What’s coming in Vietnam real estate this year

By Ha Linh - Mar 05, 2019 | 08:00 AM GMT+7

TheLEADERHigh growth of middle income people and rapid urbanization power the Vietnamese real estate market to grow, according to SonKim Land CEO Andy Han Suk Jung.

How do you think the Vietnamese real estate market will perform this year?

Boom time looms for Vietnam real estate
Andy Han Suk Jung, CEO of SonKim Land.

Andy Han Suk Jung: I must say that real estate market in 2019 is still looking very bright. Vietnam has one of the best real estate fundamentals in the world by having abundant population, rapid urbanization, and high growth of middle income people.

Not only that, well maintained inflation, stable currency, trade surplus, well managed interest rate, strong FDI, and one of the best GDP growth in the world add to the solid growth of the real estate market.

Looking at Vietnam alone, I have absolutely no doubt that the market will excel in 2019. However, as world economy is now tied with all the countries and Vietnam is now ranked in 44th in terms of GDP volume, if we face global recession or economic downturn from US-China trade conflict and ending quantitative easing will impact Vietnam, and the market may struggle.

Can you elaborate on the fundamentals for the real estate market to grow?

Andy Han Suk Jung: In terms of population, Vietnam is ranked in 15th in the world with average age of 30.9 years old. From total of 97 million populations, according to CIA World Factbook as of July 2018, 45.67 per cent falls in the range of 25-54 years, meaning the demand for buying real estate is very strong.

Another meaningful figure is the urban population which is only at 35.1 per cent as of 2017 with 2.59 per cent annual growth rate while other Southeast Asian countries like the Philippines, Thailand, Indonesia, China, and Malaysia, have recorded 45, 49, 54, 59, and 75 per cent respectively. Vietnam definitely has more room to grow and has more demand for housing especially in the affordable and mid-end sectors.

Looking ahead for 2019, Standard Chartered Bank forecast Vietnam will see a stable economic growth of 6.9 percent in 2019, buoyed by strong manufacturing sector supported by foreign direct investment (FDI), and the country's manufacturing is likely to expand in double digits in 2019 like it did in the last four years, supported by strong FDI inflows in the sector.

I feel that this is a very good signal in the beginning of the year for Vietnam to have another strong FDI inflow in 2019, which will also trigger more housing needs for expatriates coming in from the result of more FDI inflow which will most likely be high-end and luxury sectors.

How will each specific segment of the real estate market perform?

Andy Han Suk Jung: Land prices will continue to increase steadily backed by the strong demand. More of township like bigger scale projects will be introduced as developers will have to focus more on non-CBD locations from the recent announcement by Ho Chi Minh City government suspending new licenses in the CBD area. New launches of luxury projects will be stopped for a while, making the current ready-to launch projects more attractive.

In residential sector, we will see increased supply in mid-end and affordable segment helping to increase overall supply in the market. Price will be increased throughout all the sectors as land acquisition costs have gone up significantly. Absorption rate from new launch is expected to remain high and steady while rental market will continue to struggle with reduced rental rate.

Leveraging from AirBnB businesses, vacant apartments will start to be occupied soon and we will see more of AirBnB users with short-term stays. These AirBnB users will also support retail shops on the podium floors, making rental prices of retail shops go up, and naturally increasing selling prices of those retail shops as well.

In office sector, we will see more supplies in the market, however, many of the projects are scheduled to be completed at the year-end. Although there will be some impacts from these new supplies in the late second half, market will continue to remain strong and stronger than previous year.

Will the real estate market be affected when banks start tightening lending this year?

Andy Han Suk Jung: The State Bank of Vietnam’s policy to tighten the credit growth may have some impact in the real estate market especially projects that may not be profitable. Commercial banks will be focusing on choosing project that they are confident in lending and receiving the money back.

Leading developers in Vietnam have already started to diversify in terms of their fund raising channels thereby reducing dependence on banks, and SonKim Land also found many ways to bring in necessary fund through partnership and other types of financial instruments from investors in global level.

Hence, this policy by SBV won’t be affecting SonKim Land too much as our company is working with several banks on very potential projects, and also raising funds from outside Vietnam to diversify our cash inflows. Banks tend to increase the number of loans to buyers these days, so it actually helps us to better sell our products to our customers.

How will the luxury residential segment fare this year?

Andy Han Suk Jung: As the supply in the luxury sector will be limited in 2019, but the demand stays very strong, I expect the luxury segment will do well provided that world economy is status quo.

Boom time looms for Vietnam real estate 1
The artist ỉmpression of Metropole project which SonKim Land is developing in Ho Chi Minh City.

As mentioned above, Ho Chi Minh City government recently made an announcement to suspend issuing new licenses in the CBD area. From this announcement, we will see new launches of luxury projects stopped for a while, hence, greatly affecting the supply of luxury products in the market in the near future. However, this action by Ho Chi Minh City government will make the current ready-to launch projects more attractive as supply will be limited and none in the near future while demand is still very strong.

With the infrastructure works continue to be developed in Ho Chi Minh City, by the time Metro line No 1 is finished, and internal road and bridge works are completed in Thu Thiem New Urban Area connecting many districts, geographical CBD area may expand out, which means more opportunities to build luxury projects in a new expanded CBD level.

As land prices have gone up too fast compared to the apartment prices, I expect apartment prices to also catch up in the near future.

What will SonKim Land do this year?

Andy Han Suk Jung: SonKim Land’s strategy is to continue its luxury market penetration by developing innovative products, enhanced customer service, creating more fans, and maintaining leadership in the luxury market, so that our customers can live differently.

We will also be going into mid-end residential market by developing bigger scale projects in non-CBD areas allowing the company to have more customer base in the residential market. We plan to introduce highest quality office buildings in the CBD area, and also a hospitality project with a world’s best class operator.

SonKim Land plans to launch our Metropole project in 2019, and few other good projects will be launched in Thu Thiem and in District 1 area. It will be interesting to see how the market absorbs new projects, but I do believe that most of the projects will be quite impressive and never seen in the past.