CBRE Releases Q3 2016 Quarterly Report Highlights For Ho Chi Minh City Market

Vietnam, September 28, 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.

Condominium market

In Q3 2016, new supply in the condominium market decreased compared to the previous quarter. In total there were 8,016 new apartments from 23 projects including 13 new projects and 10 projects launching from subsequent phases.  This figure was down by 17% q-o-q and decreased by 27% y-o-y. New apartments in the mid-end segment accounted for the highest proportion with around 68% of total new supply. This was followed by the high-end segment with 29% of total new supply, mostly from the Millennium project in District 4 and Ha Do Centrosa in District 10. The Southern Zone continued to record a large number of new apartments offered for sale with 7 projects accounting for 44% of total new supply. Although problems concerning infrastructure and environmental pollution have emerged in this area recently, this remains an attractive destination for both end-users and investors. The Eastern Zone was in second place with 24% of new apartments offered for sale. New supply in the Eastern Zone was concentrated mainly in Binh Thanh District with notable projects such as Richmond City, Elite Park and Parkview tower in Vinhomes Central Park.

In this quarter, the number of apartments sold reached 7,811 units, an increase of 32% q-o-q but a decrease of 2% y-o-y. The number of units sold in Q3 almost matched the number of new units offered for sale with the majority of new units coming from new projects. The mid-end segment continued to perform well with more than 4.000 units sold in this quarter, accounting for more than 50% of total units sold due to good performance of experienced developers with good sale and marking strategy as well as good distribution network. The net absorption reached 19% in this quarter, representing an increase of three percentage points q-o-q but a decrease of five percentage points compared to the same period in 2015.

Q3 recorded an increase in average sales prices with US$2,046 psm, an increase of 2.1% q-o-q and an increase of 4.6% y-o-y. Price improvements were seen in all segments though this was most notable in the mid-end segment which showed an improvement of 7% q-o-q. Prices increases were seen at some existing projects such as Soho Premier and Wilton Tower and new projects also had higher average prices than were seen in the previous quarter.

In terms of future supply, the market is expected to welcome more than 40,000 new apartments for sale in the next four quarters. New supply will come from large-scale projects such as Palm City, LakeView City, Saigon Peninsula and the urban area in the South of Can Gio. Many of these new apartments are expected to feature unique features and designs.

Looking forward, Ms. Duong Thuy Dung, Director of the Research and Consulting department, notes: "As buyers become savvier and the condominium market becomes more competitive, developers must offer new designs, materials and payment methods in order to make their products attractive.”

CBRE expects that the condominium market will continue to perform well in the last quarter of 2016 with developers becoming interested in new projects in different segments to those they have traditionally covered. Notable projects which are planned to be sold in the upcoming quarter include Saigon South Residence (the first project of Phu My Hung in Nha Be), The Feliz En Vista developed by CapitaLand in District 2, Palm Heights developed by Keppel Land in District 2. Q3 2016 was also notable for the formation of a joint venture between Maeda (a Japanese company) and Thien Duc Company for the development of the Waterina project in District 2. Maeda is well-known in the construction of the underground section of Metro Line 1 (Ben Thanh – Suoi Tien) in District 1. Waterina, the first housing project of Maeda in Vietnam, is a new high-end project in District 2 with 86 units. Most of the units are duplex with high standard in furnishing level and facilities.

Landed Property

In Q3 2016, the market for ready-built villas and townhouses welcomed new projects in different locations including Palm Residence in District 2, Valora Fuji in District 9 and Senturia Vuon Lai in District 12. The new total supply in Q3 reached nearly 500 units, lower than in previous quarters when the average was 1,000-1,200 units. During the first nine months of 2016, the market has welcomed more than 2,700 new townhouses/villas. According to statistics, almost 50% of this new supply came from the Eastern area. This was a reported shift from 2015 when the market in District 9 dominated new supply. 2016 witnessed a number of large-scale new projects in District 2 including Lakeview City in Q2 and Palm Residence in Q3. These two large-scale projects are both well located in urban areas and both showed an impressive sale rate when they were launched. For example, Palm Residence sold 100% of units on its first day of official sale and Lakeview City recorded more than 50% units sold after one quarter. In CBD, the market welcomed The Victoria in Vinhomes Golden River urban area by Vingroup. This project has high starting price at more than USD20,000 psm and is likely to see rapid and strong price increases in the near future.

The most notable price growth was seen in District 2 (1.6%) with new projects achieving good results. Compared with the same period last year, District 9 has seen the largest increases in prices with rises of more than 10%. For established existing markets like District 7, secondary asking prices remained stable and have increased by approximately 1% every quarter for the last two years. The average sold rate in the landed property market reached 80% with the highest sold rate in District 7 and Binh Thanh District. District 2, Go Vap District and District 12 have offered new projects recently, therefore, have the lowest sold rate. In terms of demand, it is clear that customers still prefer projects in large urban areas which have good facilities/utilities, clear legal procedures and reputable developers.

As seen in the condominium market, improvements in the landed property market are closely associated with recent land developments and enhanced connectivity, accessibility and improvement of infrastructure. Over the past two years, in addition to Metro Line 1, the Long Thanh – Dau Giay Highway and planned developments at Long Thanh International Airport, Vanh Dai 3 Street has also caused nearby projects to grow strongly, especially projects in large-scale urban areas where there is large available land bank. New supply in 2016 is expected to be higher than in 2015 due to these new urban areas.

Retail

In Q3 2016, the retail market in HCMC welcomed two new projects: Saigon Centre shopping centre Phase 2 (40,000 sm NLA) in District 1with the reputable Takashimaya department store from Japan and Binh Tan Aeon Mall in Binh Tan District (60,000 sm NLA). Items in Saigon Centre shopping centre vary from fashion, jewelry and cosmetics on the upper floors to Japanese dining brands in the basement. Apart from the anchor tenant Takashimaya (15,000 sm), Saigon Center has well-known international brands such as Dsquared2, Stuart Weitzman, Carolina Herrera and TWG. According to information from the developers, the appeal of Saigon Centre has been proven with more than 100,000 people visiting on the opening day and approximately 20,000-30,000 people visiting on subsequent days.

In non-CBD, Aeon Mall Binh Tan is the second project for Aeon Mall in HCMC. Taking the same approach as the previously opened Aeon Mall Celadon City, Binh Tan Aeon Mall focuses on affordable segment with Aeon supermarket. With modern design and efficient management, Binh Tan Aeon Mall attracts a lot of visitors although its location is less attractive than other existing shopping centers.

The market average rental price in Q3 2016 was stable. The average rent of ground floor and first floor units in shopping centers in CBD and non-CBD increased slightly by 1% and 0.5% q-o-q, respectively. Rental prices were unchanged in other format.

The market average vacancy rate trended down by 1.14 percentage points q-o-q. This was mainly due to 2,400 sm at Vincom Dong Khoi being leased to Zara, the first flagship store of this brand in Vietnam. In the Department Store category, 2016 has been a difficult year with the closure of Parkson Paragon and Parkson Flenmington. In the review quarter another Department Store, Parkson Saigontourist, also recorded a slight increase in vacancy rate.

According to a new report by CBRE in South East Asia, revenue from retail stores in Vietnam (as well as in neighboring countries such as Malaysia, Thailand, Indonesia, The Philippines and Singapore) will continue to be the primary source for retail revenue, accounting for 90% of total revenue in the next five to ten years. It is notable that these countries share the same demographic trend and the proportion of people under 35, which is accounting for 60% of their populations. In Vietnam, recent opened new outlets primarily aim at young people with internationally recognised brands at reasonable prices. According to Inside Retail Asia, Zara is a typical example with revenue on the opening day reaching more than VND5.5 billion. According to information from Nikkei Asian Review, Zara is expected to open other stores in Vietnam next year. Another popular brand targeting to young people, H&M is also planning to open its first store in Vietnam in 2017.

Office

There was no new supply in Q3 2016. By the end of 2016, the HCMC office market will welcome three new projects including Mapletree Business Centre in District 7, Ha Do Building in Tan Binh District and HQC Royal Tower in District 7. These new buildings will change the rental price and vacancy rate of the whole market. Construction at the Saigon Giai Phong Newspaper building is delayed and this project is now expected to launch in Q1 2017 instead of at the end of 2016 as originally planned.

The vacancy rate rose by 0.23 percentage points in the review quarter and new available leasing spaces in Grade A were recorded as negative 687 sm NLA. The vacancy rate in Grade B decreased by 1.13 percentage point and new leasing spaces reached 7,974 sm NLA.

Rental price increased slightly for both Grade A and B. Older buildings have generally not increased their prices in order to remain competitive with newer buildings and Grade B buildings in the central area.

Based on transactions recorded by CBRE, the main drivers for leasing are expansion and moving to a new building. The market became upbeat with existing tenants moving back and forth between buildings. Tenants in Grade A space showed a tendency to move to newer buildings rather than renewing rental contracts, especially in Grade A buildings completed before 2009. Some tenants expanded their offices in the same building in which they are currently leasing.

According to transactions recorded by CBRE, the highest demand for office space in the review quarter came from the Finance – Banking, Logistics and Technology sectors. 60% of CBRE rental requirements come from companies in Asia – Pacific.

Serviced Apartment

The Serviced Apartment market in HCMC recorded new supply in the review quarter from the Sila Urban Living project on Ngo Thoi Nhiem Street, District 3 with 217 units. Although it is in the Grade B segment with relatively small unit sizes, this project is popular with Japanese customers due to modern design and a location that is near to the central area. Due to the developer offering units for rent before the official opening, this project has already achieved an occupancy rate of 60%. The rental prices of units in this project are in the range of USD37 – 41/sm/month.

Overall, there has been relatively little new supply in the serviced apartment market in HCMC in recent years, particularly in the Grade A segment. For this reason, occupancy rates and rental prices have remained high. The total new supply of serviced apartments in 2017 and 2018 from both new brand entry and expansion of existing brands (Oakwood, Ascott and Citadines, etc.) is expected to be equivalent to almost haft of the total existing supply. In addition, the handover of Vinhomes Central Park this quarter will put pressure on the serviced apartment market. However, serviced apartment in District 1 will not face direct competition from this buy-to-let market thanks to its prime location.

Source: CBRE