Unveiling bright spots in the property market

The property market faces 2023 with predictions of recovery and high growth, but many investors are fearful due to difficulties posed by the global economy and local issues.

According to Tran Khanh Quang, general director of Viet An Hoa Real Estate Investment, 2022 was an unusual year for the real estate market, as it peaked in the second quarter but sank into a crisis by the end of the year.

The rationale is that the product does not match actual demand, and more than 80 per cent of the purchases are speculative. There is an abundance of high-end and luxury real estate on the market, but a dearth of inexpensive items. In addition, the core area's real estate supply is limited owing to legal congestion, excessive land taxes, and lack of public land. As a result of the market's sluggishness, interest rates are too steep, and credit availability has depleted.

As a result, the real estate market is expected to change slowly in 2023. The housing market will retain a constant level of liquidity, although the availability of affordable items for customers will remain restricted.

There are also some bright spots throughout the adversity. Neil MacGregor, managing director of Savills Vietnam, determined that Vietnam had a positive trade surplus, a reasonably strong currency, and well-controlled inflation.

Urbanisation is accelerating, with 36 per cent of Vietnam's population residing in urban areas. This demonstrates the tremendous potential of the real estate industry over the next few years.

Industrial and office real estate are the two categories with the most potential. According to Savills specialists, the industrial transfer from China to Vietnam continues apace. In response to recent troubles in China, Foxconn, Apple's primary component manufacturing partner, has increased its investment in Vietnam. In addition, Samsung, a big Korean investor, confirmed that it would grow its investment in Vietnam.

"Although oscillations in the global production chain will continue to be accompanied by a decline in orders, it is anticipated that this issue will be resolved and manufacturing activity will return to positive territory in the second half of 2023. Real estate is the industry that draws the most attention," MacGregor said. "The present market is characterised by a growing interest in constructing investment mechanisms for specialist goods such as prefabricated warehouses, factories, logistics, and data centres."

In the office segment, Ho Chi Minh City's office supply has reached just over 2.5 million square metres, which is extremely low in comparison to regional markets such as Bangkok in Thailand, Jakarta in Indonesia, and Manila in the Philippines, each of which has approximately 6 million square metres, so there is ample room for office growth. Due to the supply shortage, it may be difficult for large office tenants to locate excellent premises.

"The overall market occupancy rate is 93 per cent, and the Grade A office category is 97 per cent. Many new Grade A office buildings will enter the market in the first half of 2023, including two in Thu Thiem and one in District 1,” according to the Savills analyst.

Recently, the State Bank of Vietnam (SBV) agreed to boost the banking system's loan ceiling by 1.5 to 2 per cent. Experts believe that, although the newly issued credit is not excessive, it will contribute to the liquidity since the demand for loans towards the end of the year is robust.

Chairman of the Ho Chi Minh City Real Estate Association Le Hoang Chau said that SBV's decision to increase loan availability was a promising indicator for the economy's recovery and the real estate sector.

In 2022, 70 per cent of families with a monthly income between $1,700 and $3,000 purchased at least one more real estate asset, despite the market's severe problems.

"The increased credit space will support production and commercial finance sources during the peak time before the 2023 Lunar New Year," Chau said. "This is crucial to the real estate market, where enterprises, homeowners, and investors have trouble gaining access to credit capital and many lack or are losing liquidity due to cash flow shortages or negative cash flow."

A poll by the specialist website batdongsan.vn on customer attitudes showed that 70 per cent of families with a monthly income between $1,700 and $3,000 purchased at least one real estate asset in 2022, despite the market's severe problems.

When questioned about their desire to purchase real estate within the next year, over half of those who do not own a property said they planned to do so within the next 12 months. This percentage is significantly higher among people who already own at least one property.

These numbers indicate strong demand for homes, residential land, and investment properties. Dinh Minh Tuan, director of the batdongsan.vn, said that consumers with investment requirements were still waiting, while those who want a home immediately had begun searching for prospects.

According to Tuan, many investors are reorganising their debt and refocusing their efforts on producing items to meet consumer demands.

However, sufficient purchasing power will be required for the money flow to be unleashed. To generate cash flow from real estate purchasers, prices must fall.

Tuan predicted that in the near future, the values of some sectors may decelerate, and owners who have been subjected to high mortgage rates for an extended period may be compelled to sell their houses. This is also a period when the market is sufficiently appealing to activate bottom-fishing cash flows, open liquidity, clear the clogged capital flow, and save the market.

The last quarter of 2022 will be fraught with hardships, including negative headwinds facing the economy and the financial markets are no exception, but there are some positives.

This was stated by Le Viet Hai, vice president of the Saigon Construction & Building Material Association (SACA), during the Dynamics of Vietnam's Economic Development 2023 seminar held on December 14 in Hanoi.

In the midst of a difficult time in real estate in many segments, from land plots to individual houses and apartments, industrial real estate remains attractive to both investors and tenants.