Vietnam real estate enters heat wave – what next?

May 13, 2016 / By  

Over the past few months Vietnam and Ho Chi Minh City in particular has been experiencing a heatwave with temperatures reaching record levels, this can also be said for the red hot real estate market.

The economy has improved significantly over the past 24 months with GDP growth for 2016 projected at 6.8%, if achieved; this would be the second fastest growing economy in the world, behind India.  Interest rates are currently 8-9% and inflation is tracking under 3%. In 2015, registered Foreign Direct Investment reached $22.8 billion, 12% up on the previous year. Overseas remittances reached approx. $13 billion, with an increasing percentage of this figure filtering into real estate. In the first 4 months of 2016 a trade surplus of $1.5 billion was registered, mainly due to an increase in exports. International visitors leapt to 3.3 million in the first 4 months of 2016 up 17.8% year on year.

With the economy back on track, the property market has gathered momentum over the past 18 months, predominantly focused around the residential sectors in the major cities, such as HCMC and Hanoi. Residential sales in each city recorded all-time highs in 1Q16 reaching approx. 9000 units and 8000 units respectively.  Grade A office rents in HCMC are increasing due to lack of supply and increased demand, vacancy rates across all Grades are down to 6%, last achieved in4Q08.   The retail market remains a mixed bag with some centres performing well, notably Vivocity, Crescent, Lotte and AEON, with the much anticipated Saigon Centre Phase 2 coming on line mid-2016, anchored by Takashimaya.  Many new international brands are looking to enter the market including Zara and H&M.  The Hotels and hospitality sector is also experiencing a resurgence with many hotels in CBD locations reporting strong occupancy rates and a large number of new operators entering the market, especially in coastal areas such as Danang, Nha Trang and Phu Quoc.

Activity within the industrial sector has improved with many companies looking to enter Vietnam, due to low labour costs and improving infrastructure.  This sector will have a further boost when a number of trade agreements take effect, including EU and Trans-Pacific Partnership. Vietnam stands to be one of the largest beneficiaries of the TPP agreement over the next 5-10 years.

Foreign investors have been circling Vietnam for some time with many groups kicking the tyres and trying to understand how to gain a foothold in the market.  More transactions are now being registered, with Japanese groups leading the way.

The question on everyone’s lips is how long will market conditions last?  In some respects, the real estate market is like the weather, we are currently experiencing a heat wave, but we know at some stage the rainy season and cooler conditions will come.  If we look back over the past 26 years, Vietnam has witnessed 4 market cycles – I will leave it with you to do the maths!

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