Seismic socio-economic shift feeds real estate sector
Over the last twenty years, the Vietnamese property market has come on in leaps and bounds in terms of its professional development.
Impressive economic development
The report released last week by Savills Vietnam named “Vietnam’s Property market in the context of socio-economics (1995-2014)”, outlined the country’s rising economic growth across a gamut of indicators.
GDP growth was relatively stable through much of the 19902, accelerating in the early 2000s up to the first peak in 2008.
Vietnam has moved from one of the world’s poorest countries to a middle income economy, and has future mid-term prospects that will eclipse most of its Asian peers.
According to Neil MacGregor, managing director of Savills Vietnam, foreign direct investment (FDI) has been a catalyst for impressive domestic growth as the government actively competes for capital within the region.
The recent intensification in this competition includes very strong corporate taxation incentives.
“FDI was at its peak in 2008 at US$70 billion, and since then it has been in a more sustainable period of development with increased absorption,” said MacGregor.
Vietnam is in the top 10 of foreign remittance recipients globally, which is a major contributor to GDP.
In 2014, remittances of around US$12.5 billion came into the country through more than 4 million transactions. Vietnam’s staggering volume of remittances is such that it even exceeds overseas development assistance (ODA).
Direct property investment also benefits as it receives between 17% and 20% of foreign remittances.
The government recently recognized this with amendments to the Housing Law that confers full ownership rights to overseas Vietnamese.
Regarding the development of tourism, Vietnam is very well situated in relation to two of the world’s largest tourism markets.
China and Russia, who collectively contribute around 52% of global source market.
From 1995 to 2014, the total number of visitors increased significantly from 1.35 million to 7.87 million. This development has also had a trickle-down effect on the nation’s real estate market, especially in the hotel, retail, and resort segments.
A recent report (Ten Year Outlook for Coastal Tourism in Vietnam, MGT Management, 2013) suggests that by 2022 Vietnam could become a top 10 destination with international arrivals reaching as high as 33 million.
MacGregor noted that “With amendments to the Housing Law allowing more relaxed foreign ownership, Vietnam’s coastline could quickly attract foreign investors and capital. International-standard residential products that are orientated towards foreign purchasers are already available.”
The real estate market of Vietnam will stabilize over the next five years
Savills Vietnam predicted that despite its fast-paced development, Vietnam’s real estate market would not return to a bubble situation in the next five years.
Supporting this point of view, Savills stated that “Vietnam is still under-shopped in terms of contemporary retail formats with a retail density of less than 0.1 square metre per person.
Our regional peers of Bangkok and Kuala Lumpur have a density of 0.7 and 0.8 square metre per person respectively,” he said.
MacGregor pointed out that in 1995 Sunwah Tower office building was completed, followed by the Metropolitan in 1996.
“This was the beginning of a new wave of grade-A supply. The Metropolitan came on at a rent of US$40 square metre per month, peaking in 2008 at around US$80 square metre per month, and is now trading at around US$48-US$50 square metre per month.
Meanwhile, the office space for lease in Vietnam saw heavy development in the early 2000s. However, by the late 2000s the Vietnamese market was dependent upon FDI and so was swayed by external conditions and fell prey to the global financial crisis.
A period of correction followed, which is only now normalizing.
Meanwhile, the residential segment, which reached its lowest point just a few years ago, is now witnessing a period of remarkable recovery.
Over the last 20 years, there have been major changes in the nation's economic structure and population.
For instance, household occupancy has fallen from around 4.7 people per household in 1995 to 3.6 in 2014.
“As younger people gain greater independence there has been a gradual erosion of the three-generation household. This effect has fueled residential apartment development and the creation of more independent living. Will household sizes fall further? Quite possibly yes,” MacGregor explained.
He added that Vietnam has achieved much during the last 20 years. These achievements, combined with the strong growth generally in the Southeast Asian region, and the high potential of emerging markets, has made Vietnam an attractive destination for business.