Vietnam Residential Market - Then and Now

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Vietnam Residential Market - Then and Now

Update: 13:55:20 31-08-2018Date Submitted : 13:54:32 31-08-2018

The last 10 years has been a remarkable evolution for Vietnam residential market. Never before had we seen such growth and sophistication in demand for housing products, which in turn pushed supply to an unprecedentedly high level of quality.

Vietnam Residential Market - Then and Now

"During the course of the last 10 years we have witnessed the rapid growth of the middle class in Vietnam. A significant proportion of this new middle class are millennials and many are buying their first home after moving out of a multi generation family home. Many of these buyers are well travelled and are seeking much higher quality residential products, with excellent facilities and a high standard of property management. To meet the demand from these new discerning buyers, developers have been forced to raise their game and offer a much higher quality of product and also ensure that good quality property man- agement can retain the value of buyer’s investments over the longer term. Whilst we have seen many foreign developers step into this space such as CapitaLand, Keppel Land, Hong Kong Land, GS E&C, Frasers, Phu My Hung and others, we have also seen the rapid rise of success- ful local developers as well.

Another significant change that we have witnessed over the last 10 years is the success of suburban areas. This is largely due to improved metropolitan infrastructure which opened up new residential markets in major cities. In the case of Hanoi, the growth of the West of the city, as well as Long Bien to the East and areas such as Ecopark to the South. In HCMC we have seen the continued success of Phu My Hung and the surrounding areas in Saigon South, but we have also seen the emergence of District 9 as a thriving residential area. For young middle class families, the prospect of being able to own a townhouse or villa in such areas is very attractive and developers are now offering gated communities with all of the facilities and security that is on offer in a high quality apartment complex.

Demand for residential products in Vietnam has expanded and become increasingly sophisticated in the last 10 years. 2008 was a time where the market was growing at an alarmingly high rate; transactions were largely originated from speculation. Buyers and investors hardly took into account factors such as product design and construction quality, facilities, surrounding amenities and infrastructures before making a purchase. Now that has changed." - (Neil MacGregor - Managing Director Savills Vietnam)

“Coastal cities like Da Nang, Nha Trang saw impressive growth of residential markets. Da Nang for example developed away from just a high-end tourist destination into a commercial city with large hospitality component. 10 years ago, Da Nang with only luxurious developments such as Nam Hai, Hyatt Regency was a market for Ha Noi buyers mostly. Now this residential market features a wider range of different products at a wider range of price, from mid – to high – end condominiums to integrated resorts with second – home villas and new products like condotels and shophouses. Demand has also expanded to include local buyers in Da Nang and foreigners, especially those from Hong Kong, Korea, China, Taiwan and Singapore due to the growth of international tourism. For such a rapidly changing property market, there is a certain level of risk for investors but also huge opportunities.” - (Matthew Powell - Director Savills Ha Noi)

“Vietnam residential market, though only started to develop in recent years, has been growing whilst maturing steadily. This is most clearly showcased in the high end of the market. What has been observed in Hanoi market is that the customers are becoming increasingly knowledgeable. Beyond sales incentives, they now look at value creating factors such as the reputation of the developer, track record of design, construction and property management, as well as the value offered by add – ons such as facilities compared to the product price etc. This explains why different developments in the same neighborhood or on the same road could perform very differently. This is actually the market’s response to the developer’s effort in creating the residential product. Projects with thoughtful planning and design that consider end – users’ appeal to buyers and investors and are performing well. On the other hand, projects where the developers put their benefit before the quality of product design, construction and property management soon reveal their drawbacks and under-perform. This refining process demonstrates the maturity of the residential market toward sustainability. Having said that, there is plenty of room for further development, for example improving supply of affordable housing products in terms of both quantity and quality to match a significant demand in the market or introduction of new high – end products with unique features to differentiate the products in a currently large pool of supply.” - (Duong Duc Hien - Director of Residential Sales, Savills Ha Noi)

"As demand is less speculative and more housing need – originated, the market has shifted toward sustainable growth. The fact that customers has become more demanding, forced developers to upgrade supply with well – planned developments featuring new products with unique selling points and facilities designed for end users. The last 10 years has been a learning curve for developers with lessons from more developed residential markets. It has also been a market filter where the survivors are the most professional, resourceful and credible developers. Investment vision in the market has changed where the developers are now pursuing long – term value in their products to uphold their reputation instead of making quick cash. Changes in residential taste have greatly influenced urban planning. If 10 years ago urban population was spread out of the city center to projects all over new areas, residential developments are now concentrated around social infrastructures such as hospitals, schools, universities, parks, or public transportation. While urban transport remains inconvenient, customers will always value the accessibility of the residential products to surrounding amenities for the occupiers’ needs, whether it is occupying, studying, working, shopping and entertainment or healthcare.

Ten years ago apartment was not a popular product. But today it has become a residential trend, well – received by a new generation of buyers who are after an active, modern and convenient living environment with easily accessed facilities." - (Do Thi Thu Hang- Associate Director - Head of Research and Consultancy Savills Ha Noi)

"Leading this trend is HCMC market where the apartment sector has been developing strongly in the last 10 years in terms of quantity and quality. Despite the downturn in 2008 – 2010 due to global economic recession, the market has recovered and showcased impressive growth in the last 5 years. Apartment was a game changer and has been leading HCMC residential market in recent years. Supply has consistently increased and improved since 2013 at the average growth of 35% per annum. The sector has drawn significant flows of foreign investment; and the participation of international developers from countries such as Korea, Japan, and Singapore has raised the bar of product quality and created a competitive market. Meanwhile, demand has also increased significantly with average absorption rate of 70% per annum from 2013 to 2017. Residential products have diversified to match a wide variety of buyers and purposes, whether it is occupying or buying - to- let." - (Vo Thi Khanh Trang - Head of Research and Consultancy, Savills Ha Noi)

"Residential products have always been one of the favourable investment assets for both individual and corporate investors. For individual investors, residential products are considered a saving account, expected to bring higher capital value in the long – term due to limited supply of land. This is also more of a familiar asset than gold, securities and foreign currencies. For corporate investors, residential de- velopments are also an attractive investment asset as housing demand in Vietnam is enormous. Our population is young and expanding at a significant rate, especially at large cities due to immigration. Unlike 10, 20 years ago where multiple generations live under one roof, young generation these days prefer moving out, creating an even greater residential demand, driving outbound and in- bound investment flows to this sector. In addition, in comparison with other investment assets, residential projects usually provide quicker capital recovery than commercial ones, thus preferred. The introduction of a large number of residential developments caused a burden on urban infrastructures and transportation but at the same time stimulated the development of new residential products like apartment due to limited land supply. Overall, the development of Vietnam residential market implies a more evident investment relationship between developers, investors and buyers in recent years.

Investment activities are one of the factors that shaped the residential market in the last 10 years. As the average income increased and basic needs like food and clothes have been met, people start- ed to pay more attention to their shelter or housing need." - (Su Ngoc Khuong - Director of Investment, Savills Vietnam)

"In the last 10 years, the development of Vietnam property market and the facilitation of legal framework have put residential products on international buyers’ radar. Previously foreigners’ demand and interest in the residential market was limited as the purchase procedures created barriers and the quality of supply did not meet their expectation. Renting was a preferable option to buying.

However, as Vietnam economy grew and foreign investment was encouraged through new policies, the number of expatriates in Vietnam increased, which translated to larger housing demand from foreigners, especially in large cities. Supply since then has been upgraded with new residential products, new designs and facilities specifically targeted at foreign users. Most importantly, flexibility and clarity in transaction process and procedures and the accommodation of policies have facilitated foreigners’ demand. The Amended Housing law which allows foreign ownership of residential products in Vietnam since 1/7/2015 opened the market to international buyers and investors and thus stimulated further growth of Vietnam residential market in the last 3 years." - (Nguyen Khanh Duy - Director of Residential Sales, Savills HCMC)

(Savills Vietnam - Residential Portfolio 1H2018)