Towards improved real estate results

Michael Piro - COO, Indochina Capital

The government has taken many measures to reinvigorate the sector, positioning real estate and tourism as key pillars for economic recovery post-pandemic.

With fluctuations in gold prices and the stock market, a survey conducted in the last quarter of 2020 reveals real estate has become the leading investment channel for individual investors. Despite record amounts of new accounts every month on the VN-Index, 57 per cent of the survey’s respondents still consider real estate as their first choice of investment.

The property market showed signs of heating up in the last quarter of 2020 and the outlook for 2021 is bullish as low-interest rates on real estate loans with flexible payment structures are likely to be maintained throughout the year. Tailwinds from new legislations, including the revised Law on Investment and new instructions for the implementation of the Law on Land, are expected to help real estate market thrive.

Since August, absorption rates in Ho Chi Minh City have shown signs of recovery and with the tightening of legal procedures, supply will remain relatively low. Prices are forecast to slightly increase as the residential sector continues to lead in terms of demand.

Vietnam has shown great management and resilience against the pandemic, which has helped trigger more foreign interest in real estate. Rental yields in Vietnam remain higher than in markets such as Hong Kong and Singapore while asking prices are as low as 20 per cent of prices in these neighbouring markets.

Individual foreign investors, particularly from more mature Asian markets, see extensive opportunities in Vietnam and have been looking into purchasing residential products as an investment. Many buyers have pending purchases in Vietnam but have not been able to travel due to the country’s closed borders.

Since 2015, about 80 per cent of foreign residential sales have been in Ho Chi Minh City, but well-known developers in Hanoi are beginning to step up to the plate and welcome foreign investors from Taiwan, Hong Kong, Singapore, and mainland China.

The shift in global manufacturing bases and new trade agreements have effectively pushed industrial real estate forward; according to a large property portal in Vietnam, searches for industrial parks rose over 20 per cent throughout the country. Prices of land plots near industrial parks also rose on-quarter during 2020.

Vietnam’s total exports grew 17.6 per cent on-year in December and the total import-export turnover enjoyed an on-year surge of 5.1 per cent; this growth in manufacturing and trade is a major driver for industrial real estate for 2021 and beyond.

October saw the highest occupancy rates in both Hanoi and Ho Chi Minh City as local corporate business picked up; however, the market still struggles to achieve more than 30 per cent occupancy rates.

Experts forecast the number of small to medium hospitality assets put up for sale to grow in the first half of 2021. COVID-19 has shown the importance of diversifying one’s portfolio and developers who decided to focus solely on one segment must consider looking outwards for other opportunities.

Sellers who adopted a wait-and-see approach are hoping that valuations will improve as travel restrictions are eased – prompt decisions should be made. The hospitality will not recover until at least the end of the year and investors must wait to look for the truly distressed assets. Cost management will be crucial to navigate through 2021 as occupancy rates might only pick up from the third or fourth quarter.

Developers with medium- to large-scale projects may partner with branded operators to create synergies for growth while mitigating risks by balancing real estate sales and a stable revenue stream from rental programmes.