Changes expected to lay ahead for real estate firms

Real estate developers must review their business strategy if they want to keep up with the opportunities set to come from the expected changes to the sector, according to industry insiders.


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Duong Duc Hien, Savills director of residential sales for North and Central Vietnam, said that 2018 saw many changes occur within the housing market in comparison to previous years.

The mid-end sector of the market enjoyed a strong performance, with Hanoi topping the list of providers. The villa, row-house, and shophouse sectors also made good progress, buoyed by the increasing demand for residence and investment opportunities from customers. 

Meanwhile, the first half of 2018 witnessed a massive yet short-term trend of land investment in the northern province of Bac Ninh and other coastal localities, including Nha Trang, Phu Quoc, Quang Ninh, and Danang. However, these trends quickly settled down.

As for resort projects, only a few were added to the total supply in 2018. This is largely due to interest in condotels, a “newcomer” in the market, cooling off in comparison with the two previous years.

The number of new resort properties launched for sale during 2018 decreased in comparison with that of 2017, thus forcing customers to shift their attention to other categories, including sea villas, sea-view apartments, and resort villas.

Nguyen Tran Nam, Chairman of the Vietnam National Real Estate Association (VNREA), said legal obstacles slowed growth in the resort property sector, though local demand in the sector remained consistently strong. 

Nam, who is a former Deputy Minister of Construction, has high hopes of strong growth for the resort sector following recent requirements set by the Government. Relevant ministries have been required to urgently set forth and issue standards and regulations regarding the management and grant of land use right certificates and ownership.

The resort sector will retain a bright outlook as it will be supported by the expected growth coming from the tourism sector in the years to come.

Driving force in the property market

According to the VNREA chairman, the local real estate market has made significant progress since its inception. Regarding housing, the sector has increased by an average of more than 70 million square meters of housing floor a year since 1999. It has to date had an estimated 2.1 billion square meters of housing floor, bringing the average housing area per capita from 9.7 square meters per person in 1999 to 23.7 square meters by mid-2018.

The local market will also be leveraged by the country’s population growth and tendency to produce nuclear families. Nam exemplified his point of view by pointing to statistics, the nation’s population currently amounts to some 96 million and is expected to soar to around 120 million in the coming years. 

The local urbanization rate jumped by 0.8% per year on average, from 21.7% in 1999 to 35.7% in 2017 while the annual urban population growth leaped by 2 - 3.4% on average.

Also of note is the size of homes, with many abodes getting smaller. By early 2018, Vietnam had about 25.5 million households. Of these, nuclear families (family units of two to four members) occupied some 65% while single-person households held only 8%. Despite only accounting for a small proportion, the percentage of single households has surged during the past five years.

These changes could drive real estate developers to rectify their business strategies and reform their products in conformity with local demand.

Alliance for change

During the medium to long-term, the local real estate market will remain steady. However, it is still going to pose a number of shortcomings. Capital for real estate projects remain a big problem, the VNREA chairman claimed.

Since 2017, the State Bank of Vietnam (SBV) has made bold moves to curb credit growth and restrict capital into high-risk markets like property or stock. 

The SBV’s Circular No. 19/2017/TT-NHNN and Circular No. 16/2018/TT-NHNN state that the ratio of short-term funds to be used for medium and long-term loans set for banks, foreign bank branches, and non-bank credit institutions will be gradually reduced.

From January 1 to December 31, 2018, the highest rate for banks and foreign bank branches was 45% and non-bank credit institutions with 90%. However, as of January 1, 2019, the ratio for banks and foreign bank branches drops to 40% while that of non-bank credit institutions remains unchanged.

The VNREA chairman underscored the credit limitation as challenges facing real estate enterprises when trying to access commercial loans.

While mobilizing capital from customers and the stock market, many firms in turn have managed to nurture relationships with foreign partners to jointly carry out their projects over the past two years, Nam noted.

Bureaucracy is another problem that hinders many developers from executing their real estate projects in major cities and provinces.

This has triggered a shift of real estate investments in provinces rolling out the red carpet, including Yen Bai, Binh Dinh, Ninh Thuan, and Phu Yen.

In fact, bureaucracy and subsequent administrative procedures have forced many investors to sell stalled property projects to new investors. This could open up a number of valuable opportunities for foreign firms with a proven track record and abundant financial capacity.

Hien from Savills Vietnam assumes that 2019 will be another good year for the middle-end property sector thanks to their reasonable prices. Additionally, bright prospects lay ahead for townhouses, row-houses or those with a close proximity to community facilities. 

The Savills analyst has predicted that no new models will be launched during 2019. Instead, adjustments will be made to upgrade some products in line with local and global market trends.

“For instance, three-bedroom apartments designed over 90 square meters will gradually vanish from the market while more and more apartments will be built with larger balconies and more natural lighting coming through the windows.”

Location will also be another consideration amid increasing infrastructure upgrades, Hien said. He added there is an obvious trend in developed countries where customers prefer to live in areas that are peaceful and have open spaces. They are willing to trade such factors off with a longer commute to work.

Hence, real estate developers should scrutinize the importance of location to their future real estate investments. Location may help, but it is likely not the decisive factor over the course of the next five to ten years.

VOV

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