Steady demand
In its latest property market report, real estate services firm JLL noted that amid the supply slowdown in Ho Chi Minh City, over 4,300 apartments were sold within the second quarter of 2019, on par with the level recorded in the prior quarter.
Good sales rates have been recorded across all segments, with mid-end projects in a price range of $1,200-2,000 per square metre being on top demand.
Official launches in the city reached more than 4,100 units, the lowest level since the market bound back in 2014. This is said to be the result of the continued prolonged construction approval process experienced recently.
The government tight control of new developments has forced the supply trend towards a more sustainable mode. Accordingly, only projects having approval regarding land use rights and construction permits are able to be sold off-plan.
For the capital market, more than 4,660 units were sold in the second quarter, notably lower by 65.3 per cent quarter-on-quarter (q-o-q), in tandem with supply slump.
JLL said that the slower investor demand became more evident after a period of strong growth.
After a period of strong influx of stock, there were only 5,900 units newly added to the market in the second quarter, nearly half the first quarter’s figure. Of that, most came from the subsequent phases of existing projects. This was also the lowest level of new launches since the market rebounded in 2014. Majority of new launches projects are small scale with less than 500 units per project.
While the demand from owner-occupiers have remained rather healthy, the widespread trend of increasing interest rate and stricter loan assessment process amongst commercial banks have prevented buyers in accessing the mortgage.
The concept of smart home, meanwhile, has been appreciated on the market recently. The sale rate of units with smart function has been typically higher than that of traditional unit type on the same project.
Investors, as a result, have started to shift their investment from high-end apartments to villas/townhouses to enjoy a better capital gain, given the same investment amount. Meanwhile, owner-occupiers tend to look for high-quality supply on secondary market due to limited new supply on primary market.
Flat to sky high
Apartment prices in both cities are nevertheless staying on two different magnitudes, with prices in Ho Chi Minh City increasing stoutly to a new high while prices in Hanoi remaining flat over the first half of the year.
In particular, the average price level in Ho Chi Minh City stood at $2,009 per square metre, up 21.6 per cent year-on-year (y-o-y). Meanwhile, the high-end price escalated 52.9 per cent y-o-y, at $4,569 per square metre. The reason is mainly the entrance of some new luxury projects in the CBD with the exceptionally high prices due to limited land bank in this area.
On a project basis, the primary price grew by 6 per cent y-o-y on average, with good improvement recorded across the board. The overall market growth was 21.6 per cent y-o-y, thanks to the entrance of projects with higher-level prices.
In Hanoi, primary prices maintained flat or slightly improved after a period of strong growth on a project basis. Chain-linked growth (q-o-q and y-o-y changes adjusted to remove effects from supply additions/removals) in prices were recorded at 0.5 per cent q-o-q and 6.9 per cent y-o-y.
Unfavourable market sentiment owing to tightening loan assessment process has prompted developers to introduce more sale incentives scheme to offload stocks, while kept the price unchanged. Most applied sales strategies included extended payment periods and discount programs from 3-6 per cent on unit price for early payment.
Outlook
Because of the government’s tight control relating to granting land use rights and construction licenses, pipeline supply is expected to decrease significantly in Ho Chi Minh City. As the prevailing delay in the approval procedure is expected to continue, the projected supply in 2019 is subject to greater uncertainty and varies between 18,000-28,000 units, the actual number heavily depends on the launching process of the large-scale Vinhomes Grand Park project.
Demand, on the other hand, will remain high. Price growth is mostly positive, especially for affordable and mid-end projects.
For Hanoi, the projected supply pipeline for the rest of 2019 is subject to greater uncertainty, vary between 10,000-15,000 units. The affordable and mid-end, focusing on owner-occupied demand, will remain the key contributors.
Stricter lending regulations regarding high-end projects coupled with a scarcity of prime freehold land bank in the CBD are giving developers pause in launching new luxury developments in the near and medium terms. Resale activity will remain lukewarm as buyers become more cautious and selective due to economic uncertainty.
