Sentiment improves in Vietnam's ailing property market

The Vietnamese real estate market recorded some positive signs in the first three months of 2023 as interest outlook started to stabilize thanks to government efforts.

This resulted in an improved sentiment, but more importantly it accelerated domestic and foreign investors with strong financial capabilities capitalizing on this ‘transformational’ chance in their valuing, negotiation and purchasing processes. The market is expected to witness some large-scale transactions in the coming quarters.

The best-recovering segments include residential, industrial, and retail real estate as they retain strong demand and long-term potential for growth. From a broader perspective, this demonstrates that Vietnam’s real estate continues to be one of the most sought-after markets regionally, backed by solid foundations.

Vietnam’s real estate industry attracted roughly $766 million in foreign investment capital (FDI) in Q1/2023, second to the manufacturing and processing sector and down 71.6% compared to the same period last year.

As an open economy, the country appears to be an inviting destination for foreign investments, yet it also means vulnerability when global demand falters in the short term.

Foreign investors, mainly from Northeast Asia, North America and Europe, are taking advantage of the slowdown to expand their market shares in Vietnam’s demand-driven properties. However, every move is thoroughly learned in the context of unpredictable developments in the domestic market.

Condominium, landed properties

Fluctuations in terms of legal and capital continue to drive dramatic changes in the housing market across the country.

In the condominium segment, new supply was scarce and purchasing power remained timid in the first three months. Primary prices of luxury projects in Ho Chi Minh City’s District 1 and Thu Thiem new urban area remained stable at $7,00-17,000 per square meter (VND164-398 million per sqm), while secondary prices of projects along Metro Line 1 went up slightly as being pushed by infrastructure. The only project launched in Q1/2023 was Elysian of Gamuda Land with an average absorption rate of about 40-60%.

Most of the remaining stock of apartments accepted reservations due to buyers’ hesitancy. In Hanoi, many discount policies were introduced to spur demand, yet selling prices are still too high for the buyer’s financial plan. The average primary price of the affordable segment reached $1,355 per sqm (VND31.8 million per sqm), and that of the luxury segment was $4,200 (VND98.5 million).

Transactions recorded a downward trend in both markets, on the one hand, due to interest rate and credit limitations, and on the other hand were legal problems causing some projects to stall, affecting customer confidence.

New supply in Danang on the central coast kept revolving around the higher-end segment, although the local demand is paid mainly in social housing, affordable projects, and townhouses.

The market of villas and townhouses in HCMC saw the lowest absorption rate in the past three years, despite soundness in both primary and secondary prices at $4,800 per sqm (VND112.5 million). By the end of March, market liquidity plummeted to 15%.

In contrast, Hanoi recorded positive transactions as a result of improving project legislation. New stock expands to the suburban areas of Hoai Duc, Gia Lam and Me Linh, with Hoai Duc district accounting for 18% of the future supply. With beautiful landscapes, Danang on the central coast is strategic for the development of high-class tourism villas and resorts with an average asking price of $1,800-3,600 per square meter (VND42.2 million-84.4 million).

The segment of condominium and landed properties looks quiet on the surface, yet it is transforming drastically by large merger and acquisition deals which are expected to conclude in the coming time.

Retail real estate backed by service sector growth

Real estate developers in the retail sector, both domestic and international, began to expand their footprints with ambitious plans in 2023 after a time of research. Rental rates in HCMC’s central business district maintained growth of 3% quarter-on-quarter, while Hanoi recorded a new high rent of $132 per square meter a month.

In the first three months, many commercial center projects in HCMC restarted construction, in which Vincom Mega Mall Grand Park draw attention to the east with a total gross floor area (GFA) of up to 48,000 sqm.

At the same time, Hanoi thanks to its great economic power has become more attractive to foreign retailers, including Japanese giant Aeon with 3-4 new commercial center projects to be completed by the end of 2025.

New entrants or store expansion is accelerated by many brands in an effort to capture consumption growth in big cities. They include Uniqlo, Muji, Haidilao, Beauty in the Pot, and %Arabica. This trend keeps shopping centers in the central business district occupied at 95-97% in HCMC.

Shopping mall projects in general contribute significantly to the provincial socio-economic development, thus are given the "green light" to encourage investors. Aeon received an investment nod for Aeon Hoang Mai Giap Bat in Hanoi and Hoc Mon in HCMC in the last quarter. New developments drive the retail real estate segment forwards but challenge the traditional shopping venues to upgrade in order to attract and retain good brands.

Industrial real estate stays demanding

The increase in global manufacturing activity boosts Vietnam’s industrial real estate market to grow.

Records in rent, growth rate, and occupancy rate remain positive in two key markets of Hanoi and HCMC.

No new supply is recognized in HCMC due to limited land fund; therefore major southern developments happened in neighboring markets such as Binh Duong, Dong Nai, and Long An with the average rents ranging $100-250 per square meter a term.

HCMC was preparing to set up a pilot project to convert 5 existing industrial parks into eco- and high-tech IPs to call for investment. The five are Tan Thuan EPZ, Tan Binh, Cat Lai, Hiep Phuoc and Binh Chieu IPs).

In Hanoi, the average rent increased by 5-10% quarter-on-quarter; a temporary declining supply led to the city’s new planning of 4 new IPs. A supply of 1,268 hectares will be provided in the coming time, located mainly in Soc Son (40%), Phu Xuyen (24%), and Me Linh (21%).

Danang meanwhile made continuing efforts to call for high-quality industrial real estate projects in line with the provincial geographics and climate to develop the marine economy.

Green, smart and sustainable IPs are gaining recognition from industrial developers as increasing new projects are being developed under this model.

The more quality added to supplies, the more possible for Vietnam to attract world-leading chip and electric vehicle makers– two sectors shaping the future of Southeast Asia's manufacturing industry. Nonetheless, it is crucial to better calculate investment incentives in the context of the global minimum rate to be applied in 2024, which may reduce the attractiveness of Vietnam's tax incentives.

High-quality spaces, good rentals in office sector

In HCMC, the rents and occupancy rates of Grade A office buildings did not change much in Q1 compared to the previous quarter as no new supply was added. The segment of Grade B offices continued to grow because new projects launched last quarter stably attracted tenants, with rents going up 2.85% to $36 per square meter a month. The high-end supply pressure is expectedly relieved from mid-2023 onwards when two luxury buildings The Hallmark and The Nexus come into operation.

Demand outstripping supply in Hanoi encourages the office market to start new projects in 2023 and 2024, mainly in HCMC’s west where many manufacturing, IT and hi-tech companies locate. In the last quarter, Grade A offices recorded the highest rent at $47 per square meter a month, and Grade B was $26.

Office for lease in Danang performed well thanks to stable business activities, resulting in positive occupancy rates in Grade A and Grade B at 85% and 90%, respectively.

Serviced apartments ready for foreign customers

Being increasingly demanded by foreign tourists and expats coming to Vietnam, the market of serviced apartments showed rental growth in two segments and two major markets.

In HCMC, average Grade A rents soared 13.6% to $34.3 per square meter a month, while it did not change significantly for Grade B.

The Hanoi market maintained a stable rent growth, ranging from 2.3% to 2.5% year-on-year, thus retaining and attracting tenants on a regular basis.

The future supply of Hanoi is more diverse than that in HCMC, with 3,740 new units to be expectedly provided, of which 60% are in Tay Ho district.

In HCMC, the energetic and communal lifestyle has created new living concepts, such as Lyf Thao Dien (by CapitaLand) or The Berkley Thao Dien (by Son Kim Land).

HCMC is one of the three markets expected to lead the recovery of the travel industry in Asia. Therefore, accommodation demand for hospitality real estate such as serviced apartments, hotels and resorts will continue to increase, especially in the second half of this year when Chinese tourists are expected to return.