Prior to the Global Financial Crisis, Vietnam was an up-and-coming property market. Since the global financial crisis hit in 2008, the Vietnam property market has been going through a long cold winter. Property prices in the 2 biggest cities, Hanoi and Ho Chi Minh City, have dropped by approximately 30% since its peak in 2011Q1. The property price index has been on a downward trend for 8 consecutive quarters (see Figure 1 and 2).
Figure 1: Property Price Index Hanoi
Figure 2: Property Price Index Ho Chi Minh City
Although developers started seeing some market activity in the last quarter of 2013, the movement was slow and volumes were modest – a far cry from the boom times. Some of these developers lament that during the property golden years of 2007 and 2008, eager buyers would arrive in droves and queue past midnight, just so they could make a deposit for a unit and be part of the action.
At present, fortunes are reversed. Buyers are now spoilt for choice and developers have to carry out promotional campaigns in order to attract potential buyers. The type of buyers entering the market now is also quite different. In the past, there were more investors. These days, most of the buyers are locals who are looking for a place to stay. Nonetheless, small units at affordable prices in acceptable locations will still attract some niche investor interest.
Is it a good time for foreign investors to enter the market?
Supply wise, more than 9,300 residential units were sold in 2013 for the 2 largest cities. This is an increase of about 20%, as compared to the previous year, 2012, where only 8,000 units were sold. Moving forward, more than 120,000 units are in the pipeline for the 2 cities as more than 170 projects have received state approval and started construction. Based on the absorption rate for the past few years, it is unlikely that the market can absorb the “tsunami” of units that is expected to come online.
Given the huge supply in these 2 cities, most Vietnam market stakeholders are of the view that prices will remain flat for the next 2 years. Even though buyers, who have been waiting on the sidelines, could start spending in 2014, prices are not expected to boom due to the excess supply.
In terms of monetary policy, the Vietnamese government has maintained a stable interest for Vietnamese buyers. Since July 2013, the lending interest rate for individual property purchasers is about 10-12% per annum. Putting things into context, in the past few years, interest rates in Vietnam were as high as 20% per annum at one point. Thus, providing a stable interest rate environment is one of the measures that the Vietnamese recently took to restore consumer confidence.
Admittedly, investment opportunities for foreigners in Vietnam are still limited due to the property ownership policies currently in place. While there have been attempts to open the market to overseas investors, there are constraints as to who qualifies to purchase a property. Specifically, the groups of foreigners who qualify include those making direct investments into the country, those holding managerial positions or special skills as well as those married to Vietnamese citizens.
In conclusion, the Vietnamese property market is largely focused on serving the domestic market. There is presently limited scope to what overseas investors can do. However, all these could change as the Vietnamese government is actively reviewing the foreign ownership regulations. In the past 6 months, there have been numerous discussions and some of the proposed changes include expanding the scope of ownership as well as the right for sales and purchase for foreigners.
At this point, it is still too early to say when these measures will come into force. However, investors can be sure that when it happens, it will be another boom time for the Vietnamese property market. And hopefully some of you will be there to go along for the ride.