Property remains safe haven in short term: Savills Vietnam
A good macro-economy has supported positive domestic growth and FDI continues strongly.
It’s been a very healthy start to 2018 with solid performance across all asset classes and property will remain a safe haven throughout the short term, said Troy Griffiths, deputy managing director, Savills Vietnam.
True demand from foreign investors
Foreign investors remain strongly interested in the Vietnamese property market. Historical quantitative easing (QE) environment has meant that returns throughout the region have been very low. As QE eases then it may be that emerging markets come under some pressure, particularly currencies. Property will remain a safe haven throughout the short term.
We can see that M&A activity across the region has been pretty hectic. The listed market has been particularly active with over US$1 billion IPO’d in the first quarter of 2018. Whilst the HOSE index has recently taken a breather there is still a strong pipeline of property listings to come in the near term. Historically there have been very few listed property stocks. Whilst they bring much needed liquidity for investors, there has been a massive distrust in valuations. Good governance, progressive accounting standards and a maturing stock market will find broad appeal for foreign investors, in listed property stocks.
Overall Vietnamese property returns are generally higher than regional peers. Rental yields across most asset classes are reasonable and with capital gain factored in, then total returns are competitively high. With “country risk” rapidly diminishing then foreign capital is being lured to Vietnam.
Vietnam is well positioned to leapfrog traditional markets through Financial Technology platforms that could have great benefit to property markets. Without legacy systems and with a young, savvy and ambitious start up culture then the opportunities to embrace technologic advancement are strong. The government has a raft of initiatives, decrees and circulars to support this, however the competition from regional peers is immense.
It will be interesting to see the regions reaction to the QE easing and Fed interest rate rises, off the back of the improvement in the American economy. This has the potential to push capital into property. Of greater local interest is the strength of the Vietnamese domestic economy continuing to support demand for particularly residential product, that in turn fuels much of the broader economy. Good governance seems set to continue promoting better and more effective business and foreign trade that will assist the commercial sectors. In the greatest age of domestic travel, then hospitality projects will continue to do well.
Domination of residential market
From 2013 to 2017, the Ho Chi Minh City apartment market saw an average increase in apartment prices of around 9% pa. High urbanization rates and infrastructure development in Ho Chi Minh City strongly contributed to the overall improvement. Government policies have also led to a steady supply of apartments and hence a relatively stable market without any significant oversupply.
The strong residential demand will likely continue throughout the rest of 2018, particularly at the more affordable end of the market from genuine owner occupier demand. Strong new supply will come online across all grades and capture the demand of all purchaser pools. Apartment prices in Ho Chi Minh City are generally still lower than regional peers such as Kuala Lumpur and Bangkok, despite much stronger growth rates in Ho Chi Minh City when compared with these markets. In 2017, Ho Chi Minh City high-end apartment prices were around 90% of that in Kuala Lumpur and around 20% of Singapore.
The average price across the broader market is expected to continue to increase but at a slower pace, with price increases linked to better development standards and continued strong residential demand driven by urbanization, the rapid growth of the middle class, as well as new infrastructure.
Troy Griffiths, deputy managing director, Savills Vietnam.
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Foreign investors remain strongly interested in the Vietnamese property market. Historical quantitative easing (QE) environment has meant that returns throughout the region have been very low. As QE eases then it may be that emerging markets come under some pressure, particularly currencies. Property will remain a safe haven throughout the short term.
We can see that M&A activity across the region has been pretty hectic. The listed market has been particularly active with over US$1 billion IPO’d in the first quarter of 2018. Whilst the HOSE index has recently taken a breather there is still a strong pipeline of property listings to come in the near term. Historically there have been very few listed property stocks. Whilst they bring much needed liquidity for investors, there has been a massive distrust in valuations. Good governance, progressive accounting standards and a maturing stock market will find broad appeal for foreign investors, in listed property stocks.
Overall Vietnamese property returns are generally higher than regional peers. Rental yields across most asset classes are reasonable and with capital gain factored in, then total returns are competitively high. With “country risk” rapidly diminishing then foreign capital is being lured to Vietnam.
Vietnam is well positioned to leapfrog traditional markets through Financial Technology platforms that could have great benefit to property markets. Without legacy systems and with a young, savvy and ambitious start up culture then the opportunities to embrace technologic advancement are strong. The government has a raft of initiatives, decrees and circulars to support this, however the competition from regional peers is immense.
It will be interesting to see the regions reaction to the QE easing and Fed interest rate rises, off the back of the improvement in the American economy. This has the potential to push capital into property. Of greater local interest is the strength of the Vietnamese domestic economy continuing to support demand for particularly residential product, that in turn fuels much of the broader economy. Good governance seems set to continue promoting better and more effective business and foreign trade that will assist the commercial sectors. In the greatest age of domestic travel, then hospitality projects will continue to do well.
Domination of residential market
From 2013 to 2017, the Ho Chi Minh City apartment market saw an average increase in apartment prices of around 9% pa. High urbanization rates and infrastructure development in Ho Chi Minh City strongly contributed to the overall improvement. Government policies have also led to a steady supply of apartments and hence a relatively stable market without any significant oversupply.
The strong residential demand will likely continue throughout the rest of 2018, particularly at the more affordable end of the market from genuine owner occupier demand. Strong new supply will come online across all grades and capture the demand of all purchaser pools. Apartment prices in Ho Chi Minh City are generally still lower than regional peers such as Kuala Lumpur and Bangkok, despite much stronger growth rates in Ho Chi Minh City when compared with these markets. In 2017, Ho Chi Minh City high-end apartment prices were around 90% of that in Kuala Lumpur and around 20% of Singapore.
The average price across the broader market is expected to continue to increase but at a slower pace, with price increases linked to better development standards and continued strong residential demand driven by urbanization, the rapid growth of the middle class, as well as new infrastructure.
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