Confidence improves in Vietnam real estate market – time to open the champagne?

November 7, 2013 / By  

The Vietnamese property market has suffered a torrid time over the past few years, however, there are early indications that market sentiment is improving. But before we open the champagne we need to step back and look at some key areas in order to consider if this new level of optimism is justified or wishful thinking.

Economic conditions within Vietnam are in a far better shape than 24 months ago. Inflation has maintained a downward trend from its peak of 22% in September 2011 and is now at a more manageable level of 6.3% year on year to September 2013. Interest rates have declined from 15% in early 2012 and currently stand at 7% with further decreases on the horizon. Foreign direct investment has reached $15 billion, up 36.1% year on year, although considerably behind the dizzy heights of $71 billion registered in 2008. For the first time in many years Vietnam has registered a small but significant trade surplus which stands at $124 million and GDP growth stands at 5.14%, with steady improvement quarter on quarter. The VN Stock Index has seen a dramatic increase of 34% over the past 12 months. Disbursements into the country are ranked 10th in the world and reached USD 8.6 billion in the first nine months, while the VND/USD exchange rate is stable at around 21,100, all of which paint a much improved and a considerably more stable economic picture.

The banking sector continues to attract all the headlines and will prove to be the single most critical factor in determining the speed of the recovery. If the current level of non-performing loans can be reduced and absorbed by the newly formed Vietnam Asset Management Company (VAMC), we will see a faster momentum in the recovery of the market as much needed credit will start being released. The big question is whether the structure of the VAMC will prove an effective and adequate vehicle in dealing with bad debt.

The property market experienced a meteoric rise and fall in the past 15 years, which has seen many investors, developers and owners make and lose considerable sums of money. It is unlikely the property market will see these peaks and troughs again in the near future. The downturn was inevitable as the speed and rate of growth was unsustainable and we are now seeing a correction in the market, resulting in more realistic and affordable prices and rentals being achieved. However, many owners and developers consider their property values have not been affected by the downturn and continue to market their properties based on historic values.

The proposed loosening of legislation on foreign ownership will assist the property market, provided that the legislation is clear and transparent and is in-line with other countries in the region; however, local parties need to understand that foreign investors will only invest in projects that are commercially viable and fit with their investment strategy, based on medium to long objectives.

In summary, there is more positive than negative news and the economy is in a much better position. However, challenges remain. The banking sector will need to restructure and lower the level of non-performing loans and start to increase lending. Economic conditions will need to remain stable and show steady improvement, with lower inflation, interest rates and a stable VND/USD exchange rate. Legislation will need to continue to loosen, attracting further interest from foreign investors. The formation of Trans Pacific Partnership (TPP) and ASEAN trade agreements will further boost Vietnam’s property market revival going forward. So it is just possible that this once booming “Asian Tiger” economy could be on the prowl once again.

So back to the champagne – the overall message is, the champagne can be put on ice, but still too early to open it!

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