing deficiency of about 20 million permanent housing units.
The demand for affordable houses is now outstripping supply, as residential development has largely focused on high-end customers.
Vietnamese dong moving to a market-based mechanism
In January 2016, the central bank announced a move to a market-based exchange rate mechanism, setting daily reference exchange rates, to discourage hoarding of US dollars. The dong has been pegged to the US dollar for several decades, within a limited band of 1% to 2%. But because of sudden devaluations, many prefer to hold dollars.
However the new rate is not really "free". The central bank sets a reference rate daily, and local and foreign banks in Vietnam can trade within a band of plus or minus 3%. The rate depends on three factors: (i) the inter-bank rate, (ii) macroeconomic balances, (iii) currency movements in the country's key trade and investment partner countries.
- Vietnam: hot, hot, hot! New apartments, new villas, and rising house prices everywhere! - December 14, 2016
- Vietnam’s housing market now open for business - September 25, 2015
- Vietnamese housing market’s amazing slump - October 31, 2012
- Weak Dong could hit Vietnam's real estate market - January 17, 2011