Steady going

Ho Chi Minh City’s real estate market continues to slowly move forward as brighter prospects hopefully lie ahead.

The recovery in the economic situation has not been reflected in the real estate market in Ho Chi Minh City and neighbouring areas in the first quarter of 2010, according to property developers attending the “Impact of the Economic Crisis and the Real Estate Market” seminar held in the City last month.

According to the General Statistics Office (GSO), Vietnam’s GDP grew 5.83 per cent in the first quarter of the year, while foreign direct investment (FDI) increased 13.6 per cent year-on-year to $2.5 billion, interest rates on bank loans hovered around 15-17 per cent for individual borrowers and inflation stood at 4.12 per cent, an increase of 8.51 per cent quarter-on-quarter.

According to Mr Tran Minh Hoang, CEO of Vinaland Invest, house and land purchasing power in the market has been falling strongly in recent times as inflation increases and interest rates on loans are relatively high. Due to inflation, the price of construction materials has also increased and had an impact on investors. In March the price of materials increased more 1.38 per cent. In early April the steel price rose some 15 per cent compared with mid-March and cement increased between VND300,000 ($15.8) and VND400,000 ($21) per ton.

Higher prices for houses and land were therefore difficult to avoid. Real estate investors are also encountering difficulties in accessing capital because of high interest rates and project numbers are falling as a result. The Benjaya Company from Malaysia announced in mid-April it would buy 224 flats at Topaz Twins at Bien Hoa city in Dong Nai province for VND16 million - VND25 million per sq m but would not proceed with purchases in the Amber Court project, located next to Topaz Twins, which it announced at the end of 2009 at a price of VND15 million - 17 million per sq m.

Dr Tran Kim Chung from the Central Institute for Economic Management (CIEM) believes that if bank interest rates could be reasonably adjusted then some parts of the real estate market, like low-end housing, old urban area housing, new urban area apartments, and resort villas would have good prospect in 2010. In mid-April, CB Richard Ellis (CBRE) released its report on Ho Chi Minh City’s real estate market in the first quarter of 2010, showing relatively stable office, retail, residential for sale and serviced apartments markets.

The remarkable feature is in the retail market, with no new supply to come in the first quarter of 2010. With demand for space continuing to increase, rental rates in both the central business district (CBD) and non-CBD locations are going higher. In the CBD, department store rents increased 3.3 per cent quarter-on-quarter and shopping centre rents by 0.7 per cent, standing at $108.8 and $98.10 per sq m per month, respectively, for prime ground floor locations.

According to CBRE, vacancy remains very tight in the retail sector with shopping centres reporting only 7.3 per cent, a fall from the 7.7 per cent seen in the final quarter of 2009. CBRE’s analysis claims that 98 per cent of vacant space is situated in non-CBD locations, expressing the continued preference of retailers for the CBD. “The retail market in Ho Chi Minh City continues to strengthen as retailers are forced to compete for the few prime locations that are available,” said Mr Marc Townsend, Managing Director of CBRE. “The first quarter of 2010 has seen rental prices across the city increase, a trend that will continue in the CBD in the second quarter as the Vincom Centre retail space comes on line, charging the highest rates within the CBD.”

In the office market, Grade A rental rates stood at $39.60 per sq m per month at the end of the first quarter, reflecting a 2 per cent quarter-on-quarter decline. This did, however, help the vacancy rate continue its downwards trend, ending the first quarter at 15.6 per cent. Grade B and C rents also fell in the quarter, by 3.2 per cent and 5.3 per cent respectively, standing at $21.30 and $17.70 per sq m per month. Despite the rental falls, vacancies at Grade B buildings increased slightly, from 10.7 per cent at the end of the fourth quarter of 2009 to 11.4 per cent at the end of the first quarter this year, though it should be noted that there was a significant amount of new Grade B supply in the opening months of the year. “The Grade A market is looking divided, as existing buildings fill out and landlords look to increase prices, but with Vincom Center coming to the market offering discounted rates in its initial leasing phase and the Bitexco Financial Tower to follow later in the year it is likely that average Grade A rental rates will remain relatively flat,” said Mr Adam Bury, CBRE’s Manager of Research and Consultancy Services.

The residential market remained settled in the first quarter of the year despite suggestions by some commentators that the market was still overpriced and had further to fall. Prices at the top of the market, in the luxury and high-end sectors, remained flat, whilst in the lower segments the mid-end market saw prices increase by 2.9 per cent quarter-on-quarter and the affordable sector saw a 2 per cent quarter-on-quarter price increase. Interestingly, the high-end, mid-end and affordable sectors were showing year-on-year price increase of 2.7 per cent, 8.5 per cent and 8.3 per cent, respectively. “The modest year-on-year price increase seen in these segments are reflective of what appears to be, at the present time, a healthy market,” said Mr Townsend.

To make the real estate market become “healthier” and for the conditions to be in place for people to buy houses, the government should have flexible monetary policy without sudden change and aimed at macroeconomic stability, as well as attach special importance to the real estate market, according Mr Chung from CIEM. The government should also adopt policies to check the progress of projects, demand in the market, and activities in real estate networks.

Mr Hoang from Vinaland believes it is necessary to remove the obstacles holding back the development of real state market, such as administration procedure reform, with faster investment procedures resulting in faster payments, as well as site clearance and delivery. The government should also consider reducing taxes on real estate transactions. Meanwhile, lawyer Truong Thi Hoa from the Truong Thi Hoa law firm suggests the quick implementation of the policy allowing overseas Vietnamese and foreigners to buy apartments.

Reported by Thanh Van/MONRE