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HCMC Real Estate Market Q3 2022: Resilient or vulnerable?

Quynh Dang • 30/09/2022

While two important capital flows into real estate, namely bank credit and bonds, were limited, FDI inflows continued to be the bright spot. According to the latest data from the Foreign Investment Department, in the first 9 months of 2022, FDI disbursement continued to increase sharply to reach US$15.4 billion, up 16.2% over the same period in 2021 and up 5.7 points percentage compared to 8 months. This is the highest increase since the beginning of the year.

Real estate continued to rank second in the list of industries attracting total FDI of over US$3.5 billion, accounting for 18.7% of total registered investment capital. This number nearly doubled compared to the same period last year (nearly US$1.8 billion).

Despite the decline in global GDP growth forecasts, Vietnam is still receiving positive forecasts from domestic and international organizations. GDP in 9 months of 2022 increased by 8.83% over the same period last year, which is the highest 9-month increase in the past ten years, as production and business activities gradually regained growth momentum. Recovery and development policies from the Government have proved to be effective.

CPI inflation in Vietnam is well controlled and continues to be in the group of countries with low inflation growth compared to the general average. The average CPI in 9 months increased by 2.73% over the same period last year. However, increasing inflation pressure in the last months of the year is still of major concern.

In addition to macroeconomic regulation, the Government also pushed for reforms and quick completion of many infrastructure projects, capital controls, tighter real estate transfer tax, restriction of land plot division, and focus on social housing,... This regulation has prevented a bubble from forming on a large scale during the recent fever and is a sign of hope for the low-income class to shorten the gap between income and house prices, especially in big cities.

Apartment market

Credit control policies that took effect from the beginning of July this year have partly created barriers to mobilizing capital from commercial banks, making it difficult for investors to deploy new apartment projects. Thus, the supply of new apartments in Q3 fell by 56% QoQ, with about 4,100 units offered for sale. Among these, mid-end apartments account for 75%, other segments like affordable take 16%, luxury 7%, high-end 1%, and super luxury 1%. Supply mainly concentrated in the eastern region with 76% of the total market, thanks to infrastructure projects in progress.

Credit control also made it difficult to disburse loans to customers, leading to sales and absorption rates decrease this quarter, with 4,150 units sold, down 54% QoQ. Market demand seems to slow down in July and August and start to recover from the beginning of September.

The average primary price this quarter was around US$2,799 per sqm, up 1% QoQ. According to Cushman & Wakefield’s estimation, there will be more than 4,100 new apartments for sale by the end of this year and the East and South areas will lead the market.

Townhouse market

The new supply of townhouses recorded nearly 450 units offered for sale from 6 projects, double that of the previous quarter and four times higher than Q3 2021.The total number of units sold is 270. Thu Duc city is still the leading area in terms of new supply with 86%, notable projects are Soho Residence, Rivus and Classia. The West and South areas of Ho Chi Minh City account for the remaining 14%.

The average primary price was recorded at US$12,300 per sqm of land, up 29.7 percent QoQ and nearly doubling YoY. Developers are now taking advantage of sales events and sales galleries to attract customers and directly present attractive offers.

Cushman & Wakefield estimates the total future supply of townhouses in Ho Chi Minh City will reach 9,500 units, mainly located in the East and West areas. Notable projects in the implementation process include Global City, Solina Khang Dien, Zeitgeist Nha Be.

Office market

The demand for office space is inherently associated with the economy; Economic growth means more jobs are created, which in turn drives more demand for all types of spaces for workers, including offices.

The market did not record new supply in Q3 2022, the total cumulative supply of Grade A and B is still 1.43 million sqm of office space. However, the market witnessed a good absorption rate with 21,354 sqm already leased. In which, 58% of transactions were signed for office spaces in District 7. Office rent of the whole market remained stable, with US$59/sqm/month for Grade A, and US$34/sqm/month for Grade B.

The slogan “location, location, location” in the real estate industry is especially true for the office market. Business address and floor space are the two prerequisites for medium and large enterprises to choose a building as headquarters.

In the next 3 years, the office market in Ho Chi Minh City will receive a series of newly completed office projects in prime locations like The Nexus (2023), The Hallmark (2023), The Crest Tower B (2023), The Sun Tower (2024), The Pearl (2024) and IFC One Saigon (2024).

Retail market

Total retail sales & services in 9 months of 2022 reached US$177 billion, up 21% over the same period. The number of international visitors was recorded at 1.87 million, 16.4 times higher than the same period last year. About 70% of these come from Asia.

With the above positive indicators, the retail market in Ho Chi Minh City has recovered and returned to its growth trajectory from before the pandemic. The occupancy rate of the whole market reached 93%, and the total accumulated supply of shopping malls, department stores and commercial podiums reached 1 million sqm. The average rental price is US$48,3/sqm/month, up 5.6% over the same period last year.

The building speed for new retail supply is still quite low. From 2017 to 2019, Ho Chi Minh City saw an average of 80,000 sqm being supplied to the market every year; but in the past four years, there is no new supply recorded. However, future retail projects are on the rise, with approximately 140,000 sqm of floor space currently under construction.

Some examples are: Thiso Mall in District 2 D2 (30,000 sqm), Vincom Megamall Grand Park in District 9 (44,000 sqm), Satra Center Mall in District 6 (24,000 sqm), IFC One Saigon in District 1 (6,647 sqm) and The Pearl in District 1 (32,715 sqm).

Industrial and logistics market in 5 key southern provinces including: Ho Chi Minh City, Dong Nai, Binh Duong, Long An, Ba Ria - Vung Tau

Industrial land supply increased significantly compared to last year, especially in Q1 and Q2 of 2022, mainly due to delayed projects from last year's pandemic. The total cumulative supply of the market reached 27,780 hectares, with an occupancy rate of 88%. The emergence of new supply at locations further away from HCMC (such as Bau Bang, or VSIP III) has helped reduce the asking price of industrial land, the average rent in Q3 is US$148.4/sqm/lease term.

The market for ready-built factories and ready-built warehouses did not see a significant change in new supply, at 4,321,000 sqm and 4,702,000 sqm, respectively. In which, the factory absorption rate increased by 7% QoQ and 1% YoY, reaching 92%; by contrast, the warehouse absorption rate fell 1% QoQ and down 8% YoY, at 76%. The average asking price for factories is US$4.6/sqm/month and for warehouses is US$4.4/sqm/month.

The State Bank recently raised the credit growth ceiling for some commercial banks, but this credit flow will be prioritized for production and services. Therefore, the industrial real estate market will continue to grow well in 2022 - 2023, and it is forecasted that the warehouse market will benefit during the year-end festival season thanks to peak consumption demand.

“The State Bank's risk control measures through limiting credit to real estate and increasing deposit interest rates have created fluctuations for the real estate market in the last quarter,” said Ms. Trang Bui, CEO of Cushman & Wakefield. “Liquidity, cash flow and corporate profits in 2022 - 2023 will be affected. However, with strong growth drivers and ongoing reforms, the property market will continue to be resilient in the medium term for all segments, as the market becomes more transparent.”

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