Prices to rise 5% in HCMC and 3% in Hanoi annually until 2019, says CBRE

It is expensive to launch projects overseas and difficult to attract potential buyers who are not familiar with Vietnam and the country’s developers, says Hang. Thus, Vietnamese developers are less likely than their Singapore counterparts to bring their projects to Singapore, she says.

Foreigners are only allowed to own up to 30% of the units in a condominium project. As a result, developers tend to focus their marketing efforts on Vietnamese, followed by the expatriates who live in Vietnam, says Hang. With the current buoyant market sentiment, foreigners in Vietnam of­ten take up the entire 30% quota before the projects are launched overseas.

In 1H2017, foreigners accounted for 59% of the deals brokered by CBRE at Vietnamese projects. This is an increase from the 37% recorded for 1H2016. Besides Singaporeans, buyers from Korea, Taiwan, Hong Kong and China are also active in Vietnam’s residential property market. Hang expects continued interest from foreign buyers, owing to the upbeat market sentiment and the attractive rental yield of 5% to 7% in HCMC and 4% to 6% in Hanoi.

According to Hang, prices in the primary market were up 9% in HCMC and 4% in Hanoi in 1H2017 compared with 1H2016. She adds that developers had raised prices at recently launched projects in good locations in both Hanoi and HCMC, particularly in the high-end segment.

In HCMC, prices of new apartments rose 4.9% q-o-q and 8.8% y-o-y in 3Q2017, according to JLL Vietnam. During the period, a total of 11,744 units were launched in HCMC, an increase of 53.9% q-o-q and 39.2% y-o-y. The sales volume in the primary market rose 12.5% q-o-q to 12,919 units. Of the units launched in 3Q2017, a total of 6,163 were in the mid-tier segment, where asking prices averaged US$1,500 psm ($190 psf). JLL expects the number of units launched in HCMC this year to total about 15,000, with those in the affordable segment making up the bulk. This segment, which appeals to owner-occupiers, is also likely to drive future developer sales, says JLL.

In Hanoi, about 6,000 units were launched in 3Q2017, taking the total number of units launched in the first nine months of 2017 to nearly 22,000, according to JLL. More than 6,500 units were sold in 3Q2017, which was an increase of 7.3% from 2Q2017. Of the units sold, 75.5% were in the affordable and mid-tier segments, where asking prices ranged from US$800 to $1,300 psm. Overall prices of new apartments in Hanoi slipped 2% q-o-q and 2.2% y-o-y in 3Q2017, as developers offered promotional deals to attract buyers. However, there was an increase in prices in the mid-tier and premium market segments, says JLL.

CBRE’s Hang believes price growth will moderate in 2H2017 as developers focus on the mid-tier and affordable segments, where "prices will not increase significantly”. CBRE, however, expects overall prices of apartments in the primary market to rise, with a 5% increase in HCMC and 3% gain in Hanoi annually until 2019.

With the strong supply of new projects today, buyers would consider the secondary market only if they need to occupy the property immediately, or if prices are cheaper or the project is in an exceptional location and of outstanding quality, says Hang. "There are so many project launches. The secondary market will develop in a few more years when those who bought units in these projects sell.”

According to JLL, prices in HCMC’s secondary market slipped 0.7% q-o-q in 3Q2017, owing to the large supply of projects in the mid-tier and affordable segments entering the market. In Hanoi, average prices in the secondary market rose 1.5% q-o-q to reach US$1,230 psm.

As at end-3Q2017, there were a total of 110,000 completed and 86,000 uncompleted apartment units in HCMC, and the unsold inventory stood at 10.6%, according to JLL. In Hanoi, there were 133,000 completed and 57,000 uncompleted units, and the unsold inventory was 20.6%.

The sales volume in the primary and secondary markets is expected to continue growing in 2H2017, driven by demand from owner-occupiers rather than investors or speculators, says JLL.

According to research by Savills Vietnam, owner-occupiers made up 66% of buyers in 2Q2017, while buy-to-let investors and speculators made up 26% and 8% respectively. In 2Q2016, 34% of purchasers were buy-to-let investors, 11% were speculators and 55% owner-occupiers.

The increase in end-user demand is likely to lend stability to the market as the number of units completed and handed over is expected to reach a record 33,000 units each in Hanoi and HCMC this year, according to estimates by Savills. In 2018, about 28,000 units will be completed in Hanoi and close to 30,000 units in HCMC.

Despite the record supply entering the rental market, rents are still stable, according to CBRE’s Hang. This is because the number of expatriates has grown in tandem with foreign direct investment in Vietnam. According to JLL, Vietnam’s FDI reached a record US$25.5 billion ($34.6 billion) between 1Q2017 and 3Q2017, a 34.3% increase over the same period in 2016.

There has also been demand from locals, who make up 30% to 40% of the rental market today, says Hang. And more are looking to rent, she adds. "They are willing to pay the same rents as foreigners,” she notes.