Oversupply sparks fresh bubble fears

According to figures from Jones Lang LaSalle Vietnam (JLL), around 63,800 apartments will be completed in Ho Chi Minh City over the next three years, in Hanoi, this number will be more than 61,000 units.

The Ho Chi Minh City Real Estate Association (HoREA) said that the city’s districts 1, 2, 4, 9, Binh Thanh and Thu Duc will all see a large number of luxury apartments going up.

Major realty developers in the luxury segment include Dai Quang Minh, Vingroup, Novaland, Nam Long, Hung Thinh, Him Lam, and Phu My Hung.

The HoREA said that due to the sharp increase of supply in the next three years, a number of factors could cause oversupply, potentially leading to a bubble in the real estate market.

In particular, rapid economic development has raised the average income for Vietnamese people, many of whom have chosen to buy properties as a low-risk way to invest their capital. A new wave of real estate speculators is rising in the local real estate market.

“The government is offering many supportive measures in this area, but speculators could bring many disadvantages to the market,” said Le Hoang Chau, chairman of the HoREA.

Nguyen Van Duc, deputy director of Dat Lanh, said that despite the property market showing visible improvements in the past year, he knew of two problems that might cause a market imbalance: hundreds of projects being delayed for a long time, causing a large amount of debt, and the property developers focusing on high-end residential projects rather than affordable and low-cost housing, which is more likely to meet current demands.

“I wonder how the market can absorb such a huge supply of luxury apartments, while there is a shortage of houses for low-income earners,” Duc said.

These problems are posing a risk to the real estate market. A similar supply and demand imbalance contributed significantly to the ongoing property market freeze that started in 2008, he added.

However, Stephen Wyatt, country head of Jones Lang LaSalle Vietnam, said that despite the huge number of units that would flood the market in the next few years, credit support for homebuyers would fuel housing transactions this year and price hikes in all housing segments would continue.

According to Wyatt, a number of luxury housing projects, such as Sunrise City-North Towers with 616 units, Lexington Residence with 1,310 units, Masteri Thao Dien with 3,827 units, and Gold View with 1,759 units will be completed by 2018.

“Infrastructure improvements and the restructuring of the banking system are supporting the market, these will continue to drive purchases and make the market more stable,” he said.