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Marc Townsend, managing director of CB Richard Ellis (CBRE) Vietnam has been in the country for eight years and has seen at least two major real-estate cycles. It’s now entering the third. “I’ve always joked that there’s no Vietnamese word for ‘distress’, but we’re beginning to see real pain,” he said in an interview last month.
As at end-2Q2011, the inflation rate in Vietnam stood at 20.82%, according to CBRE in a July report. In order to tame inflation and tighten bank lending, the State Bank of Vietnam has twice adjusted the refinancing rate in 2Q, which now stands at 14%. There are already signs that some developers are having difficulty paying their contractors, while others have stopped work.
At weekend residential sales events, “it’s a challenge to sell more than a handful of units”, says Townsend. Fewer homebuyers are able to complete all-cash transactions, and they are putting tremendous pressure on developers to offer huge discounts or flexible payment terms, notes CBRE.
Asking prices across all residential segments declined in 2Q, according to CBRE. The largest declines were seen in the luxury and high-end projects, which dropped 27% and 14.4% y-o-y respectively. The mid-tier and affordable segments saw a corresponding y-o-y fall in asking prices of 7.6% and 18.9% respectively. In the secondary market, the luxury and high-end segments saw prices fall 1.6% and 2.5% respectively y-o-y, while the mid-tier sector saw prices decline 4.8%. As for the affordable segment, prices were marginally up by 0.2%.
As such, launches of new residential projects across all sectors are expected to be pushed back as developers look for an uptick in sentiment. Those who have already launched, or are forced to launch, “will continue to try innovative tactics to stoke sales”, says CBRE, and they include temporary leasing of units to increase cash flow.
Landed property, waterfront homes in demand
Projects that are selling well are “the good-quality, landed homes”, says Townsend. For instance, Singapore-listed Keppel Land’s 96-unit villa project, Riviera Cove in District 9 of Ho Chi Minh City (HCMC) achieved 88% sales as at end-June. This follows the success of its Villa Riviera project with 101 villas located in the prime An Phu Ward in District 2 of HCMC. The project was fully sold and completed in 2007.
“Keppel Land has done a couple of landed house projects that have been very well received and held their values very well in this market,” says Townsend.
Keppel Land, which has been in Vietnam for about two decades now and is one of the largest foreign property developers there, also announced last month that it will launch 30 units in the first phase of its waterfront villa project at District 9 of HCMC. Its riverfront condominium project, Riviera Point, saw 65% of 255 units launched sold as at end-June.
The villa and townhouse market in Districts 2 and 9, which are located to the eastern side of HCMC, were the most active in 2Q, notes Knight Frank in a report last month. Such projects are considered to be in the luxury and high-end segments. Riverfront condos also appear to be sought after by rich buyers, as evidenced by the response to Keppel Land’s Riviera Point. However, the housing segment that saw the most activity was that with units priced in the range of US$200,000 to US$250,000, notes Knight Frank.
More joint ventures with Singapore developers
Owing to the credit squeeze, more Vietnamese developers are looking for joint-venture partners, and Singapore developers such as CapitaLand, Keppel Land, Ascendas and Mapletree Investments have been very active in the last 12 months, says Townsend.
In mid-June, Keppel Land announced that it had formed a joint venture with two Vietnamese developers, Tien Phuoc Co, Ltd and Tran Thai Co, Ltd, to develop a prime 30ha site in South Rach Chiec in District 2 of HCMC. The joint-venture partners have obtained master plan approval for an integrated waterfront residential development site, which will include 6,430 homes, as well as retail, commercial, educational and medical facilities.
Giant developer and Singapore-listed CapitaLand has also been very active in Vietnam. On Aug 2, it announced that its serviced residence arm, The Ascott Ltd, is in a joint venture with Thuy Duong Investment Joint Stock Co, whereby Ascott will acquire a 90% stake in the 132-unit Somerset Central TD Hai Phong City for US$9.45 million. The Ascott is already managing the serviced apartment property.
In May, CapitaLand’s wholly owned subsidiary, CapitaValue Homes Ltd, signed a joint-venture agreement with Khang Dien Sai Gon Real Estate JSC to build 974 units of affordable homes on a 29,000 sq m site. The site is located about 9km from HCMC’s CBD and close to the future Ho Chi Minh-Long Thanh Highway, as well as the Saigon Sports City. CapitaLand is taking a 70% stake in the US$70 million project, while its joint-venture partner will acquire the remainder. The latest project will be CapitaLand’s sixth development in Vietnam, bringing the number of housing units in its portfolio to 5,500.
“Both CapitaLand and Keppel Land aren’t focusing on the luxury segment, but on where the real growth is, which is the mid-tier market,” observes Townsend. “And that is why they are moving out from the generally perceived CBD locations, and buying land in joint ventures with groups they trust.”
CapitaLand’s maiden condo project in HCMC is the 850-unit The Vista in the An Phu Ward in prime District 2. Developed jointly with Thien Duc Trading Construction Co, Ltd and Phu Gia Investment Joint Stock Co, The Vista will be completed by end-2011.
Meanwhile, Keppel Land’s high-end condo project, the 1,393-unit The Estella (developed with joint-venture partner Tien Phuoc) located in An Phu Ward, is expected to complete its first phase of 719 units by 2Q2012.
Both developments — The Vista and The Estella — are in the luxury segment, where there are very few quality condos for lease. When these two developments come onto the market, however, Townsend reckons that at least 50% of the units will be available for lease. “With good facilities, amenities and quality units, these developments will define what quality means and set the benchmark for rentals,” he adds.
New infrastructure such as the East-West highway and the Thu Thiem tunnel will also be in operation when the two condos come on stream. Scheduled for completion by 3Q2011, the new highway and tunnel will significantly shorten driving time into the CBD, says Townsend.
In anticipation of the infrastructural improvements in 3Q, asking prices of residential projects to the east of HCMC, such as Districts 2 and 9, have increased, observes Knight Frank in its report.
“Longer-term investors, who are cash rich and willing to take advantage of this tough period, are expected to lead the market in 2H2011,” predicts Knight Frank. “However, the size of this group is relatively small with few new entrants. Therefore, only properties that offer the best value for money will continue to attract interest from these investors.”
Meanwhile, in the short term, the market may be in the doldrums and the direction may be southwards, “but at some point as in any market, perception turns around and confidence returns”, says Townsend. “And Singapore Inc developers will see the premium that they worked for.”
Cecilia Chow is City & Country editor at The Edge Singapore
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 871, Aug 15-21, 2011
