Two scenarios for HCMC real estate market in 2020

By Vu Le    January 29, 2020 | 05:09 pm PT
Two scenarios for HCMC real estate market in 2020
A high-end apartment project in Ho Chi Minh City. Photo by Shutterstock/Quang Praha.
The Saigon housing market this year will depend on the resolution of the legal issues that plagued it last year, according to property consultancy CBRE.

Vo Huynh Tuan Kiet, associate director and head of residential project marketing at CBRE Vietnam, said this could either mean a continuing supply shortfall and escalating prices or a supply revival and competitive prices.

That would heavily depend on whether the legal obstacles are removed, he said.

In the first scenario in which the legal obstacles continue to persist, the market's supply would certainly be limited and therefore suffer from shortage. While the secondary market would be active, the risk of properties being overcharged would also be greater.

Many investors therefore would choose other investment channels or markets to look for more diverse opportunities.

In this scenario, real estate inventories would decrease as they would be gradually consumed due to lack of new supplies but housing prices would escalate and the city's suburban market might surpass the downtown market due to a shift of investment capital.

In the second scenario resulting from legal obstacles being cleared, the barrier of legal risk on the market would be removed, resulting in a surge in supply and a gradual increase to inventories.

The abundance of supplies would lead to more competitive prices as developers would no longer hold a monopoly and would have to sell properties at more reasonable prices in accordance with market mechanism. The secondary market would cool down as the abundant supply would result in a profit decline for the rental market.

Despite presenting these two opposing scenarios, Kiet predicted that it would be very difficult for the market to have a supply boom in the next 6-12 months. He therefore evaluated that 2020 would likely be a favorable year for developers who already have licensed projects that are ready to be sold to the market.

The secondary market would continue to warm up as the primary market's supply would still be limited while housing demand continues to increase due to buyers in the Millennials generation (born within 1980-2000).

2020 would be a difficult year for buyers as the market would have too few options while prices would still be rising due to limited supply, Kiet added.

Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association (HoREA), said legal issues were the main reason for the lack of supply last year, especially in the affordable housing segment, causing prices to escalate.

He said between July 2015, when the Housing Law came into force, and August 2018, as a result, 126 mixed-use projects could not comply with investment procedures despite having in-principle approval.

"They could not obtain approval for 1/500-scale detailed construction plans."

Besides, since March 2017, on the government’s instructions, 150 housing projects involving public land have been put on hold for scrutiny. 

"By February 2019, 124 out of the 150 projects had been allowed to resume, but many of them are still facing uncertainties," Chau said.

According to a HoREA report, only 12 housing projects were approved in the first nine months of 2019, a 72 percent decline year-on-year. It cited conflicting provisions in various laws regulating the sector that made it difficult for developers to obtain licenses.

Nguyen Van Dinh, general secretary of the Vietnam Association of Realtors, said legal troubles are nothing new and would continue to be a bottleneck for the market, especially since provinces and cities are reviewing and amending their land administration regulations.

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