VNRE - It is genrally agreed that with every challenge comes an opportunity, and the common saying is being used to talk about the local property market that has slid into difficulties since 2008.
Many developers, especially those who rely heavily on big loans from banks, keep lamenting their current situation because they cannot clear their stocks as buyers are holding a wait-and-see attitude toward the market. Under pressure of paying debts, many of them fear that once the gloomy market is not improved, they will sooner or later go bankrupt.
However, for many investors this is a good chance for them to come into the challenging market in a hope that they will stay ahead when the market is recovered from the downturn. High interest rate, credit restriction and inflation are problems real estate players, including foreign investors, are facing but those troubles are step-by-step being solved by the Government.
“Current difficulty in Vietnam is short term because inflation problem is one of things the Government has decided to tackle,” Colin Dyer, president and chief executive officer of Jones Lang LaSalle, shared his view to the Daily on the occasion of his first trip to Vietnam.
Observing the country from outside, Dyer said the Government was doing necessary measures to reduce inflation, and thus those problems would be short-lived. Overall, Vietnam and the rest of Asia are on a growth path thanks to having rising population and urbanization which can keep fueling commercial property market.
David Lyons, Vietnam Country Head of Jones Lang LaSalle Vietnam, echoed his president’s view, saying that the property services provider’s global network is recording a positive sentiment from investors, especially foreign ones who are coming into the market to sound out opportunities.
“We are seeing the property cycle in Vietnam now at or near the bottom…foreign investors say it is time to start to come in, and we see that trend,” Lyons told the Daily.
Both experts reiterated the current difficult situation in the market, saying high interest rate has prompted very hard access to credits from banks. Across the board, it is not only development companies and investment companies but also individuals to see funds dried out for property investment. As a result, the housing price has dropped, and office rent is on downward trend because of abundant supply.
Given the difficulties, the local property market has witnessed many cash-strapped developers have to sell their projects to others. The merger and acquisition activity is expected to continue increasing, which means that more and more property projects are to change hands this year.
Daibiru Corporation, a commercial property owner and manager, entered into an agreement in late 2011 to acquire a company that owns the 18,000-square-meter grade A office building Saigon Tower on Le Duan Boulevard in downtown HCMC. The deal is expected to be completed in January 2012.
Jones Lang LaSalle is reaching out its global network to search for potential investors for several projects that it acts as a broker. For example, the office building Centre Point on Nguyen Van Troi Street is being put up for sales after a local owner sold it to a Japanese fund, and now the fund has Jones Lang LaSalle to search for potential investors.
In another project, the property services provider is looking for suitable investors for a multipurpose project named Royal Tower in the urban town Phu My Hung in HCMC’s District 7. The 21-story building offers some 41,000 square meters for office and retail spaces and is expected for completion in June this year.
Besides, the company also acts as a broker for a commercial project named Lam Son Square in the resort city of Vung Tau.
Lyons said the company is dealing with several international groups for those projects transactions. Most foreign investors come from within the Asian region, including Japan, Korea and Singapore because those investors know and can understand the dynamic market.
Besides, the company is getting inquiries from American investors. Those potential investors are not only interested in office building sector but also industrial and logistic ones.
Lyons said there are developers looking to sell their projects to international investors. When there are more and more international investors looking into Vietnam, ‘that is the sign the market become more mature’.
Looking to the market trend, he projected that difficulties may be solved next year, and the local property market is hoped to go up again from the third quarter of this year.
Dyer seconded his colleague’s ideas, saying that the market downturn was painful for short-term real estate companies and for the whole market, but it helps companies to restructure business and capital to go through the difficult time.
Office rent continue softening
Like other cities in the world, as the office rent in HCMC’s central business districts dropped by half, it is the chance for companies to move in, to take some advantages to get good deals, Dyer commented on the office market in Vietnam.
Office rent in HCMC is on downward trend for 12 consecutive quarters with asking rent staying around US$32 – US$43 per square meter for Grade A building, some US$14 – US$32 for Grade B and some US$10 – US$25 for Grade C facilities.
According to the research team of Jones Lang LaSalle, the current difficult market conditions force some landlords, besides offering rental discounts or other incentives for long-term leasing contracts, to sell all or part of their buildings. This is an option for the developers to recover their capital quickly.
Total net absorption during 2011 reached over 168,000 square meters, a decrease of 9.4% year-on-year. In the last quarter of 2011, net absorption slumped across all grades, especially in Grade C and in suburban areas. This was probably due to office buildings in higher grades that offer attractive facilities, convenient locations, and increasingly competitive rents.
At the end of 2011, the market saw no new supply, thus the total stock of all grades in HCMC remained stable at over 1.3 million square meters. With more than 40 projects currently under construction with over 558,000 square meters, the total stock in HCMC is expected to be double by the end of 2015.
Jones Lang LaSalle projected that this new level of supply will increase the vacancy rate in the HCMC office market, and thus rents could remain on a downtrend in 2012.
Reported by Dinh Dung | The Saigon Times Daily