Demand for real estate is on the rise together with GDP growth, a growing population and increase per capita living space. Prices of well-built projects in improving neighborhoods will stay strong and potentially grow, Garrett Harper, Senior Research Manager of CB Richard Ellis Vietnam told Thanh Nien Weekly in an interview.
Thanh Nien Weekly: What is your assessment of the current real estate market?
Garrett Harper: There is constant interest in land and apartments in Hanoi due to a growing population, larger space expectations per capita, rural to urban migration, increased incomes, and the continued deterioration of existing buildings.
These factors will put a general upward pressure on prices often benchmarked by CPI growth and GDP growth. However, because the market is not transparent, the changes often occur in short intervals. As more new projects launch and more people get interested in the market, more people follow investing into the market.
Have you seen any signs of a bubble in the property market?
Although prices continue to rise, we have not seen clear signs of a bubble in residential pricing. Hanoi is growing quickly with more people needing accommodation. High prices do not signify a bubble. The best measure of a demand is to survey completed projects and determine how many people are living in these projects (renter or owner).
Will over-inflated real estate prices continue?
Not all prices are "overinflated". As more residential housing is developed, the quality and delivery will become more important. Some projects will experience continued increases in prices, while others will suffer.
CBRE expects to see many older residential projects with poor quality construction and limited maintenance deteriorate and possibly lose value or stagnate. Newer projects that deliver a high quality of construction should appreciate in line with market demand. We cannot predict all the movements in the real estate market. However, as long as projects remain in demand, prices will stay strong and potentially grow.
What do you think about supply-demand balance in the property market?
Supply is very capital intensive requiring a large investment over many years while demand is influenced by very short-term change in the market. Because of this time-gap there is rarely a true balance in the market.
In Vietnam, because most of the land is controlled by the government, supply can be very slow to respond to demand causing rapid price growth. The demand is much more difficult to judge and needs to be separated into investment demand and end-user demand. One of the few ways to accurately track end-user demand is to follow the handover of completed apartment buildings.
What do you predict for Vietnam's property market in the coming months?
CBRE expects a few things to happen over the next three to six months
More options for residential land and apartments on the fringe of Hanoi will create a more competitive environment for developers. Most buyers now have many options fitting their specific needs. This means developers will need to spend more money on marketing and make sure their contracts clearly provide all details and benefits of their apartment.
Many foreign developers are preparing to launch a large quantity of projects priced in the mid-end and high-end market. These developers are focused on developing a brand name and reputation for quality products. Competition among developers just creates a better environment for prospective buyers.
What about the market in the long term?
As mentioned previously, the long-term trends in real estate follow the growth in GDP, population growth in Hanoi, along with increasing per capita living space. More young Hanoians are choosing to live away from their family while many expect more living space. All of these factors will lead to an increasing demand for residential housing. Only when supply is limited, however, should prices grow rapidly. As new supply expands it should meet the expanding demand.
The price of real estate is high at the moment and is sometimes considered far above its real value. If prices continue to rise, will this mean people with a real need for housing will face more difficulties in purchasing houses and apartments?
The value of an individual project should be based on quality and the surrounding living environment. The continued supply of new projects, especially those priced from US$1,000-1,500 will supply the market with housing that fits within a budget reasonable for a city such as Hanoi.
It's important to remember that even in a developed country, most people cannot afford a home outright. Due to the cost of construction and the value of land, housing is always a major investment for individuals and the use of 60-90 percent financing is common.
Two concepts will grow in Vietnam, mortgage financing and rental housing, as housing prices remain at current levels. Prices may rise over time in line with inflation and some areas will improve faster than other areas.
Which types of customer will decide the market trend in the near future?
More foreign developers are preparing to launch high quality projects and more local developers are aiming to develop a good reputation. The biggest change in the market will be the influence of more educated residential buyers.
No matter how much interest from investors occurs in the market, the long-term trend of the market will be decided by the end-users. Without people to move into the units, a real value cannot be set.
What should the government do to effectively manage the market?
There are many steps to take for the government to improve the residential market in Vietnam. First is transparency in transactions. All residential sales should be submitted to a central authority that publishes information and provides clear access to comparables for potential buyers. The enforcement of laws regarding construction and safety codes are also important. With finance rates so high, most developers focus on funding their projects via initial sales. This needs to be accepted, but regulated.
Lastly, the laws governing the operation of condominiums need to be updated and improved. The government has focused too much on setting strict monetary limits on things like parking and service fees. These fees should be set by the building, but there should be a requirement for transparency among the unit owners. One of the biggest threats faced in Vietnam is the poor maintenance and operation of residential buildings. This is a major reason for the lack of trust available.