CBRE’s recent Vietnam Market Outlook 2018 report shows that in 2017, the residential market continued its upbeat sentiment in 2016 and performed well in both Hanoi and Ho Chi Minh City. Considering both cities, there were a total of 66,000 units launched and 59,000 units sold.
According to CBRE, the residential market of Vietnam is at a turning point. With fast urbanization rate of three per cent per annum and a young, dynamic population (70 per cent of the population is from 15 - 64 years old), it can be seen that there is strong housing demand in Vietnam, especially at its urban hubs like Hanoi and Ho Chi Minh City.
The remaining piece of the equation is how to properly catch that demand. The condominium concept has recently penetrated the perception of Vietnamese people.
With a lack of public housing initiatives, the market is currently being led by private developers. Townships like Vinhomes Times City in Hanoi and Phu My Hung in Ho Chi Minh City are getting more populated with more commercial activities, creating new residential clusters.
This vertical urbanism is expected to continue at an accelerated rate, especially with the hand-over of many projects in 2018 and 2019. The residential business is the crown jewel of many developers right now, thanks to the strong local appetite and fast capital recovery.
However, accompanying the strong growth of new launch supply and new completion are some concerns about pressure on the secondary and rental market.
Ho Chi Minh City: Liquidity is expected to increase by 20 per cent
According to CBRE, in 2017, there were a total of 31,000 units launched in Ho Chi Minh City, a 19 per cent decrease y-o-y, which was mainly due to the lack of large-scale projects compared to the previous two years. The mid-end segment accounted for the majority of this new supply, making up 64 per cent (an increase of 14 ppts y-o-y), followed by high-end at 21 per cent (a decrease of 10 ppts y-o-y).
There was only one luxury project launched in 2017, accounting for one per cent of new launch supply, while some others continued to delay their launch dates.
CBRE identifies that the market is believed to be more balanced with a stronger focus on the lower-end segments. Foreign developers’ share in new launch supply has shown an upward trend in recent years, accounting for almost 15 per cent of total accumulated launched units in Ho Chi Minh City.
There is more interest from foreign developers, especially in the high-end segment, which is expected to add a lot of diversity as well as competition for this segment. At the same time, local developers are also having big plans for the market, expanding into segments that they have not tried before.
The market in 2018 is expected to continue being busy with launch activities, potentially adding more than 37,000 new units to the total supply. At the same time, a lot of hand-overs from previous projects are taking place, which will add a significant pressure on the secondary and rental market.
For the first time in the past five years, the number of sold units in Ho Chi Minh City surpassed the new launch volume, with the mid-end segment having the highest absorption at 20,200 units even though lower than 2016.
In 2018 when the market is gaining further traction with more attention on the mid-end segment, CBRE expects the number of sold units to increase 20 per cent compared to 2017, reaching more than 40,000 units.
Primary prices in 2017 continued their upward trend amid the ongoing positive sentiment, showing an increase of three per cent on average in 2017. The mid-end segment recorded the highest increase in primary prices at five per cent y-o-y.
In 2018, this upward trend is expected to continue across segments, especially the luxury segment, which may witness an increase of six per cent y-o-y thanks to the prime location of the upcoming supply.
For the foreseeable future, district 2 hotspots (Thu Thiem, An Phu, Thanh My Loi) will be the focal point of new developments.
Looking further, with the expansion of Ho Chi Minh City metropolis and development of satellite neighborhoods, district 9, Nha Be, Binh Chanh and Can Gio districts are the locations that will receive a lot of attention, especially when Vingroup – the biggest player on the residential market right now – have had plans for their Vincity projects in district 9.
Prices of high-end properties in Hanoi would increase by three to five per cent
According to CBRE’s report, positive sentiments persisted in Hanoi condominium market. More than 35,000 units were launched over the course of 2017 marking a new record high in annual new supply.
Among market segments, mid-end led with more than 22,000 units covering 64 per cent of total new supply. The greater dominance of mid-end segment indicates a stronger focus on end-users and affordability of products but also creates stronger competition.
Hanoi condominium market has been largely dominated by local players. The local groups made up 94 per cent of total accumulated launched units as at 2017.
In upcoming years, CBRE anticipates that local developers will continue to show greater influence in Hanoi market since major developers have aggressive plan to increase their market share with large-scale townships even in new areas such as Dan Phuong or Me Linh districts.
Foreign developers also show a stronger interest in Hanoi market, given the recent announcement of the partnership of foreign corporation such as Sumitomo Corporation and Mitsubishi corporation with local partners.
CBRE forecasts absorption will increase in 2018 staying at around 28,000 units.
Although average primary price slightly declined by two per cent in 2017 due to significant increases in share of mid-end and affordable segments, we expect high-end products in 2018 will ask for higher prices than 2017’s level by three to five per cent given that projects in pipeline are located in prime locations in CBD or Midtown clusters.
For lower-end segments including mid-end and affordable, the modest growth of one to two per cent is expected to provide stronger competition though healthy demand continues.