The lowdown on the southern hub

Total apartment supply in Ho Chi Minh City in 2010 is estimated at around 18,000 units. However, developers have not launched all of the apartments to the market as the demand does not meet supply. Prices of those apartments remain high. In addition, there is a tough competition between the new projects and about 40,000 apartments from hundreds of projects, which have been launched in the past and are being resold in the market. Actually, many projects reached only 35-40 per cent of their sales plan, especially at high-end apartment projects.

The apartments, which are sold at more than $1,500 per square metre, are considered as high-end products this year. The sale of those apartments is gloomy while volume of sold apartments remains at a low level compared with previous years. But some high-end projects have sold well. Most of the high-end projects are located in the centre of the city, or close to the centre of the city, or in East and South Saigon .

The mid-end segment – i.e. apartments sold at prices of more than $1,100 per square metre – has attracted interest from numerous developers. This year, the mid-end segment attracted more and more interest of homebuyers. Most mid-end apartment projects are located in District 7, Binh Thanh, Tan Phu and Binh Tan districts. However, the purchasing power in this segment is slowing down this year as supply is rising. Homebuyers in this segment now have more choices and they expect lower prices. Therefore, apartments launched for the first time were mostly bought by speculators.

Regarding the low-end segment – apartments valued at more than $750 per square metre – purchasing power has been maintained in both primary and secondary markets. It is also forecast to have strong development in upcoming years. Many developers are now focusing on developing low-end apartment projects in District 12 and Binh Chanh, Binh Tan and Thu Duc districts.

Discounts and promotions

Vu Quoc Thai

Although the developers launched different marketing campaigns to attract homebuyers, an industry survey revealed that most of them had not studied the market, defined their products or assessed the business environment carefully.

This year, developers tried to push sales at their projects by introducing many kinds of products with different price levels to meet the demand of all kinds of homebuyers. Besides discounted prices, many developers launched promotional campaigns offering incentives or furniture for homebuyers. Meanwhile, some developers committed to fixing an exchange rate between the dong and the US dollar and offered extended payment periods. Some of these marketing campaigns were just tip of the iceberg. The campaigns proved effective when developers launched products, but sales slowed down during the next launch period. Many developers changed their real estate trading agency more than three times but matters did not improve. Perhaps, those developers made initial mistakes when creating their product.

A survey by VietRees indicates that developers set about establishing projects and then tried to adjust the products to suit the market. So most projects have been developed when developers have not yet focused on studying the needs of homebuyers and the competitive environment. Many developers are entirely dependent on real estate trading agencies.

Demand-based segmentation

The VietRees’s survey shows that the price of many apartments in the market remains higher than their real value. In general, apartment prices are much higher than the income of homebuyers – who have a real demand for an apartment to live. Therefore, though the supply has increased, the proportion of investors remains significant. Statistics from VietRees indicate 40 per cent of homebuyers are investors, for many projects this proportion could be as high as 80 per cent.

Homebuyers buying apartments to live account for only about 25 per cent; meanwhile 35 per cent are homebuyers buying apartments as both an investment and a home. Those homebuyers are interested in products that are worth money. They compare different products with each other and give a decision based on their financial ability. It takes time for them to give a decision because they have to consider the investment carefully and there is often a lack of information.

There are three important factors influencing their decision, including good quality, appropriate location and valuable product; reasonable priced and prestigious developers who will stick to the timeline of the construction and implement the project under contract.

Those homebuyers are divided into three groups:

Group 1: Young family: homebuyers aged from 22-35 years old having an average income of $500-$1,000 per month. This group wants to buy apartment from 60-90sqm.

Group 2: Experts and professional public servants: homebuyers aged 28-40 years old; usually university graduates often working in management or engineering, with an average income of $750-$1,000 per month. They want to buy a 70-100sqm apartment.

Group 3: Businessmen and upper strata: homebuyers aged from 40-55 years old, often working as a director, businessperson or a doctor, or successful on the financial market and property market. They want to buy apartments from 90-120sqm.

Dividing homebuyers into groups is just aimed at reviewing the market. Developers should implement a study about their customers that would help them to develop the projects better.

Homebuyers, who buy apartments for investing, no longer care about the high-end segment like previous years. They are now more cautious and well-informed. This year, investors are focusing on the mid-end segment. When comparing projects, they will pounce, if they realise a project has reasonable price and good location.

With the exception of some high-end projects with strong consumption, experienced investors are buying mid-end apartments at prices below $1,000 per square metre and buying land plots for safety. Investors also want to resell apartments to homebuyers with real demand. Thus, projects lure attention from homebuyers with real demand but also investors. Meanwhile, less experienced investors are led by real estate trading agencies.

Looking ahead to 2011

VietRees’ survey on the outlook for 2011 show that the mid-end segment remains a safe investment channel for investors compared with the stock market, gold, foreign currency and establishing an enterprise. The market will be better than 2010.

The apartment demand will increase sharply in areas far way from the city centre in provinces like Binh Duong, Dong Nai and Long An, as infrastructure links to Ho Chi Minh City are improving.

There would be at least one price reduction or developers will not raise apartment prices to attract more homebuyers in 2011 because developers are competing with each other in terms of price. The big issue here is developers that cannot sell the products are forced to sell products. The longer they hold products, the more losses they suffer. Therefore, reducing prices is one of the best choices for developers.

Many developers will start pushing the development of mid-end apartment projects in areas surrounding or even further away from the city centre. Apartments at prices below $1,000 per square metre will attract more and more attention from investors. Sales will be good at apartments sized at 60sqm, 75sqm or 90sqm which will be priced from $40,000 to $70,000.

Developers will take the time to study the needs of homebuyers. Developers understand that if they want to sell products, they have to provide quality products, which are worth money, and unique products.  Leading players in the market are big domestic developers like BCCI, Nam Long, Khang Dien, Thu Duc House and Duc Khai. Those developers are professional and have been developing steadily over past years. Next year, many developers will also adjust to match these big, professional players, but they will have to try hard.

VietRees believes the market will move positively and better in 2011, especially for homebuyers who have demand for buying apartments to live as developers understand and try to meet homebuyers’ needs.