The real estate sector in Ho Chi Minh City will continue its development through the end of this year, however, the lack of affordable housing and the excess of high-end apartments poses risks that need to be addressed.
Supply/demand and credit imbalances
The real estate market in Q4 2017 and in the beginning of 2018 still develops; however, there are signs of a slowdown in terms of transactions and prices in the market. Moreover, some potential risks are becoming evident.
The first risk relates to the imbalance between supply and demand of real estate. While investors focus too much on the construction of high-end real estate and resort real estate, not many projects that are affordable for the middle-income people have been launched, especially the apartments worth VND2 billion (roughly US$88,183) or less.
Presently, capital and credit are pouring into a number of large corporations that primarily invest in the high-end segment instead of the affordable apartments. Meanwhile, although many property developers have affordable housing projects in the pipeline, most of these have not yet been implemented.
The real estate market still shows a stable development despite some fluctuations in the first three quarters of 2017. Notably, several high-end apartments located in prime locations, which are frequently priced in the US$7,000-10,000 per square meter range, will be launched in the second half of this year.
Currently, high-end real estate projects are being built in a limited number of locations, in contrast to the bubble years of 2010 and 2011. Nevertheless, this segment accounts for a mere three per cent of the total real estate market, and these units are becoming difficult to sell despite stable prices.
The excess supply of condotel
In last three months of 2017, the real estate market will attract more private investors in different segments based on their demand and financial capability.
By 2020, the suspended projects will be implemented and launched thanks to the additional capital inflows.
Despite the rapid development of condotels, investors who do not have enough experience and financial capability should be cautious in this segment, as it is described as a playground of only a few deep-pocketed players in Vietnam.
Currently, the condotels account for up to 54 per cent in the resort real estate, and secondary investors are believed to be the most exposed to the risks in this segment when the prices of apartments already include the committed profit of projects’ investors.
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