Vietnam ResidentialAsian Cities Report – 1H 2019

REPORT

Savills Research

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Vietnam Residential

Vietnam’s residential market momentum derives from a strong economic outlook and golden demographics

OVERVIEWWith ASEAN’s third largest population of over 94 million people but the region’s lowest urbanisation ratio of 36% (2018), Vietnam and its property market have the potential to surpass regional peers. The two main cities, Hanoi and HCMC, are undergoing dynamic transformations and attracting high levels of FDI and waves of new investment. Momentum in Vietnam’s residential market derives from the country’s golden demographics, ongoing structural changes and a positive economic outlook.

As the economic hubs of Vietnam, HCMC and Hanoi drive national fiscal growth as well as real estate performance. The two cities account for 17% of Vietnam’s total inhabitants, whilst its urbanisation rates are the highest among ASEAN countries. Strong population growth in urban areas has created robust demand for new projects whilst shrinking home occupancy and a surge in the number of single households supports new household formation. The majority of new supply comprises lower grade apartments, directly correlating with demographics and macro fundamentals.

KEY CITIES SNAPSHOTFrom 2014 to 2018, substantial sales increases occurred in both major cities. In HCMC, transactions have risen 44% per annum (pa) for the last five years, peaking in 2018 with over 49,000 sales. The absorption rate recently hit its highest level for the last five years, topping out at 87%. Growth is particularly evident in the affordable housing segment, or Grade C standard, which was the primary market driver from 2014 to 2018, accounting for 60% of total transactions. With a lot of supply in the pipeline, this segment is expected to remain the market leader.

In 2018, home sales in Hanoi increased 20% year-on-year (YoY). The mid-end segment, or Grade B standard, accounted for 61% of total transactions. From 2014 to 2018, Grade B represented 43-61% of sales, whilst Grade C accounted for 31% of the market, up 6% YoY. Grade A supplied 8% due to a combination of high selling prices and limited new supply.

The performance of the high-end segment (Grade A) has improved over the last three years, attracting local and foreign investors with competitive pricing and appealing rental yields. The increasing number of domestic High Net-Worth Individuals (HNWI) and a burgeoning middle class are proof of the potential for high-end, luxury property sales, whilst relaxed foreign ownership policies have attracted international purchasers. In 2018, Hanoi and HCMC enjoyed a

GRAPH 1: HCMC And Hanoi Population, 2017 and 2020E

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HCMC Hanoi HCMC Hanoi

2017 2020E

Population (LHS) YoY Growth (RHS)

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Source : Provincial Statistical Office

GRAPH 2: HCMC Apartment Market, 2014 to 2018

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2014 2015 2016 2017 2018

Grade A Sales Grade B SalesGrade C Sales Grade C Share (RHS)

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. OF

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Source Savills Research & Consultancy

2014 2015 2016 2017 2018

HCMC

Grade A

No. of Sales

391 677 1,710 1,283 1,803

Grade B 4,054 11,206 14,224 17,266 18,280

Grade C 7,124 10,291 15,038 28,920 29,000

Grade C Share % 62 46 49 61 59

Hanoi

Grade A

No. of Sales

448 380 1,875 5,676 2,531

Grade B 5,926 12,157 13,796 11,039 19,040

Grade C 5,099 10,792 8215 8,985 9,521

Grade B Share % 52 52 58 43 61

TABLE 1: HCMC and Hanoi Apartment Market, 2014 to 2018

Source Savills Research & Consultancy

GRAPH 3: Hanoi Apartment Market, 2014 to 2018

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2014 2015 2016 2017 2018

Grade A Sales Grade B SalesGrade C Sales Grade B Share (RHS)

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LES

Source Savills Research & Consultancy

4

Vietnam Residential

high level of demand from international buyers; the majority of Grade A projects quickly filled the pre-determined foreigner quota of 30% during their launches.

BUYER PROFILEPurchasers in Ho Chi Minh City and Hanoi have a similar profile. Occupiers/end-users tend to dominate Grade C, whilst Grade B attracts upgraders and buy-to-let investors. The majority of Grade A buyers are long-term investors.

The large proportion of end-users reflects the healthy growth of the residential market. Currently, capital comes mostly from equity due to relatively high lending rates and low mortgage affordability; the government continues to control credit growth via multiple monetary policies.

PRICE TRENDSIn 2018, the average selling price in HCMC was US$1,600 per sq m, rising by 10% pa over the last five years due to a price surge across all grades. Grade A experienced the highest price rise as it provided new supply with high development standards; Grade B and Grade C also grew, albeit at a slower pace.

Hanoi’s average asking price in 2018 stood at US$1,300 per sq m, up slightly 1% YoY; Grade A saw the largest increase. Due to abundant Grade B supply, developers offered competitive prices in order to maintain sales. Grade C transactions grew due to the increased demand for affordable housing, with

developers providing flexible payment terms, discounts and promotion programs to capture buyers’ interest.

OUTLOOKAn optimistic economic outlook, high levels of FDI and suitable monetary policies ensure that growth in Vietnam’s property market will continue, whilst increased supply is projected in key cities to meet demand. Until 2020, the majority of stock in HCMC will be Grade C; in Hanoi, Grade B is expected to dominate.

High-rise residential development has been the main driver of the market. HCMC and Hanoi are undergoing a dynamic transformation to catch

up with regional peers.

GRAPH 4: Buyer Profile

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Grade C

Grade B

Grade A

Grade C

Grade B

Grade A

HC

MC

Han

oi

Investors Occupiers Speculators

Source Savills Research & Consultancy

GRAPH 5: Price Trends, 2014 to 2018

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2014 2015 2016 2017 2018

Average Price HCMC Average Price Hanoi

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$ P

ER

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M

Source Savills Research & Consultancy

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