Policies taking shape for real estate market overhaul

People who want to have a home right away are hunting for suitable products. Real demand (not investment or speculation) is said to be a bright spot to remove difficulties, so investors need to restructure debt and sales policy, and focus all activities on serving customers.

To activate cash flow from real buyers, real estate prices need to decrease further. In the short term, prices of some segments in some areas may still level off, and owners who are under pressure of high-interest rates for a long time are forced to sell. This is also the time when the market is attractive enough to activate the bottom-catching cash flow, bring new liquidity, and clear the congested capital flow in the market.

Condominiums are a prominent type of real estate to serve real housing needs. The price level of apartments is still increasing in Hanoi, but are almost flat in Ho Chi Minh City. The latest data shows the demand for apartments in Ho Chi Minh City increased steadily, but sale announcement numbers were almost flat over the whole year.

Meanwhile, in Hanoi, except for the affordable apartment segment, whose asking price only increased by 2 per cent, the mid- and high-end apartment segment had a price increase of 7-13 per cent compared to the beginning of the year.

A recalibration of the global real estate market is underway, and the stabilisation may take hold by mid-2023. The velocity and timing of this stabilisation, repricing, and recovery will differ across markets and sectors, resulting in different types of opportunities.

Foreign investors, on the one hand, are shifting to defensive strategies due to concerns of inflation, interest rates, increased construction costs, and higher asset operation costs.

On the other hand, they are taking this slowdown to ramp up their portfolios, eyeing assets in industrial, office, residential, and retail segments as well as some hospitality properties in Vietnam.

With local developers, we expect the restructuring and merger activities to continue in the coming months. Most importantly, real estate businesses are keenly observing the adjustments in the country’s laws and regulations in the coming time. It is now the time for the Vietnamese real estate market to transition to a more sustainable developmental model, benefiting multiple sectors and generating positive values for the economy in the long run.

There is absolutely a basis to expect a recovery of the real estate market in 2023. The government has made very drastic moves and directed strongly to stabilise the real estate market and create all conditions to help the real estate market develop stably and sustainably. The government has established a working group to study and propose solutions with ministries and local authorities, and will review and work with localities, projects, and investors to remove bottlenecks. With a series of measures the government has introduced, although all are being implemented urgently, it still needs time to come to life. I expect that with specific solutions, the real estate market will operate stably until the first or the second quarter.

In addition, investors of projects themselves also have to restructure their operation, customer segments, products, prices, payment terms, and methods which are most suitable to end-users.

The mild recession in the last quarter of 2022 will continue into the first quarter of 2023. Vietnam has gone through four real estate cycles, Cushman & Wakefield anticipate that the real estate industry will go through the current economic downturn more quickly than in previous crises, allowing for recovery in the real estate market in the second half of 2023.

In the process of working with domestic and foreign investors, we have noticed there is a still strong demand for residential, industrial, retail and logistics.

The major office-based organisations appear to be especially reticent about the hybrid workplace strategy and are taking more time to properly understand its impact on the organisation. Next year, we estimated about 140,000 square metres of new office space in Grade A & B in Ho Chi Minh City will enter the market and this is anticipated to ease tension on rents and supply.

The government is focusing on regulating middle renting and encouraging home ownership in combination with a strong push for social housing. Increasing housing stock in the middle and lower-end sectors should promote flow and be a crucial link in the housing stock between social rented and owner-occupied housing. Therefore, even in 2023, we expect the housing market to remain under tension.

Despite an uncertain economic outlook, retailers continue to seek new physical retail space on sought-after high streets. Investor portfolios are being optimised through relocation and consolidation. This leads to a relatively stable retail rent level, especially in larger shopping cities.

The demand for logistics real estate has remained high, despite the current tight market situation and the restrictions on new project developments due to the shortage of plots, building materials and administrative support. In 2023, we forecast that the industrial sector will become the next market leader.

The property market has always been attractive to foreign investors due to Vietnam’s vibrant, thriving economy and increasing wealth of the population. The laws on land and residential housing issued in 2013 and 2014 respectively are among the main laws applicable to the property market. However, due to certain restrictions in the legal framework, foreign funding in Vietnam’s property market has not reached the level expected by authorities.

Without any significant changes in the aforementioned laws, foreign buyers will face the same restrictions in investing in property in Vietnam. This would include the uncertainty in being able to remit sale proceeds offshore, the inability to purchase numerous residential properties in one area, limited rights and more difficulty in obtaining a property ownership certificate compared to local buyers, and only being entitled to own residential housing but not land use rights.

If these questions have not been met, many potential interested parties will be discouraged from entering the Vietnamese market. We will likely not see a significant increase in investment in Vietnam’s residential housing market. Adding the current instability of the global economy into the mix, without strong incentives and increased certainty in the legal framework, foreigners are even less likely to purchase properties outside their home countries unless it is for relocation or immigration purposes.

The state’s tightening of credit and increasing bank interest rates will affect all industries, including production, business, services, construction, and more. In addition, the real estate market has faced legal difficulties for many years.

In order for the market to recover strongly, it is necessary to have legal support in project development. We hope that in the near future, these bottlenecks will soon be removed to create a healthier and more favourable business environment for investors as well as solve the housing problem for the majority of people, helping them to access their dream of owning a house at a more reasonable price.

Vietnam’s economy will also be greatly affected by the effects of fluctuations in the world such as inflation, exchange rates between foreign currencies, and the scarcity of petroleum and political and social unrest in many countries.

In this context, the real estate market also suffers from these economic impacts. Therefore, in 2023, the market will change quite cautiously. In terms of market liquidity, the residential segment will still maintain stably but limited supply and nearly zero of affordable and cheap products reported. Segments such as industrial and office real estate are still doing well and businesses will continue to have a need to expand.