Real estate investors should be looking at new frontiers these days. Away from the doom and gloom of established property markets, which are suffering from today’s crises, lack of occupier’s demand, adverse yield shifts and price drops in general. Although some of the ‘established’ markets may have hit rock bottom (or maybe not yet, even), some less established markets now prove to be more resilient. Vietnam is a very good example of a property market that is finding its way up again, after is has been overheated and subsequently collapsed.
Last year, the Vietnamese property market was hit hard by restictive lending policies, sky-high inflation and interest rates and skyrocketing prices – due to high speculative demand – and their subsequent downturn. Now that prices have come down to more realistic levels and banks are starting to come back to the play, the key elements of Vietnam’s healthy market remain intact, which make good sense for investors to turn to Vietnam:
– Significant shortage of residential, retail, office and hotel properties;
– Relatively high economic growth rates;
– Substantial growth of foreign direct investments (FDI);
– Popular tourist destination;
– Young, growing, entrepreneurial and consumption oriented population of 85m;
– New government policies to attract foreign investors and companies have come into effect;
B. Hawkins Pham, of Indochine Land says:
Vietnam’s property market was never gone – it has simply matured, and capital values have recalibrated after the exit of speculative investors. The real estate market continues to be characterized by the dramatic imbalance between supply and demand. Across all grades, there is a significant shortage of residential, retail, office and hotel properties, and the high rental rates and low vacancy rates throughout the country are indicative of this lack of inventory.
Interestingly enough, the market demand not only improves in the residential sector (where apartments have become significantly cheaper over the past year), but across the board: retail, offices and hotels alike.
This demand, combined with decreasing prices for construction material and lowering interest rates, provides an interesting angle for investors looking for opportunities and willing to take up some country-specific exposure:
Compared to other Asian countries, Vietnam’s property market is in its infancy. For instance, the SM Mall of Asia in the Philippines provides more square meters of retail space than all the department stores and retail centers in Hanoi and HCM City [Saigon] combined. As Vietnam’s economy grows and its young population matures, the need for quality world-class real estate properties will increase. Yet, Vietnam’s real advantage from a long-term growth perspective is its stable political regime and young hard-working population. Compared to countries like Thailand, these soft advantages make Vietnam a safe haven for investors seeking stability. Additionally, the lack of significant financial integration and generally lower leveraging rates afford Vietnam a degree of insulation from the direct transmission of the financial crisis.
Yes, it sounds like an advert from Indochine Land or from the Vietnamese government for that matter, and to a certain extend it is. However, I believe the essence to be correct: the Vietnamese property market now offers excellent momentum to benefit from recovery and further evolution, fueled by the country’s economic upswing and resilience.
On A Peppercorn 