News

3 MAIN DRIVERS FOR VIETNAM’S REAL ESTATE MARKET IN 2020

2019 witnessed a stable fluctuation in Vietnam’s real estate market. The occupancy rate in Hanoi and Ho Chi Minh City still remains at 89.7 % although supply decreased significantly by 65.3 %.

Demand that comes from locals buyers is expected to increase. Along with that, cash flow from foreign investors through share purchase and capital contribution creates momentum for the growth of the real estate market. In this article, we explore three factors that investors need to be aware of if looking to invest in this industry.

The booming of the middle class and rapid urbanization create demand for the retails segment.

According to the General Statistics Office of Vietnam, Vietnam’s GDP increased by 7.7%  in 2019 to US$2720, which has allowed Vietnamese to afford a middle-class apartment at US$1000 – US$2000 per meter square (m2).

In addition, Vietnam’s middle class has increased significantly to 33 million people in 2019, double the number of 2014 ( Boston Consulting Group ). This number is expected to continue to rise to 44 million in 2020 and 95 million in 2030.

On the other hand, the inflow of migrants who actively look for an apartment in big cities makes the occupancy rate always at a high level in Ho Chi Minh and Hanoi ( 80 – 90% ), almost equal to Singapore ( 88% ). Vietnam’s urban population is expected to grow by 3.85% every year until 2050, much higher than the average rate of ASEAN ( 2.1% ).

The new trend of investing in real estate

Foreign investors often hesitate to enter the market because of the inconsistent bureaucratic red tape and the changing legal environment. Instead, they choose to cooperate with Vietnamese firms through share purchase and capital contribution. In this way, they can become shareholders in the Vietnamese property firms and can get access to real estate properties.

Cash flow from foreign investors has become a new funding source for Vietnamese firms. Due to the stricter control on bank loans to domestic real estate of The State Bank, this trend is likely to continue in 2020.

Rising demand in new segments of the industry

According to Savills Vietnam, 2020 would see rising demand in industrial property.

Due to the trade war between the United State and China, many manufacturing companies relocated from China to other countries, including Vietnam. Low rent price is the key advantage of Vietnam compares to China. According to Savills Vietnam, the average industrial rent is around US$100 – 140/m2/quarter, much lower than China’s US$180/m2/quarter. Key industrial clusters such as the Ho Chi Minh City command a higher price of US$160/m2 but are still lower than China’s.

Many industrial property developers have focused on building integrated facilities supplementing the manufacturing complexes in 2020. This includes retail properties for families, entertainment complexes, and education institutions. This is the opportunity for foreign investors to invest in this potential property segment.

.

Leave a Reply

Your email address will not be published. Required fields are marked *