CBRE Releases Q3 2016 Quarterly Report Highlights For Da Nang City Market

Vietnam, September 30, 2016 –

Stock market reached the highest level since Feb 2008 on 27 September 2016 after announcement to decrease deposit interest rates from leading banks. This is one of the positive evidences showing that Vietnam’s economy continues to be on the stable path in the context of regional and international changes. In terms of interest rate movement, the interest rate has been stable in the first 8 month of 2016. In particular, the interest slightly went up from around 0.2% to 0.3% after Tet Holiday. After that, banks adjusted the interest rates up or down depending on their liquidity situation but no abnormal movements were recorded. The inflation has been kept stable since the beginning of 2016. The basic inflation varied from 1.4% to 1.9%, staying at around 1.81% on average. In the first 8 month of 2016, export turnover recorded growth of 3.3% y-o-y. Although trade balance is surplus of US$2.87 billion, the export growth has slowed down compared to that of 2015. However, more attention should be paid to public debt as well as risks of banking system due to poor asset quality and great funding pressure.

In the first nine month of 2016, although Vietnam had a total of 1,820 new registered projects with total FDI registered capital of US$16.4 billion, a slight decrease of 4% y-o-y, this is still considered a positive figure compared with the regional countries. Of the total FDI registered, 6% went into real estate business. Hai Phong topped the country in attracting FDI, followed by Hanoi with total FDI registered are US$2.7 billion and US$2 billion respectively. The Vietnam economy is forecasted to experience strong growth in the last quarter of 2016. Real estate market, similarly, also expects more dynamic activities and active transactions.

Da Nang Economic Overview

Throughout the year Da Nang has witnessed a decreasing level of FDI despite the fact that this area has great potential to attract investments. One of reasons for this decrease is that Da Nang has been facing environmental problems.  After a great deal of consideration and learning from its neighboring cities, Da Nang has rejected projects that potentially threaten the environment. It is also notable that the city authority has officially withdrawn licenses from coastal tourism projects which have been pending since 2006 due to financial difficulties. Another factor is the slow administrative procedure that lengthens the investment process: the city may need to initiate friendly business policies, improve administrative procedures and innovate investment promotions in order to improve the investment climate in Da Nang.

It is notable that Da Nang is attractive to Japanese businesses due to factors including education, infrastructure, IT, tourism, high-tech, etc. Currently, Japan takes the lead amongst the city’s foreign investors.  Japanese partners have conducted research into constructing a monorail project connecting Da Nang and Hoi An in order to ease traffic jams in urban areas as well as to develop local tourism. Looking forwards, Da Nang will continue to invest in city infrastructure to deserve the image as "The worth-living city to live in Vietnam”. Recently, the city has celebrated an international contest to design the Han Tunnel and landscaping along the Han River: the winning designs will be constructed. With investment, Da Nang is striving to become an international –standard centre for finance, tourism and technology.

Second home market

In the review quarter, condotels were the most vibrant segment of the market with a significant number of new launches and sale transactions. More than 2,800 units were added to the market, increasing the total supply to 5,751 units to date in 2016. New projects coming online in this quarter included Hoa Binh Green, Central Coast, Coco Skyline Resort and Ariyana Beach Resort (North block). High-end properties dominate the market with 67% of total supply. The remainder is accounted for by the mid-end segment. As of Q3 2016,  70% of condotel projects sold were from the high-end segment compared to 30% for mid-end developments. It represented a decline of 4.2 percentage points and 67.9 percentage points q-o-q due to the significant number of new launches in the review quarter. Sales momentum slowed slightly after a boom period in Q2 2016. Commenting on this trend, Mr. Marc Townsend, Managing Director of CBRE Vietnam, said "Buyers now have more choice and consequently are taking more time to make a purchasing decision. Along with the positive growth in the Da Nang hospitality market, the condotel market is expected to maintain a sustainable improvement as its attraction remains strong.”

The average market-wide price showed a decrease of 14.7% on a q-o-q comparison. While the asking price of launched developments across both segments remained stable, new supply in the review quarter caused this downward trend in average asking price.

Guaranteed yield has become the main S&M strategy used to attract buyers. Offers range from 8% to 12% of unit value per year over three to ten years. This trend affects not only Da Nang but also other coastal markets such as Nha Trang and Phu Quoc. Guaranteed yield program assure a certain return on investments which is what most investors are now looking for.

The second home villa for sale sector witnessed a moderate improvement in the review quarter. There were few transactions from The Point, Naman Residence, Premier Village and The Ocean Estate which was re-launched in the second quarter of this year. The average sales rate rose to approximately 80%, representing an increase of 0.8 percentage points q-o-q.

The second home villa market has limited stock as there have been only a moderate number of new properties released and 80% of these are already sold out. Therefore, compared to condotel developments, the second home villa sector offers less choice to buyers.

The condotel market expects to welcome more than 1,000 new units in coming quarters. In contrast, the second home villa sector is not expected to see a significant amount of new supply in the same period.

Hospitality market

According to the Da Nang Department of Culture, Sports and Tourism, in 9M2016 the city welcomed approximately 4,410,000 tourist arrivals, of which international tourists accounted for 29%. Compared to the same period last year, this represented an increase of 48% for international and 9% for domestic arrivals.

Commenting on this trend, Mr. Marc Townsend said "Da Nang is becoming a well-known destination for not only domestic but also for international tourists.  APEC 2017 is a great opportunity to enhance the city’s image and promote the hospitality market world-wide. This will lead not only to an increase in tourist arrivals but also to a diversification in visitor profile”.

In the review quarter, a small number of new rooms (150) from three-star hotels were added to the market, increasing the total supply to 11,415 rooms across the 3-5 star segment. Three-star developments accounted for the highest proportion at 45% of total supply followed by the five-star (28%) and four-star (27%) segments.

There will be approximately 6,000 new rooms coming online in 2017 and 2018. It is noted that the condotel market also provides a significant number of condo rooms. As a result, travelers will have more accommodation choices. This will provide a challenge for hotels/resorts as they will be competing not just with other hotel developments but also with condotel properties.

There is a trend for international hotel groups to expand their market share in the Da Nang hospitality market. Wyndham Hotel Group will initially enter the market at Soleil Complex which will be opened in 2018. Absolute Hotel Service (AHS) will also enter the market with Eastin Grand Resort. Other prestigious brands such as Accor Hotel Group, Marriot Hotels, Hyatt Hotel Group and InterContinental are also expanding their businesses in the Da Nang market.

Condominium for sale

The condominium for sale market welcomed 53 newly launched units from the Quang Nguyen project in Q3 2016. This project helped to increase the proportion for the mid-end segment slightly from 31% to 32% in the review quarter. The high-end and affordable segments accounted for 19% and 49% respectively. 

As of Q3 2016, there are a total of 13 projects in the market, five of which are already sold out. Two out of these 13 projects are located along the beach front, accounting for 34% of total supply. Five projects are located in the CBD which account for 36% of total supply. The six remaining projects are on the CBD fringe, accounting for 30% of total supply.

In the review quarter, all existing projects kept their rents unchanged and the asking price of the high-end and affordable segments showed no change on either a q-o-q or a y-o-y basis. The average asking price of mid-end developments showed a slight decrease of 0.8% q-o-q. This change was solely due to the low prices at the recently launched Quang Nguyen project.

The review quarter witnessed decreasing sales volume, with decreases of 34% y-o-y and 47% q-o-q. 83.5% of sold units in Q3 2016 were mid-end units. This confirms high demand for the mid-end segment. Buyers of these units are mostly end-users from Da Nang or surrounding areas.

Regarding market demand, Mr. Marc Townsend, commented: "Unsold condominium stock is very limited at around 200 units and there is little progress on the completion of future supply. This lack of choice combined with the fact that most investors from HCMC and Hanoi are interested in condotel units with attractive guaranteed yields means that the main demand for condominiums will continue to come from end-user buyers.”

Source: CBRE