After more than two years of market decline due to the impacts of the economic downturn, the real estate market in Vietnam is making positive changes and some segments of the market such as retail, luxury apartment and social housing have begun warming. This trend is gradually rebuilding the trust of the people and investors.
Arsh Chaudhry, Executive Managing Director, Southeast Asia, of the Cushman & Wakefield, a private commercial real estate services firm, spoke with the Vietnam Business Forum about the trend.
*How do you assess the real estate situation in Vietnam, particularly after the first quarter of 2014? Is this market likely to recover and thrive towards the end of 2014?
I realise the economy of Vietnam has recovered, compared to a few years ago. After the global economic crisis, many economies have undergone tough periods and Vietnam is no exception. Bad debts, high inflation and rising interest rates, problems facing many countries for a long time, have also hindered the economic development of Vietnam.
However, over the past year, we began to see positive signs of recovery of the economy of Vietnam. And when the economy recovers, there will be a positive impact on the real estate market. It can be seen that the current market has many positive effects from both inside and outside. In terms of the external impacts, the falling interest rates contribute to the increasing confidence of the investors.
Looking back to 12 months ago or nearly 3 months ago, the interest rates for a long time staying at 24- 25 percent is now as low as 11-12 percent. Falling interest rates certainly enable the buyers to buy houses.
The interest rate can decrease further, but I think currently, the interest rate is stable enough to develop a healthy market. The efforts of the government and banks for disbursement of 30 trillion VND and proposal of the credit package of 50 trillion VND are also appreciated.
However, I recommend these packages should be funded for feasible projects. The feasible projects are those the investors have the ability to complete and sell out the products on the market. To do this, the governments, banks and investors are required to anticipate and evaluate market consumption power. Here I am talking about the housing markets in Ho Chi Minh City, Hanoi and other major cities in Vietnam.
I think that this year the market will prosper much more than 2013.
*Compared to other Southeast Asian countries, what is the strength of Vietnam's real estate?
The investors list the real estate portfolio in Vietnam for medium and long-term plans, not just in a few short years. It could be a vision in five years or longer. In some cases, the investment might be extended to 20 years when the infrastructure of Vietnam develops. I think that is the first thing for consideration.
The strength of the economy of Vietnam is its young population, which is surely a trump card in the next 7 years that current investors will benefit. I have had discussions with investors in Singapore, Hong Kong and other countries in the Asia Pacific region and found that two or three years ago Vietnam was not an attractive investment destination, but the situation has changed significantly in recent years. People are beginning to recognise the investment opportunities in Vietnam. They are considering the portfolio to select the available ones and the ones which need a comprehensive investment plan.
The Cushman & Wakefield recognises that along with the trends of investment in housing segmentation, other trends also focus on the portfolio with guaranteed cash flow.
*What main difficulties do you think the real estate market of Vietnam is facing now?
In terms of facing difficulties, two approaches should be supposed. For 7 years of establishment and operation of our company in Vietnam, the most difficult thing we found is in supply. The understanding of the market and collection of full information about the market are very important; foreign investors who want to make investment into the real estate are looking for the good quality portfolios available for investment; however, these portfolios are limited and we have not seen much action from the owners.
The second factor that investors consider is policy framework. Many investors in Vietnam show high expectation for a stability in policy, political system and interest rates. Look at other countries in Southeast Asia like Indonesia. If Indonesia is in the process of preparing for election and the election will occur in 6 months, this is not a time stable enough for investment so investors are only outside to observe before any investment decision is made. Similarly, the election of the Philippines will take place in the next 18 months and from now, its politics will be more volatile. The advantage is that Vietnam has stable politics.
The third thing to consider is the fluctuation of exchange rates. I remember when Cushman & Wakefield started business in Vietnam in 2007, the value of one dollar at that time about 16,200 VND and within 4 years, it increased to 21,500 VND. But in the recent 12 to 18 months, the VND rate has remained stable and become one of the few currencies in the world maintaining its stable value for the dollar. Therefore, the stability of the currency and current exchange rates will benefit investors for not losing their money but bringing more profit if they invest in Vietnam.
*For the difficulties that you have just mentioned, what are solutions from investors, businesses and the government to improve the situation?
I think the first positive move is to decrease the interest rates. This is followed by the job of Vietnam Asset Management Company (VAMC) to push the banks to eliminate the bad debts related to the real estate. Besides, I think other moves should be counted. Personally, I think the process of identifying and eliminating the bad debt should be further accelerated. Once the bad debts are cleared out, the banks will have more resources to boost lending and the investors will have more incentives to invest.
Another issue is the right to use land for foreign investors, the maximum term is 50 years instead of unlimited long-term lease for stability. At the same time, the extension of land use for 20-50 years are still being considered.
*So far, the real estate market of Vietnam has been rated as "bubble". Do you think the value of real estate in Vietnam has been set correctly?
It is true to say that market price bubbles appeared in the real estate market of Vietnam, especially five years ago. In recent years, the real estate market of Vietnam has experienced a very tough time, but it is good to adjust the price to reality.
The investors also begin to understand the principle of operation of the market more than before and make appropriate adjustments. Recently, the high-priced projects are more appropriately redesigned. However, the price reduction will take place gradually. In the future, the investors in the region will make closer approaches to the projects in Vietnam in accordance with their budgets.
The Government also takes action to support the development of the market. With the adjustment of the prices, the real estate market of Vietnam will have better conditions for more sustainable development and efficient operations. The development cycle of the real estate market of Vietnam is fluctuated and ended up pretty fast. We look forward to having changes in policy framework and the banking system will support the stabilisation and development of the real estate market to with appropriate disbursement.
The current market has many signs of recovery with a significant increase in the amount of rent and purchase demand as well as investment from tenants and investors. To the tenants, they are quite impatient with the current situation of supply and demand. I predict, until the end of 2014, the offices for rents will increase slightly due to an demand increase of the office rent.
On the side of investors, many investors are looking for opportunities in Vietnam. A few years ago, they had no demands to invest in Vietnam, but at this time, more and more investors are returning to the market and express their desires to invest in a diverse portfolio of the real estate.
*Do you think investors should invest at this time or wait for a while until the market has fully recovered?
Currently, this is a good time for investors to enter the market of Vietnam. As markets become more stable, more investors will enter the market and seek for opportunities. This investment wave creates more competition among investors in the penetration process. Although the market will decline in the short term, this is exactly the time that promises high returns for investors.
However, it should be noted that the real estate market does not operate as what happens in the stock market. The real estate does not bring as much profit as quickly as stock. The cycle of real estate investment usually lasts from 5 to 7 years, or even 10 years. Because of this, investment in real estate depends greatly on the types of real estate and location. Whether the investors should invest or not depends on the characteristics and location of each real estate project.
Each investor has different goals and investment plans and takes different risks. They aim to set the break even in different time period. Therefore, the investors should carefully consider the investment in this period, particularly the decisions on selling and buying properties. This time may be appropriate for some investors but may not be appropriate for others, because of different investment cycle and limitations of break even.-VNA
Arsh Chaudhry, Executive Managing Director, Southeast Asia, of the Cushman & Wakefield, a private commercial real estate services firm, spoke with the Vietnam Business Forum about the trend.
*How do you assess the real estate situation in Vietnam, particularly after the first quarter of 2014? Is this market likely to recover and thrive towards the end of 2014?
I realise the economy of Vietnam has recovered, compared to a few years ago. After the global economic crisis, many economies have undergone tough periods and Vietnam is no exception. Bad debts, high inflation and rising interest rates, problems facing many countries for a long time, have also hindered the economic development of Vietnam.
However, over the past year, we began to see positive signs of recovery of the economy of Vietnam. And when the economy recovers, there will be a positive impact on the real estate market. It can be seen that the current market has many positive effects from both inside and outside. In terms of the external impacts, the falling interest rates contribute to the increasing confidence of the investors.
Looking back to 12 months ago or nearly 3 months ago, the interest rates for a long time staying at 24- 25 percent is now as low as 11-12 percent. Falling interest rates certainly enable the buyers to buy houses.
The interest rate can decrease further, but I think currently, the interest rate is stable enough to develop a healthy market. The efforts of the government and banks for disbursement of 30 trillion VND and proposal of the credit package of 50 trillion VND are also appreciated.
However, I recommend these packages should be funded for feasible projects. The feasible projects are those the investors have the ability to complete and sell out the products on the market. To do this, the governments, banks and investors are required to anticipate and evaluate market consumption power. Here I am talking about the housing markets in Ho Chi Minh City, Hanoi and other major cities in Vietnam.
I think that this year the market will prosper much more than 2013.
*Compared to other Southeast Asian countries, what is the strength of Vietnam's real estate?
The investors list the real estate portfolio in Vietnam for medium and long-term plans, not just in a few short years. It could be a vision in five years or longer. In some cases, the investment might be extended to 20 years when the infrastructure of Vietnam develops. I think that is the first thing for consideration.
The strength of the economy of Vietnam is its young population, which is surely a trump card in the next 7 years that current investors will benefit. I have had discussions with investors in Singapore, Hong Kong and other countries in the Asia Pacific region and found that two or three years ago Vietnam was not an attractive investment destination, but the situation has changed significantly in recent years. People are beginning to recognise the investment opportunities in Vietnam. They are considering the portfolio to select the available ones and the ones which need a comprehensive investment plan.
The Cushman & Wakefield recognises that along with the trends of investment in housing segmentation, other trends also focus on the portfolio with guaranteed cash flow.
*What main difficulties do you think the real estate market of Vietnam is facing now?
In terms of facing difficulties, two approaches should be supposed. For 7 years of establishment and operation of our company in Vietnam, the most difficult thing we found is in supply. The understanding of the market and collection of full information about the market are very important; foreign investors who want to make investment into the real estate are looking for the good quality portfolios available for investment; however, these portfolios are limited and we have not seen much action from the owners.
The second factor that investors consider is policy framework. Many investors in Vietnam show high expectation for a stability in policy, political system and interest rates. Look at other countries in Southeast Asia like Indonesia. If Indonesia is in the process of preparing for election and the election will occur in 6 months, this is not a time stable enough for investment so investors are only outside to observe before any investment decision is made. Similarly, the election of the Philippines will take place in the next 18 months and from now, its politics will be more volatile. The advantage is that Vietnam has stable politics.
The third thing to consider is the fluctuation of exchange rates. I remember when Cushman & Wakefield started business in Vietnam in 2007, the value of one dollar at that time about 16,200 VND and within 4 years, it increased to 21,500 VND. But in the recent 12 to 18 months, the VND rate has remained stable and become one of the few currencies in the world maintaining its stable value for the dollar. Therefore, the stability of the currency and current exchange rates will benefit investors for not losing their money but bringing more profit if they invest in Vietnam.
*For the difficulties that you have just mentioned, what are solutions from investors, businesses and the government to improve the situation?
I think the first positive move is to decrease the interest rates. This is followed by the job of Vietnam Asset Management Company (VAMC) to push the banks to eliminate the bad debts related to the real estate. Besides, I think other moves should be counted. Personally, I think the process of identifying and eliminating the bad debt should be further accelerated. Once the bad debts are cleared out, the banks will have more resources to boost lending and the investors will have more incentives to invest.
Another issue is the right to use land for foreign investors, the maximum term is 50 years instead of unlimited long-term lease for stability. At the same time, the extension of land use for 20-50 years are still being considered.
*So far, the real estate market of Vietnam has been rated as "bubble". Do you think the value of real estate in Vietnam has been set correctly?
It is true to say that market price bubbles appeared in the real estate market of Vietnam, especially five years ago. In recent years, the real estate market of Vietnam has experienced a very tough time, but it is good to adjust the price to reality.
The investors also begin to understand the principle of operation of the market more than before and make appropriate adjustments. Recently, the high-priced projects are more appropriately redesigned. However, the price reduction will take place gradually. In the future, the investors in the region will make closer approaches to the projects in Vietnam in accordance with their budgets.
The Government also takes action to support the development of the market. With the adjustment of the prices, the real estate market of Vietnam will have better conditions for more sustainable development and efficient operations. The development cycle of the real estate market of Vietnam is fluctuated and ended up pretty fast. We look forward to having changes in policy framework and the banking system will support the stabilisation and development of the real estate market to with appropriate disbursement.
The current market has many signs of recovery with a significant increase in the amount of rent and purchase demand as well as investment from tenants and investors. To the tenants, they are quite impatient with the current situation of supply and demand. I predict, until the end of 2014, the offices for rents will increase slightly due to an demand increase of the office rent.
On the side of investors, many investors are looking for opportunities in Vietnam. A few years ago, they had no demands to invest in Vietnam, but at this time, more and more investors are returning to the market and express their desires to invest in a diverse portfolio of the real estate.
*Do you think investors should invest at this time or wait for a while until the market has fully recovered?
Currently, this is a good time for investors to enter the market of Vietnam. As markets become more stable, more investors will enter the market and seek for opportunities. This investment wave creates more competition among investors in the penetration process. Although the market will decline in the short term, this is exactly the time that promises high returns for investors.
However, it should be noted that the real estate market does not operate as what happens in the stock market. The real estate does not bring as much profit as quickly as stock. The cycle of real estate investment usually lasts from 5 to 7 years, or even 10 years. Because of this, investment in real estate depends greatly on the types of real estate and location. Whether the investors should invest or not depends on the characteristics and location of each real estate project.
Each investor has different goals and investment plans and takes different risks. They aim to set the break even in different time period. Therefore, the investors should carefully consider the investment in this period, particularly the decisions on selling and buying properties. This time may be appropriate for some investors but may not be appropriate for others, because of different investment cycle and limitations of break even.-VNA
