Stephen Wyatt, the Country Head of JLL Vietnam, recently shared his views about the investment opportunities in the Vietnam property and real estate market.
Vietnam’s economy grew about 7 percent during 2015. Reports have said that residential demand remains healthy in HCMC and Hanoi. What’s your assessment of the Vietnamese property market and the key growth drivers?
The property market witnessed a considerable improvement during 2015 compared with the previous three and four years. Activity focused around the residential sector, with a considerable amount of development reported in both the major cities, Hanoi and HCMC, matched with a significant rise in demand. In addition, the office, retail and industrial sectors all reported an improved leasing momentum.
The development of the residential market has been more sustainable and healthier than that recorded in the 2007-8 boom as developers, investors and homebuyers have learned lessons from the past. The supply has increasingly improved over time, in terms of construction/design quality, payment schedules, financial support offered to buyers and marketing programmes and techniques. The demand side, which was characterised by enhanced customer confidence and stronger investment sentiment, and supported by the availability of housing loans from commercial banks, responded favorably.
In the residential market, one of the key growth drivers was the increased availability of housing credit, to both developers and homebuyers. The government policies on credit guarantee by banks/financial institutions for properties to be built in the future helped increase the volume of the business credit market. In the meantime the intense competition among commercial banks in providing housing loans, which has resulted in more attractive interest rates, higher loan-to-value ratios and longer grace periods, helped facilitate an overall improvement in confidence throughout the market.
Commercial banks, in cooperation with housing developers, offer attractive lending rates of 5-6 percent per annum, versus the market average of about 7-7.5 percent per annum in 2015. Also, deposit rates recently averaged about 6 percent per annum, decreasing sharply from the more than 14 percent per annum recorded in 2011, and partly making real estate market the more preferred investment channel for Vietnamese – as opposed to Gold and Equities.
It has been observed that the developers’ reputations are one of the best-selling points in development projects in the residential market, and it is fair to say the buyers are becoming more discerning as the market matures.
How has the relaxation of foreign ownership rules affected sales for overseas developers? The likes of CapitaLand and Keppel Land all have projects in Hanoi and HCMC.
Since the relaxation of the ownership legislation changed on July 1, 2015, more than 1,000 units have been reportedly sold to foreigners. This is a considerable increase in volume compared to a meagre 250 units in the previous five years.
A number of new projects have been launched in Q3/4 – 2015 with good quality construction, interior design and layouts that are more appealing to foreigners. Some recent examples include:- Gateway Thao Dien (by Son Kim Land & Hamon Developments) and Nassim Thao Dien (by Son Kim Land & Hongkong Land) both projects have attracted attention from foreign buyers.
The launch events of Estella Heights (by Keppel Land) and Vista Verde (by CapitaLand) in Singapore also received positive feedback and strong sales figures reported. All four projects are located in District 2, HCMC, which is regarded as the ex-patriate community.
How are home prices/rental yield trending in key cities in Vietnam over the past two years? Which type of properties have most upside – residential, industrial, commercial/retail or hotel, and why?
The apartment market has seen the most consistent uptrend in the past two years, with a considerable amount of development activity in both major cities. At present sales volumes have also increased and are currently matching the amount of supply coming to the market.
In the office for lease market, rental rates in 2014-15 were stable and started to inch up in the second half of 2015. In the Grade ‘B’ office segment, many landlords started lowering their incentive packages and a number of landlords started to increase quoting rents by US$ 1-2 per sqm per month – higher than the previous rent rates for renewal contracts.
In other sectors rents have seen some decline, mainly due to an increase in supply, most notably in the retail sector. We do expect to see the industrial and logistics sectors to witness some positive upside in the next 5-10 years as a number of Free Trade Agreements have recently been agreed.
What are the potential investment opportunities that overseas developers can look at in Vietnam, and in which areas?
In our opinion, Vietnam offers developers a vast array of opportunities in all sectors of the market. The Vietnamese real estate market is still very much in its infancy and considerably behind when compared to many of its Southeast Asian neighbours, which is why we see great potential for this market.
There is an increasing number of large scale Vietnamese developers that are taking advantage of current market conditions, however, CapitaLand, Keppel Land and Mapletree have all demonstrated that there is demand for international developers in this market. Most developers tend to concentrate on the residential sector, however, we do expect to see an increase in activity in office, retail and industrial sectors going forward.
In addition, Vietnam is becoming more of holiday destination and the Hotel and Hospitality sectors will see more activity in the future.
What are the main challenges and risks of investing in Vietnam?
If you are a private individual looking to invest with the residential market, we recommend choosing a developer that can demonstrate a strong track record of completed projects and financial capability.
Both cities are witnessing a lot of development activity at present, so it is important to understand the overall masterplan for the area, upcoming infrastructure projects and the potential impact. The legal system can seem opaque and vague so always enlist the advice of a good quality law firm.
In terms of property prices, how does Vietnam compare with the rest of Asia? Where do you see prices heading, amid the boom that the sector is currently experiencing?
Property prices in Vietnam remain affordable with a typical two-bedroom, 70 sqm residential apartment within 10-15 mins drive of Ho Chi Minh City’s central business district selling for US$ 1,600 to US$ 2,000 per sqm, equating to US$ 112,000 to US$ 140,000. Overall prices are still down 15-20 percent from their peak in 2007-08.
When compared with other major cities within the region we believe there is considerable upside. As the country matures and there is further integration with the international community, we expect to see capital growth of circa 5-7 percent per annum. Investors can currently enjoy returns of 6-7 percent on residential property and 9-11 percent on commercial, depending on location, age and quality of building and covenant strength of tenants.