Vietnam’s residential real estate market is heading for further expansion thanks to robust foreign investment, positive local demand and relaxed regulations on overseas home ownership, according to Regina Lim from JLL Capital Markets Singapore Advisory & Research team.
“As confidence in the Vietnamese economy has grown, interest in property investment has gradually been revived since 2013,” says Lim.
Just behind South Korea, Singapore is the second-largest investor into Vietnam, with companies from the Lion City accounting for $1.85 billion or 16% of cross border investment.
“After the manufacturing and processing industries, the real estate sector in Vietnam is the second-biggest recipient of foreign investment and in the last two years, Singapore real estate companies have pumped close to $1 billion in Vietnam,” Lim explains.
While the economy is still immature, employment in the manufacturing and services sectors has increased substantially in the last two decades and is expected to continue to rise in the next ten years, boosting income growth.
“Annual disposable income per capita has risen steadily over the past decade at a compound annual growth rate (CAGR) of 11% and we expect incomes and the purchasing power of the Vietnamese consumer to grow,” says Lim.
Furthermore, regulatory changes implemented in July last year have made it easier and safer for foreigners to own property, stimulating strong residential sales in 2015 and the first half of 2016, when developers sold 24,000 and 16,800 units, respectively, 250% higher than sales in 2011 to 2014.
JLL estimates that Singaporean developers have invested S$1.2 billion ($867 million) in property projects in Ho Chi Minh City
in the last two years, with the bulk of the investments focused on residential development.
Mapletree Investments increased its assets under management in Vietnam to over S$1 billion by investing over S$400 million in Kumho Asiana Plaza in July 2016. CapitaLand has invested over S$400 million in Vietnam this year, including the recent acquisition of a residential development site in District 1 for $51.9 million – the first by a Singapore developer.
Mapletree Investments acquired Kumho Asiana Plaza in July 2016. Photo: Internet
“Vietnam’s residential supply is expected to grow by 74% over the next three years but we’re confident the market will be able to absorb the increase,” she says.
“The stock of apartments relative to Ho Chi Minh City’s population is low compared to other Southeast Asian cities, even after the units that have been launched have been developed.”
Despite the strong sales volume, premium apartment prices have risen by just 9% in the last six quarters. This is in sharp contrast to between 2005 and 2007 when prices rose sharply by 106% as foreign capital flowed into Vietnam in anticipation of a recovery in the economy and property market.
Prices have corrected by 30% over the seven years between 2007 and 2014, and as a result, the premium apartment price of $2,180 per square meter is still 24% below the 2007 peak.
Lim expects overall apartment prices to rise by 5-7% per annum in the next three years, supported by strong absorption and affordability levels with mid-tier and affordable apartment prices likely to rise by up to 10 percent per annum.
“The developers we have spoken to in Ho Chi Minh City indicated that they were making earnings before interest, taxes, depreciation and amortization (EBITDA) margins of 25-30% on prime and mid-end residential projects,” says Lim.
Acquiring good land plots that have been cleared and have clean title deeds at a reasonable price continues to be challenging in Vietnam, so foreign developers that are new to the market should consider partnering with local groups or joint ventures.
“In June 2015, the government eliminated the 49% limit on foreign ownership in many listed companies, a step to spur investment inflows and providing a good opportunity for foreign developers to take on a majority stake in residential projects in partnership with local groups,” Lim comments.