Property market picks up on stronger economy

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Ho Chi Minh City's real estate market improved last quarter on the back of a strengthening economy, according to a report issued Thursday by the consulting firm CB Richard Ellis.

"GDP growth continued to improve in the second quarter of 2010, emphasizing the current strength of the Vietnamese economy," the world's largest commercial real estate services firm said in a statement that includes highlights from its latest quarterly reports.

"Vietnam has emerged from the global financial crisis with a renewed appetite and vigour for economic growth and diversification," said Marc Townsend, managing director of CBRE Vietnam. "Whilst there may still be some shaking moments ahead in the global economy it appears that the growth in domestic consumption from Vietnam's young, and increasingly wealthy population can plug the holes left from the fall out of the financial crisis."

Vietnam's economy grew 6.16 percent in the first half of 2010 compared to the same period last year, according to official statistics.

Townsend said HCMC (and Vietnam as a whole) continues to see dramatic increases in retail spending. Retailers are "keen to compete for the best locations in order to maximize their exposure," he stated in the release.

"Given the competition for space that is evident in the central business district (CBD) and the number of retailers who remain on the sidelines, or who are looking to expand, we expect demand for retail space in the CBD to continue," he said, predicting that future projects, such as the Bitexco Financial Tower, will achieve the same success that was enjoyed by the Vincom Center.

CBRE said the arrival of the Vincom Center in the second quarter enabled a number of retailers who had been looking for space to enter the Vietnamese market for the first time, including Just Cavalli, Jimmy

Choo and BCBG. Vincom shot retail rental rates within the CBD to an all time high of US$120.9, up from $100.5 in the first quarter.

On the office market, absorption continued to be strong and improved significantly on the amount seen in the first quarter, CBRE said. The HCMC office market saw a 9.6 percent increase in gross floor area during the second quarter with nine new buildings coming into the market.

The asking rental rate for Grade A buildings decreased to $37.51 per square meter per month, from $39.60 in the first quarter. A similar downward trend was recorded in the Grade B and C office markets as well.

"˜More mature' market

The company said enquiries for residential purchases rose by approximately 25 percent in the second quarter, thanks to "an increased confidence within the population that Vietnam has shaken off the ill-effects of the global financial crisis."

Prices within the secondary market increased slightly during the period, by between 0.4-0.9 percentage points, CBRE said.

"The period saw 17 projects launched to the market for the first time, with the affordable sector accounting for over half of these," the company said in the statement. CBRE expressed confidence that the trend for mid-end and affordable development will continue to move forward.

"The residential market is one that has become increasingly competitive for developers in the past twelve months and thus they have looked at alternative options for profit generation," said Rudolf Hever, associate director of Research and Consultancy at CBRE.

Developers have offered potential buyers a greater range of options, and buyers have responded to this more mature market with enthusiasm, he said.

"Whilst significant supply coming to the market means that major price hikes are unlikely, we do not see demand falling and thus we expect the market to remain stable for the foreseeable future," Hever predicted.

Neighboring markets

A report released by research firm Savills Vietnam earlier this month said there were 11,200 apartments available for sale in the HCMC primary market in the second quarter, an increase of 24 percent compared to the first quarter. The company said about 28,500 apartments in planning will be completed in the period from 2010 to 2012, with an estimated 5,800 apartments available in the second half of 2010.

Townsend said that the success of the HCMC economy has inspired the company's "canniest clients" to become active in the provinces surrounding the city.

"These clients, be they developers or investors, are aiming to benefit from the ripple effects of the growth currently being witnessed in the HCMC economy as it inevitably passes to neighboring areas."

Saigon Tiep Thi newspaper this week cited industry insiders as saying residential projects in Dong Nai and Binh Duong provinces have attracted a lot of investors, but many of them are from the northern region.

Though the trend has boosted these southern markets, experts warned that it can fuel property speculation. When investors buy houses and apartments only to earn profits, they said, prices will be inflated and many residential areas will be left empty.

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