COVID-19 resurgence worsens HCM City property market hinh anh 1A corner of Ho Chi Minh City (Photo: VietnamPlus)
HCM City (VNA) - The rental property market in Ho Chi Minh City, in the second quarter but particularly since the beginning of June, has encountered a great deal of difficulty as a result of the COVID-19 pandemic, which is spreading fast in the city and other southern localities.

Sharp fall in profitability of rental apartments

Dinh Minh Tuan, Director (southern region) of the property website, said that due to negative impacts upon the market, in particular, the most recent coronavirus outbreak, the price to earnings ratio of rental apartments and shophouses continues to follow a strong downward trend. This slump has persisted for the last three years, with high-end apartments feeling the brunt.

He cited a study by the website showing that earnings from rental apartments in HCM City went from between 6 to 8 percent in 2017 and 2018 to about 5.2 percent in 2019 (as calculated by 12 months of rent/apartment price).

The figure continued to drop to 4.5 percent in 2020 and reached a record low of 4 percent in the first half of this year.

Luxury rental apartments are now showing the lowest returns, about 3.7 percent. Those in the mid-range market are presenting a higher return but the figure is still under 4.1 percent. Meanwhile, investors are seeing earnings of around 4.5 - 4.8 percent with affordable apartments.

Areas with a heavy concentration of luxury apartments for rent in HCM City such as District 2 and Binh Thanh district recorded an average rental return of between 3.7 and 3.8 percent. This is considerably lower than the 4.4 to 4.8 percent of mid-range and affordable housing projects in District 7 and Binh Chanh and Nha Be districts.

Tuan attributes the continuing decline of investor income from rental apartments to two factors: shrinking demand from foreigners due to the COVID-19 pandemic and the impact of the “disappearance” of affordable housing.

He forecasts the rental apartment market will continue to face more difficulties as the supply/demand imbalance worsens.

A shortage of affordable apartments and an excess supply of luxury apartments are making it difficult for renters to find suitable accommodation, he noted, adding that people planning to rent a flat in HCM City are primarily workers who can afford a monthly rent of between 5 and 8 million VND (217 to 348 USD), but most rental apartments now belong to the mid- and high-end segments with a monthly rent of between 10 and 20 million VND.

The rental income of independent houses in the city is also “very low”, just 2.3 percent per year, according to Tuan.

COVID-19 resurgence worsens HCM City property market hinh anh 2Apartment buildings in HCM City (Photo: VNA)
Vibrant apartment market

Despite difficulties facing the market, JLL Vietnam said demand in buy-to-let apartments still grew in the second quarter, with 6,745 flats sold - up 72 percent year on year - mostly in large-scale projects in outlying districts.

In the three-month period through June, the average selling price of houses on land in HCM City went up 15.9 percent year on year and 7.9 percent quarter on quarter.

The price hike has been attributed to supply shortages, spurring investors to fuel growth of 4 to 5 percent compared to the same period last year, along with an increase in prices of building materials.

Amid economic uncertainties, the shortage of investment channels and a decline in deposits, interest rates will continue to encourage investors to pour money into real estate, which in turn may boost average prices in all segments to a new height, a representative of JLL Vietnam said.

The real estate services firm said the latest COVID-19 resurgence has been affecting property sales, noting that in the face of this situation, many investors have made use of online marketing to advertise their housing projects. They have also launched many attractive sales policies, such as offering flexible payment schedules with zero percent interest rates, or even valuable gifts.

Meanwhile, Tuan said he believes that it may not be until COVID-19 vaccinations prove effective that the property market in HCM City will bounce back to its former robust health./.