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September 20, 2016

As Vietnam continues to ride the crest of an economic wave, the country has presented abundant opportunities for residential investors, especially in Ho Chi Minh City (HCMC) where mid-range and affordable apartment prices are expected to rise by up to 10 percent annually in the next three years, according to JLL’s Ho Chi Minh City trip report: The opportunity lies in building homes.

Currently, most of HCMC’s 80,000 apartments are affordable and mid-end, comprising 43 percent and 42 percent of the stock respectively. Although high-end apartments only make up 15 percent right now, premium and luxury stock is expected to double in the next three years. Over the same period, the supply of all apartments is expected to increase by 74 percent.

While overall apartment prices are anticipated to rise by 5-7 percent yearly during this period, mid-range and affordable housing prices could go up by 10 percent yearly.

Rising incomes drive sustainable growth

Developers have been encouraged by the strong sales in 2015 and the first half of 2016, which have been driven by the rise of middle class, growing economy and favourable regulations, according to the report.

Although Vietnam’s economy is presently immature – about 47 percent of its workforce in the agriculture, fishery and mining sectors – the working population in the services industry is forecast to grow substantially over the next decade.

This will coincide with the fact that Vietnam will have the fastest-growing middle class in Southeast Asia, expanding at 18 percent a year from 2016 to 2020.

“We also believe investment into the residential market picked up momentum in 2015 due to stronger economic fundamentals as well as regulatory changes,” says Regina Lim, Advisory & Research, Asia Pacific Capital Markets, JLL.

Over the last five years, Vietnam has attracted stable foreign direct investment (FDI) into the manufacturing sector due to its advantage as a lower cost alternative to China. Also, a reduction in Vietnam’s trade deficit after 2011 helped stabilise the Vietnamese dong and cut inflation, pushing down interest rates and bringing about higher interest in property investment.

In addition, under new regulations, foreigners could from July 2015 own 30 percent of any single condominium building or a maximum of 250 houses in an administrative ward for 50 years. “This further stimulated investor interest in Vietnam property,” adds Lim.

Developers can enter the market with confidence

The outlook for HCMC’s residential market is positive, with little worry of an oversupply of affordable and mid-end apartments.

“Developers we spoke to in Ho Chi Minh City stated that they were making EBITDA margins of 25-30 percent on prime and mid-end residential projects,” says Linh Tran from JLL’s Capital Markets team in Singapore.

“Affordable and mid-end residential projects are likely to sell reasonably well given affordability levels.”

“Due to the difficulty of acquiring good land plots in Vietnam that have been cleared and come with clean title deeds at a reasonable price, new foreign developers should consider partnering with local groups on joint ventures. This is a particularly attractive option, since the government removed restrictions on foreign ownership in many listed companies in June 2015,” says JLL Vietnam’s Country Head, Stephen Wyatt.

Another opportunity for developers to tap into is the prime area along HCMC’s first metro line. Scheduled to be completed in 2020, the line will connect Ben Thanh Market in central HCMC to Suoi Tien in the east. “The strong office absorption tracks employment growth in the services sector,” says Tran. “Developers are likely to build more apartments along this metro line.”

HCMC is reaping the benefits of an emerging Vietnam, which has been bolstered by strong FDI, rapid urbanisation and sound policies. With its residential market growing steadily, developers are in a good position to not only build skyscrapers, but also homes for those who seek better lives in HCMC.

Click here to download the full report

Stephen Wyatt
Country Head, JLL Vietnam

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