Vietnam real estate outlook bright despite oversupply fear

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Construction workers at a villa project in the resort town of Phan Thiet. Experts said Vietnam's real estate market, which is now in its early stages, offers investors plenty of opportunities.

Experts remain bullish about real estate market prospects for this year, but are also wary about prices spiraling downward because of an oversupply.

Jim Fetgatter, CEO of Washington-based Association of Foreign Investors in Real Estate, said that as an "emerging market" Vietnam is not without its risk, but it also provides international investors a chance to increase the yield on their investment.

"Obviously more of our international investors consider Vietnam to be a country in which they will consider investing in the near future," he told Thanh Nien Weekly in an emailed comment.

His association, also known as AFIRE, released its annual survey last week, highlighting trends in international real estate investment. For the first time, the survey respondents, who hold more than US$627 billion worth of real estate investments globally, have ranked Vietnam in the list of top five emerging markets for investment this year. The other four markets are Brazil, China, India and Mexico.

CEO of the IBUS Company, Pepijn Morshuis, who has first-hand experience of the real estate market in Vietnam, understands why the market is appealing.

"There are a number of factors that help make the market more attractive," he said, citing the continuous high growth of the economy, an increasing middle class, relatively low development costs and improved legal framework.

Morshuis also noted that since the development of the market is in its early stages, investors have "plenty of opportunities."

With more money coming in from both foreign as well as local investors, there will be an increase in new developments in Vietnam this year, he predicted.

"˜Prone to oversupply'

Morshuis also touched on an aspect that worried him. He said his company, based in the Netherlands, has only developed resorts in Vietnam, refraining from other sectors like residential and office markets.

PROPERTY VS. GOLD
VS. STOCK

Gold will remain a strong competitor for both the stock and property markets in 2011, says property firm CB Richard Ellis.

Investors last year found gold more attractive and as a result, limited movement was recorded in Vietnam's stock market even amidst regional growth, it said.

"Anecdotal evidence suggests that in 2010 some investors were moving their money into gold, taking advantage of its historically high price and perceived value as a safe haven in times of uncertainty," Marc Townsend, managing director of CBRE Vietnam, said in a statement released Wednesday.

"If we see a slight correction in the price of gold, even 5 percent or 10 percent, some casual investors will have had their fill, and we may see some of that capital come back to the real estate market."

The price of gold in Vietnam increased by nearly 35 percent over the course of 2010. In less than two weeks of this year, the precious metal has lost around 1 percent.

Vietnam's market, especially the office market in Ho Chi Minh City, first needs to deal with an oversupply of new products, he said. "The high end residential market also is prone to oversupply, fueled by speculative buyers of individual units that now find it difficult to resell or rent out at levels that support the high acquisition prices per square meter."

In its latest Fearless Forecast report for 2011, consulting firm CB Richard Ellis warned that many high rise developers in Vietnam are sitting on large amounts of stock, primarily condominiums.

The number of new condominiums launched in HCMC doubled in 2010 from the previous year, to 20,818 units, according to CB Richard Ellis. In 2011, 79 new projects are expected to come online, providing another 40,621 units. This new supply, when combined with all existing supplies, means the city can have up to 120,000 condo units, ranging from the affordable to the high-end price bracket.

"Developers will need to find new ways to set themselves apart from the competition in order to sell and lease their properties," the company said, noting that buyers are adopting a "wait and see" attitude, anticipating lower prices and interest rates.

On the secondary residential market, capital values fell by as much as 20 percent last year, and are on-track to continue to fall in 2011, it warned.

Housing paradox

But while developers worry about an oversupply and the downward pressure on prices, a lot of people in the country are still struggling to find a home.

The Ministry of Construction said in its annual report this week that housing for low-income citizens continues to pose a challenge. Most of the population cannot afford to buy a house, even though the market does not lack real estate products and total housing area continued to expand, by around 86.8 million square meters last year.

Troy Griffiths, national director of research and valuation with Savills Vietnam, said the high cost of debt is a problem for most residents as it dampens their borrowing capacity to purchase properties. Interest rates on consumer and home loans are now around 18-20 percent a year.

However, Griffiths also struck a note of cautious optimism in a market analysis released late last week. He said Vietnam has "excellent ongoing macroeconomic conditions to foster good real estate outcomes," with the retail sector offering a good bet thanks to "unabated growth in sales and a consumptive population."

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