Getting real about Vietnam’s real estate
However, with many initiatives to address the market waiting in the wings, developers and consultants are still positive for a better year. Bich Ngoc talks with them about challenges and opportunities they may face in 2013.
Robert Johnston, national head, commercial agency, Cushman & Wakefield Vietnam.
2012 was a difficult year for Vietnam’s economy and real estate was no exception. The downward trend experienced in recent years continued to fall across all sectors including residential, office, retail and industrial assets.
C&W anticipates the bottom of the market during the first half of 2013, with a modest recovery during the second quarter of 2013.
In effect, 2013 will be the base year for a slow market recovery. Office supply continues to outstrip demand causing increasing vacancy rates and low levels of take-up due to declining levels of foreign direct investment (FDI).
Therefore, developers must differentiate their product offerings to better serve their buyers or tenants in this challenging environment.
It’s important to note that not all sectors of the market are in decline, for example industries such as professional services, pharmaceutical and Fast Moving Consumer Goods are generally increasing in output volumes and headcount growth. This trend has been reflected in transactions completed by Cushman & Wakefield Vietnam during 2012.
It’s encouraging to see the monetary initiatives taken by the government in an attempt to stabilise the economy. Inflation is in decline along with the devaluation of the Vietnam dong. These initiatives are imperative for the economy to bounce back from their current economic difficulties.
The outlook remains gloomy in the medium term and only the well capitalised opportunistic investors who are not averse to risk and have a good understanding of market fundamentals will make substantial investments during 2013. Capital values are expected to show steady declines on secondary grade B office or mixed use investment sales. Yields and in turn values on prime grade A will likely show some signs of softening during 2013.
Nguyen Duc Ngoc, director of sales and marketing of The Costa Nha Trang
I personally think that the real estate market in 2013 still contains challenges and opportunities for both demand and supply sides.
Developers who cannot find out capital for implementing their projects will be kicked out of the market. Meanwhile, projects which are on finishing process will be attractive to most customers based on their reality.
This year, I think would be the last chance for customers and speculators to buy products at the lowest price. Meanwhile, foreign developers will increase investment in service and commercial residential accommodation and vacation properties. I expect that the FDI will sharply increase and there will be more and more mammoth M&A cases this year.
The behaviour of the customers has been changed from “wait and see” to “choose and buy”. The price of high-end accommodation is becoming stable and on the trend of increasing for products in finishing process, preferred location, of high quality and clear legal status. Especially products which can be leased or have a more stable return on investment than the bank’s interest rate will be well consumed by the customers.
Meanwhile, domestic developers are shifting to mid and lower-end accommodation where a real demand exists now. However, due to this shifting in large scale in the next one to three years there will be tougher competition in this sector.
The government has issued many solutions to help the market resume its liquidation in real estate and the whole economy. Bank interest rates are decreasing and becoming more stable then people can have more opportunities to buy accommodation.
A large volume of cash will be shifted from saving accounts to the investment of real estate products due to the sector is expected to bring about higher benefit than saving into banks.
Alex Loh, chief representative of SP Setia
2013 is expected to be yet another ‘choppy waters’ year as Vietnam cruises onward and forward towards recovery. We’ll all need to think on our feet as we respond to market conditions and government policies and directions.
Both our present projects, Eco Lakes and Eco Xuan are on-going. We’ll continue to selectively launch more landed row and semi-detached homes at Eco Lakes and Eco Xuan in quantums responding to market requirements in 2013.
We firmly believe there is a market for well built houses within a planned and landscaped environment. Despite the worrisome inventory in both Ho Chi Minh City and Hanoi that needs to be cleared, there will be market segments that need a certain category of homes.
Our focus will be on landed properties, a type of development that represents our core business and is the very foundation on which increasingly global Setia was built on.
We have one team each in Ho Chi Minh City and Hanoi dedicated to seeking out property deals and real estate development partners. Clearly, we have appetite for further investment here in Vietnam. The issue is to be able to land a project that fits our investment criteria.
Whether or not, we will be able to happily announce a deal in 2013 will depend on a series of factors. These would range from workable valuations and market conditions to the general direction the Vietnamese economy will take. Increasingly, the FDI dollar is getting more and more competitive.
Here in Vietnam, one has to look harder to find good value against a backdrop of a challenged property market that is finding a recovery route and an economy that whilst may have tackled inflation is still burdened with the non-performing loans, low productivity and state-owned enterprise issues.
Stephen Wyatt, country director of Knight Frank Vietnam
We are certain 2013 will see an increased number of M&A activities compared to 2012.
Despite difficult market conditions in recent times, many foreign investors still believe there is a huge upside when investing in Vietnam, whilst we still believe there is some further pain to come in the property market, the clever investors are sensing now is the time to look for good opportunities and we expect 2013 will be a year when FDI and M&A activity reverses the trend of the previous years and starts to show an improvement. Many foreign investors are looking at Vietnam, as they believe the property market is reaching the bottom, so professional investors can sense an opportunity to buy distressed assets.
There are a number of key investment criteria that most foreign investors will consider before making an investment in Vietnam. First and foremost many have studied the market for a considerable time and sought detailed market research from professional consultancy companies. All international investors will want 100 per cent clarity on the legal structure of the investment product they are investing in, to ensure that it is clean.
Track record and financial capability of both partners is very important. This is a long term investment, therefore, both parties have to feel very confident they will have a long term working relationship and trust each other. Many foreign investors undertake expensive and sometimes time-consuming due diligence, this can frustrate the local partner.
Lastly and the main reason that the majority of M&A deals with foreign investors do not happen is unrealistic quoting prices and deal structures. Foreign investors carry out detailed feasibility studies and cash flows to ensure that they see a return on their investment. If the rate of return on their investment falls below a certain percentage they will not invest.