Ho Chi Minh City leads Asia-Pacific in real estate investment potential for 2018

By Dang Hoa - Dec 23, 2017 | 06:16 AM GMT+7

TheLEADERThe real estate market in Ho Chi Minh City (HCMC) is attracting the huge attention of foreign investors due to the high profit it brings about.

Ho Chi Minh City leads Asia-Pacific in real estate investment potential for 2018
Ho Chi Minh City leads buy/hold/sell ratings for the various asset classes

According to the recent report on Emerging Trends in Real Estate of PwC, one of the four largest professional audit services networks in the world, HCMC has developed to be ranked the second cities in the real estate development potential in the next year, following Sydney.

HCMC is also the only developing market city to stand out in the top five cities of Asia-Pacific region having the biggest potential for real estate investment in 2018. The other four markets are Sydney, Melbourne, Singapore, and Shanghai.

All of HCMC’s property classes including office, houses, retail and industrial real estate are leading the buy ratings.

Explaining the high position of HCMC in the lists, PwC said that investors are looking for the emerging markets in the context that other markets are getting more stable.

Bet on increasing property prices

With an economic trajectory thought to be similar to an early-day China, Vietnam now has “a wave of money swilling around” as large regional developers and an increasing number of private equity funds make the bet it will offer up a repeat of the Mainland China experience in terms of property price inflation.

Bureaucracy remains an issue, but restrictions are slowly being eased and Vietnam today offers probably better market access than do other Southeast Asian developing economies.

It remains a favorite of investors from South Korea and Japan who are focused on the residential sector. Home sales and pricing have been strong over the last three years, but in a volatile market, there are signs the cycle may be peaking.

“Land costs have gone up very, very significantly to the stage where it’s not an opportunistic play anymore in terms of the returns you can get. And when you look at how developers are taking down payments on condos and using those to buy more land as opposed to putting them into their own projects, you can see there are strains in the system and that if the sales should slow, the train’s going to stop,” warned an investor in HCMC.

Given the small amounts of investable stock, those focused on the commercial side will be looking mainly at development, usually by way of joint ventures with local developers, who are often willing to take on partners to obtain better access to foreign capital and technical expertise.

With most existing stocks having been built by domestic developers, there are now opportunities for foreign investors to buy and fix. An investor told that he had just bought an office tower at seven percent to eight per cent and a retail podium in a mixed-use development for just under nine per cent.

However, PwC says that predicting growth is one thing, profiting from it is another. 

HCMC’s potential to develop real estate in 2018

Huge potential in all segments

The office sector continues to be the go-to option for most investors, although to a certain extent the shine has come off this year as more fund managers come to the conclusion that rental growth is slowing regionally. With GDP growth soaring amid a structural undersupply of office space, HCMC is now a focus of attention.

Besides, given the shortage of existing commercial assets in Vietnam, foreign investors are looking instead at the residential sector, where demand is both strong and growing.

HCMC also leads the rankings of retail asset buy recommendation for 2018. According to CBRE, while the steep growth trajectory of Vietnamese consumer spending will doubtlessly continue with the retail sales growth of 11 percent year-on-year in the first nine months of 2017, both Vietnam in general and HCMC in particular have an oversupply of retail assets, with the latter more than doubling the floor area of shopping center space in 2015–2016. A huge pipeline of incoming supply, some 500,000 square meters’ worth, is also set to arrive over the next three years, once again more than doubling existing supply.

The report also points out that developing markets in Asia continue to draw investment interest with Vietnam and India being the standouts. The latter is in anticipation of high and long-term economic growth, the former gives similar expectations regarding economic growth combined with a lower base and the vast scale of investment opportunities on offer.

In the passing years, governments have been trying for years to slow the steady rise of residential property prices, usually by imposing a regime of punitive sales taxes and higher mortgage down payments. On the whole, however, their efforts have failed, with prices in most markets continuing to grind upward.