Fresh trends to accumulate property in 2023

What outstanding features describe Vietnam’s real estate market in 2022?

Trang Le, head of Research and Consulting at JLL Vietnam

First, legal challenges have hindered the development of projects. Due to legal issues, the shrinking supply has been lingering since the end of 2018. Supply continues to decline due to the impact of the pandemic.

In light of the scarce supply, the selling prices continue to increase rapidly amid the positive demand. Many businesses continuously encounter legal problems related to investment procedures and project implementation, especially the approval of investment policies and procedures for land allocation and land use fees.

These challenges have prolonged the time to complete administrative procedures by 3-5 years, wasting investment opportunities and increasing business operating costs.

Secondly, the price level also went up due to a lack of supply. This is partially because the projects up for sale are mostly in the luxury or ultra-luxury class. The disparity between price and income and spending power becomes more obvious. The market is dominated by high-end homes, while there is a severe lack of housing for low- and middle-income families. Real estate prices have continued to rise above their true value due to speculation and positive sentiment in the market.

The next aspect is the trend of developing bigger projects in neighbouring provinces. Due to the lack of land reserves in the major cities, investors have changed their strategies to develop property projects in satellite cities and provinces.

In particular, the investment in new infrastructure projects like belt roads and expressways has benefited the development of projects in the surrounding areas. Along with moving projects to neighbouring provinces, investors have a tendency to develop bigger projects with myriad amenities to make up for the lack of public facilities in the new areas.

The large new supply in areas with reasonable prices is expected to attract the attention of investors. The projects will be strong competitors for future projects in the main cities.

Another factor is the trend towards green real estate investment. The green real estate model is gradually gaining traction amid the sustainable investment trend, as it has the potential of increasing prices in the long term. With regards to real estate for sale, such as houses, investors will prioritise projects that focus on developing green buildings, amenities, and human health.

Meanwhile, for real estate for rent such as offices, commercial centres, or industrial parks, investors also pay special attention to improving the value of projects through obtaining international environmental certificates in design and construction.

Finally, the capital flow restrictions pose potential risks. Many real estate enterprises encountered difficulties obtaining financing for projects in the second half of the year as a result of efforts to tighten capital in all three markets – credit, bonds, and stocks – as well as the State Bank of Vietnam’s strategy of rising interest rates.

Additionally, it might be challenging for homebuyers to access loans to invest in products that match their needs. Thus, market liquidity progressively declined and became lull in the second part of the year.

How do you see the development trends of Vietnam’s real estate market 2023, and what are some possible scenarios?

As the market remain subdued, the real estate development trend in 2023 will depend on the removal and improvement of three key factors as follows: credit, new legal framework, and inspection.

In a positive scenario, the most optimistic prospect for the real estate market is that the state begins to made adjustment and offer incentives from the beginning of 2023. Accordingly, the government will direct credit capital flow in the market so that investors will soon have funding to develop their projects. The legal framework was soon synchronised to remove bottlenecks. This not only speeds up the progress of the projects but also eradicate weak projects and investors.

The government has clear orientations and solutions for handling violent cases in investment and development processes, like fraud projects or speculation that pushes prices to manipulate the market, thereby creating a transparent environment. This could happen between mid- and late-2023, when policies begin to have a rapid positive impact on market development.

In a neutral scenario, the market will continue to gradually adjust to its true value in the absence of additional negative effects from unexpected macro-factors. Legal policies will be approved by the end of 2023. Solutions to support bank capital and government inspection are gradually implemented, and the market recovers slowly and starts to prosper from the beginning of 2024.

In the negative scenario, the real estate market will become quieter and more difficult throughout 2023 if the government delays in issuing guidance documents or the proposed policies to stimulate the positive development of the market. In this case, the market is likely to recover in the second half of 2024. A delayed recovery could lead to a liquidity crisis in the real estate market and a heavy impact on supply and demand.

Experts say that the prices of many real estate products are getting cheaper. Is this a golden opportunity for investors to have the resources to accumulate good products at cheap prices?

Investors prefer buying cheap products this time because the prices reflect the true value of a quiet market. However, investors need to be very cautious. A cheap product is only a good investment opportunity when the transaction value in the market is lower than the intrinsic value that the product brings.

Investors should prioritise projects developed by reputable investors with well-organised construction planning, complete legality, a schedule for handover, and a reasonable price.

The desire to find bargains drives the market trend of accumulating products. With this mindset, investors are more likely to fall prey to virtual advertising information from high-risk projects, where developers offer discounts of up to 40-50 per cent.

Therefore, at any time, investors also need to be very alert and carefully learn and evaluate product quality before making investment decisions.

Will there be new trends for real estate assets, and which segment could attract the most investment?

Based on the assessment of market recovery scenarios for 2023, I think that investors are looking for projects with a view to avoid risks and protect cash flow. In this difficult time, the investment trend will shift to the longer term to generate profits within the next 3-5 years, instead of speculative investments. Therefore, projects by reputable developers with a focus on construction quality and legal transparency will obviously be safe havens for investors.

Besides safety, investors will also consider the possibility of generating sustainable cash flow from the projects. Accordingly, the projects are situated in a convenient location with modern amenities and landscapes to meet the genuine needs of residents. This will attract the attention of both investors and buyers. This will create a good opportunity for the property in terms of leasing, trading, generating cash flow, and improving liquidity.

The next year or so could be a good time for investors holding cash to access well-priced real estate after a long period of strong market development and high prices. However, it is necessary to consider carefully the internal factors and sustainability of the project in the medium and long term before making investment decisions.

Hanoi among the 10 most costly capitals for real estate Vietnam is among the 10 countries where capital-city real estate values are highest in relation to income, taking almost 45 years to purchase a home.

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