Seeing brightness amid the gloom

Now can look back on what has been a tough 2011 for Ho Chi Minh City’s property industry. Economic conditions, both local and global have played a large part in causing the negativity surrounding the property market.

In particular inflationary pressures, restrictions on lending, high interest rates, concerns as to the stability of the dong, and supply for the large part outstripping demand are amongst the factors that have led to decreasing stakeholder confidence, causing many investors to remain on the sidelines.

Instead these conditions have seen many investors shy away from investment into property and move towards high yielding deposit accounts or the gold markets while the property and stock market underperform. Indeed last year saw many developers and investors stalling on the commencement and launching of property projects while the market remains slow.

However, although these challenges continue to be a reality for developers and investors in the short term, it is worth remembering that since the emergence of a liberal Vietnamese economy, the local property market has been characterised by short term ‘boom and doom’ cycles.  

Hotel and serviced apartments

The performance of both the serviced apartment and hotel sectors has become the beacon of light for the property industry in Ho Chi Minh City during 2011. Serviced apartment occupancy rates remain, on average in the high 80 percentages throughout the city. As a result rental rates have remained strong, particularly in CBD areas.

This strength is influencing some developers to consider shifting their business focus to this sector from a previous concentration on residential and office space. For the hotel sector a healthy and increasing stream of tourists and business travellers to Vietnam has led to notably higher occupancy rates and increasing revenues in 2011 compared with 2010.

There has also continued to be steady interest from international hotel brands as they look to commit to both entering and expanding their brands within the city.

Pent-up demand in the residential sector

The residential market has been one of the hardest hit during 2011. However, with inflation easing as a result of government credit measures there is seemingly some reason to be positive.

Should inflation rates continue to reduce it is expected that there will be a fast recovery in residential sales rates in the city as confidence is returned and the pent-up demand for accommodation in the market is satisfied

As a result of this potential we are witnessing continued interest from investors looking towards mid- to long-term benefits in this sector. Even in the shorter term we believe that we could see an improvement in residential market during 2012.

Increasing opportunities for savvy cash-rich investors

Investors have by no means given up on property markets, with cash rich investors actively exploring opportunities to accumulate land and property at lower levels. We are also finding that financial constraints are leading to many opportunities for joint ventures to be formed, with land owners and developers more open to offers from reputable firms with available cash.

Commercial tenants will see the benefits of increase choice

In commercial markets landlords in the office sector have battled against an oversupply situation, stemming from the large new supply during 2010 and 2011. Increasing vacancy rates have already meant that tenants have benefitted from rental discounts and incentives as landlords tried to gain the competitive advantage.

These gains are set to continue as quality space becomes more affordable to tenants who will be able to upgrade to premises which were previously considered out of reach. If this happens it is perceived that landlords will be forced to develop increasingly quality commercial properties with elevated specification standards to meet this demand and to compete for increasingly knowledgeable tenants.This is also the case within the retail sector.

Although occupancy rates across the city are still high, particularly in the CBD, 2012 will see tenants have an increasing choice of accommodation as major upcoming developments are completed. As the retail marketplace becomes ever more competitive, this will again push developers to be more innovative in their retail concepts and more flexible in their terms if they are to capture the attention of potential retailers.

A shift in the retail consumer trends

With currently only around 315,000sqm net lettable area of modern retail developments in Ho Chi Minh City, the retail property market is still in its relative infancy. Despite increased competition in recent years, 2011 has seen a steady interest from retail developers and international retailers.

Many of these parties remain interested in Vietnam, despite recent economic issues such as inflation and reducing consumer confidence. This is due in part to an optimistic long term outlook from these parties as they invest in positive consumer trends including a steady shift from shopping in traditional markets and shop-houses to more modern retail units.

This trend is complemented by the increasingly globalised younger generations who are spending a higher proportion of their wages on shopping in modern shopping malls, particularly in the F&B sector.

The potential of a bright future

The year 2011 has undoubtedly been a challenging one for those who have a vested interest in all aspects of the property market. However, it is important not to forget that we can draw on a number of positive characteristics of the Ho Chi Minh City property sector, including its ability to evolve and adapt to changes in the market.

These indicators suggest that despite a gloomy year for the property market, the potential of a bright future as Vietnam and Ho Chi Minh City become more influential players within the global market still remains.