Last year was a positive year for the entire residential market in the Vietnamese city of Hanoi, according to the latest research from CBRE Vietnam.
An estimated total 28,283 units were launched to the market across all the different segments, which was 70 percent higher than 2014. Developers were confident and more bullish on the market. And rushed to release either old projects with new positioning, or new projects that had been put on hold during the market crisis.
The year marked a come-back of high-end and luxury segments, with major high-end projects in the central business district fringe and the west. The affordable segment still accounted for a considerable share of approximately 30 percent in terms of supply. While high-end projects in good location targeted mostly buy-to-let investors, affordable projects proved to be a good choice to the majority of end-user buyers due to their affordability.
Demand wise, market sentiment was positive throughout the year, and improved over the quarters. An estimated total of 21,102 units were sold over the year. High-end and luxury segments saw improvement in their shares of total sales over the quarters, and ended the year at approximately 32 percent of total sales, a rate that was historically below 20 percent over the past years.
While the shares for mid-end and affordable segments have been lower than those of 2014, these segments still accounted for a majority in total sales due to their affordability and targeting more end-user buyers. Pricing has shown the same performance pattern, like HCMC, but at a moderate pace.
Strong supply and demand for top-tier properties
After a long cold winter from 2012, since H2 2014, the Hanoi residential market started to see positive signals in both supply and demand, especially in the investment grade properties – high-end and luxury segments. These two segments altogether accounted for 18 percent of market supply.
Supply wise, prime grade condominiums started to pick up by the end of 2014, as developers were quick to gauge the window of opportunity for launching, and started to quickly get their land bank ready for launch and develop.
A total of 1,481 of prime units were launched in 2014. In 2015, in line with the strong recovery in market sentiment, CBRE noted that as many as 6,365 high-end and luxury units were launched to the market – four times higher than that of 2014. The majority of the units launched were in good locations, in the CBD-fringe, just a 10-minute drive to the current CBD which is still favoured by local buyers. Vingroup’s Park Hill project with more than 3,000 units was a major new launch for 2015.
Prime-grade properties in good location near the current CBD have always been favoured by local buyers for their good rental yield potential. During the time of crisis between 2012 and 2013, high-end and luxury segments were those that suffered most due to affordability and the opportunistic nature adopted by some buyers. In 2014 sales picked up with total 2,319 units being sold (as compared with less than 500 units per year in 2012 and 2013). The strong sales momentum remained during 2015 with 4,800 units being sold in these segments.
As the opportunistic segments saw the strongest demand in an uptrend market, premier properties were mainly absorbed by buy-to-let investors since the properties were in prime locations and commanded good rents from foreigners working in the city.
Looking forward, Hanoi also expects significant, largescale high-end projects to be launched in the next two-three years. CBRE Research estimates that more than 6,000 prime grade apartments will be launched to the market in 2016, a similar level to 2015.
The pace of new supply of high-end and luxury apartments added to the market might slow in 2017 and 2018 respectively. In terms of demand, absorption during 2016 is expected to be at the same level as 2015, and may slow down in 2017 and 2018 as a new market cycle begins.
Limited future supply for prime homes
Top-tier properties are much attached to a prime locations. The declining supply of prime homes is mainly due to lack of available land and timing. Supply of prime grade properties usually soars in an uptrend market. As market slows down, developers tend to release units that are more affordable.
Stabilised price levels expected for next few years
Prices in both primary and secondary markets have seen upward trend since 2014. CBRE Research data showed that after going down approximately 22 percent in 2013 (as compared to the peak in 2010), prices have gradually increased over the quarters since 2014. Primary prices of prime homes are currently in the range of US$ 1,600 to US$ 3,500 per sqm depending on location, while resale prices are hovering between US$ 1,500 and US$ 3,850 per sqm.
Looking forward to 2016 and beyond, CBRE Research expects that prices will stabilise and grow at a modest level. Since buyers are now more discerning and supply is abundant, developers are also cautious in increasing their selling prices in order to ensure sales schedules go as planned.
CBRE Research expects that price growth rate could be strongest in 2016 and may slow in 2017 and 2018.
Changes as foreign buyers enter the market
With the market becoming more open and internationalised and overall pricing still attractive compared with other mature markets, it is expected that more foreign buyers will show interest in the Vietnam market as more guiding laws are issued to direct the stakeholders involved.
Despite notable interest from foreigners who live and work in Vietnam, the number of sales to offshore foreigners to date has been limited. Unlike local buyers who are familiar with the market, foreigners, when buying home abroad, ask many questions regarding the administrative process, potential capital gains and rental yield. They look far into the future and are concerned about any potential implications related to selling their assets when the time comes. Therefore, developers still need to prepare for the battlefield at a new height: professionalism, language proficiency and ease of payment are among key matters in a changing market.
