Hot property report tempered with cooling talk

There is no escaping a dearth of top office space

PricewaterhouseCoopers and the Urban Land Institute’s Emerging Trends in Real Estate Asia-Pacific 2008 survey, lists Ho Chi Minh City in the top 10 locations for 2008, with overall investment ratings for all sectors to hit over 70 per cent.

Buying offices in the city received a 79.5 per cent rating, hotel/resorts (78.5 per cent), residential apartments (77.1 per cent), industrial/distribution (75 per cent) and retail (73.2 per cent).
The report said businesses in Ho Chi Minh City has been exposed to an office-for-lease shortage and rising rents. However, it is uncertain if the rate of supply will be able to match demand.

“Office occupancies in both cities have been effectively full at over 90-95 per cent for about five years so the demand from existing companies who need to expand coupled with the ever increasing demand from Vietnamese companies is now huge,” said Tony Milton, associate director of Citiplus Property Management & Consultant Corporation.

The report states that due to a general increase in sophistication, better availability of financing and improved regulatory environment, long-term urbanisation is expected to be one of the key drivers of the housing market.

David Fitzgerald, the report’s author, said: “The further development of apartments together with the enhanced availability of financing will be increasingly attractive and accessible to young people, which will lead to changes on the extended family structure that has been predominant up till now and will result in more apartment demand.”

However, Milton said as a majority of the population can not afford to buy houses in big cities because of low per capita income, developers should not just concentrate on building five-star products.
“Financing still doesn’t really exist since mortgages are mostly based on personal income and are also very expensive.”

However, regarding prospects for Ho Chi Minh City’s real estate market in 2008, industry experts interviewed showed interest in real estate activities. However, other respondents remain cautious, expressing a “too hot, too quick” perspective or warned of “price corrections” in the city and Hanoi.
The report said the tourism sector holds great potential in line with the increase in foreign visitors. The country has over 3,000 kilometres of tropical coastline and many recent investment projects have focused on the development of seaside resorts.

Milton said: “Four and five-star hotels must be in city centres. Beach resorts along the coast south of Thua Thien-Hue province to Phu Quoc Island, Halong, Dalat and Sapa will have potential for ‘grey’ tourism. Medical tourism is undeveloped, but will be probably best suited to beaches south of Thua Thien-Hue.”
Vietnam has enormous potential and is attracting significant interest from foreign investors. However, it also provided significant challenges in identifying and capitalising on investment opportunities, said the report.
“This is leading to delays in the plans of foreign investors to invest in Vietnam,” said Fitzgerald.

More foreign-invested enterprises could delay investments or defer them indefinitely, said Milton, adding that “one also needed to consider the very expensive cost of housing and school fees and the extremely difficult procedure to obtain a work permit and suddenly Vietnam looked less and less attractive to the type of small scale foreign entrepreneurial investors.”