Investors in Vietnam’s embattled real estate market have endured a roller-coaster experience in recent years.
The downturn in the once-buoyant market, which saw home sales shrink during the COVID-19 pandemic, sank into a full-blown crisis last year following the government’s crackdown on dubious property deals and its credit tightening. This sent Vietnam’s property stocks and bonds into a rout that spilled over into the world’s biggest stock market slump in November 2022.
As we enter the second half of 2023, investors digesting a mixed bag of news are starting to ask if the worst is over for the beleaguered property market. The good news is: first-quarter foreign direct investment in real estate jumped more than threefold to US$397 million. The bad news: developers are still battling a liquidity crunch, with over 1,200 building projects worth 800 billion dong (US$33.8 million) suspended.
For longer-term investors with a stronger stomach for risk, today’s depressed property valuations may already look attractive, as they factor in Vietnam’s robust economic growth prospects in the coming decades.
But in the near term, uncertainty about how long the property market will take to work through a spate of deep-seated problems will likely weigh on buyers’ confidence, especially in the hard-hit residential sector.
One key problem faced by the property market is the supply-demand imbalances. These have arisen from excess inventory in the high-end property segment which were priced out of reach for the average local homebuyer, and an acute shortage of affordable housing units.
Another challenge is the high debt levels of developers, many of whom engaged in a luxury condo building spree and land speculation. The government’s clampdown on such activities last year led to high-profile arrests such as that of property tycoon Truong My Lan, who was charged with bond market fraud. Developer defaults on bonds have surged, amid a crackdown on questionable property deals, new corporate bond limits, and Vietnam’s tightening policies to cope with elevated inflation and a weakening currency.
This, in turn, has frozen the property market: newly-licensed housing projects plummeted 90 percent in 2022 while completed ones plunged 91 percent, further reducing options for homebuyers.
On the bright side, tighter lending rules for developers will create a safe and long-term investment environment that will draw “many large global investment organisations” between 2024 and 2026, and spark a property market rally in 2025, according to Cushman & Wakefield Vietnam.
Investor interest is already being buoyed by Vietnam’s brightening economic prospects, supported by a rebound in exports and expansionary domestic policies in the second half of this year.
Vietnam’s economy has emerged as a beneficiary in the US-China trade war, as more western companies relocate their manufacturing operations here from China – a strategy known as “China plus one”.
These stronger economic prospects bode well for the property sector, especially when it reduces debt levels and wins back investor confidence.
Preliminary data suggests that Chinese interest in properties in Vietnam is growing, said Winston Lee, PropertyGuru’s Director of Special Projects. Data collated from search engine Baidu indicates growing interest from the mainland on properties in Vietnam. In 2022, netizens searched for information on property prices in Hanoi and Ho Chi Minh City, and the regulations on property purchases by foreigners, he said.
“Vietnam has emerged as a promising ‘China plus one’ destination. The country has seen impressive economic recovery and its GDP is expected to grow 5.8% this year. Foreign direct investments are also on the rise,” he added.
“For these reasons, Vietnam is an attractive proposition not just for seasoned investors, entrepreneurs and factory owners seeking to diversify their investments and businesses into other countries, but also buyers looking for holiday homes and prestige seekers who are eyeing luxury properties.”
Seize the opportunity presented by the upcoming dual city event, the Asia Pacific Property Conference 2023. This event offers a golden opportunity for Southeast Asia developers to directly engage with this emerging market and navigate its potential.
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