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Tony Milton MRICS

BSc (Hons) Est Man
MRICS
APREA (CREIF)

HCM Residential
Friday, 27 February 2009

      RESIDENTIAL MARKET                                             

 

 

BACK-GROUND                   

 

Over the last 30 years the number of buildings in HCMC has grown 3-4 times and is expected to grow by 4-5 times by 2020. More than 30% of HCMC’s households have a living space of less than 36 sqm while the minimum per capita area for each resident is estimated to increase to 40 sqm. Currenlty the per capita average area is 7-8 sqm although the HCMC Department of Housing and Land Management Services claim a per capita area of 10.27 sqm (citing 1,007,000 houses and apartments with a total housing area of over 52.7 million sqm) With this rapid urbaniza­tion, HCMC will have to develop 5 million sqm of housing a year to 2010 to increase the total floor space to 100 million sqm by 2010.

 

It is often said that land prices have never fallen in Vietnam. The rampant speculative ‘land fever’ of the last few years was partly because of the stock market boom, the fact prices are still often quoted in gold taels (which has risen in value greatly in recent years), and primarily because of the fact that the vast majority of buyers are prepared to pay a premium to become home owners coupled with the fact that ‘down-payments’ on off-the-plan developments was only about 10%, which could often be easily borrowed from a bank. For those with the resources to buy several houses and / or land plots, the pressure is now on to build / redevelop, in accordance with the new legislation, that is attempting to end the speculative trading in undeveloped land plots. Though prices remain very high – Vietnam is often cited as having the highest land prices in world relative to GDP – the Vietnamese population’s appetite for real estate remains unaltered (in common with their Chinese counterparts), despite the apparent overvaluation, as compared against bank interest rates. Since construction costs are so small in comparison with land prices and because the government is clamping down on undeveloped land trading, the result is huge amount of residential construction throughout the city, with almost every road and alleyway being temporary home to one or more gangs of construction workers. Also because of the high price of land, owners develop as much of the site area as possible (frequently 100% of the surface area – albeit in contravention with local laws and decrees and guidelines), and / or chop their land into ever smaller parcels. Typical unit sizes are 5m x 20m, developed into 3 to 4 storeys, and almost invariably with the stairs situated in the middle, thus making sub-division virtually impossible. Many of these new houses are second or third homes and are being built to rent. Because there is no ‘cost to ownership’ many of these landlords don’t mind if they rent their properties or not and so hold out for exorbitant rentals. Most avoid tax as well, so are seldom able to issue a Value Added Tax receipt, and the few that can and do, usually ask for tenants to sign two contracts: one for the property rental that excludes furnishings and which is low and declared to the authorities; and the other for the furniture, which is relatively high and is not declared.

 

 

MARKET PERFORMANCE                   

 

Before 1990, most of HCMC residents lived in town houses. Apartments are considered low-end due to the fact that most of them are built before 1975 and are in very poor conditions. Things have changed and more people have begun to accept apartments as an alternative to traditional houses. Some of the reasons are the emergence of high quality buildings at convenient locations and the better prices of apartments than of town houses. This change in attitudes towards apartment living has stimulated a boom in this market across all sectors, whether it be low, medium or high end. However, there is an increasing demand of medium and high-end apartments but a big gap between demand and supply has pushed up prices to a very high level. The price of apartments varies significantly depending on location, quality and facilities. At the end of 2007, average price was US$500-1,500 for standard apartments and US$1,500-5,000 for ‘international’ standard apartments, with some projects selling all their units on the first day of marketing. Suburban apartments are normally 30-40% cheaper than those in the CBD. Recognising the lucrative opportunity many investors are now entering this market and it is expected that there will be an enormous increase in new supply from about 2010 onwards.

 

 

DEMAND                   

 

The residential market development is driven by a number of factors, including but not limited to, increasing population in Ho Chi Minh City, changing in life styles, a growing young middle class urban population and the emerging availability of mortgages. People purchase apartments for various reasons, including but not limiting to, new settlement, upgrading or investment. The majority of the population are young and prefer staying in their own homes rather than living with several generations in a home. Buying an apartment is normally chosen because of better (price relative to land), the better facilities and location. Moreover, taking care of an apartment is much simpler than a town house. There is a rapid increase in the number of wealthy people who can afford high class apartments which offer better facilities and services as well as an improved natural and social environment. The high demand for serviced apartments has also had an impact on the condominum market as people have started buying to rent to to foreigners. Because of track performance of apartment market there has been an influx of speculators. The initial investment capital is not substantial and is paid by installments, so it is quite easy to register to buy an apartments and sell later at a higher price.

 

The city’s population increased on average 200,000 people per annum for the period of 2000-2005 and now stands at about 8 million. However, the actual number might reach 10 million if one includes the unregistered immigrants from other provinces and adjoining urban areas such as Bien Hoa. The City’s official population is projected to reach 7.2 million in 2010.

 

 

FINANCING            

 

Income per capita in 2005 is US$2,180 in Ho Chi Minh, which is over 3 times higher than that of the national average. The average income per capita growth rate is expected to be 10% per annum for the period of 2006-2010. The current housing price seems too high to most international analysts. Household and personal savings is the primary source of financing house purchases. Remittance from oversea relatives or borrowing friends is also popular secondary method of financing. There are a growing number of banks providing loans to apartment buyers. In most cases, the bank will lend up to 70% of the apartment value as long as the purchaser has paid the remainder. The developer must guarantee for the payment by deposited the “Certificate of Land Use Right” as a pledge. The developer will then exchange the “Pink Books” for “Certificate of Land Use Right” and be released from the guarantee obligations. “Pink Books” become the pledge of individual loans by apartment buyers. This method of financing sometimes is not accepted by some banks and developers. The fact that most of developers are offering deferred payment helps reducing cash pressure for apartment purchasers. The normal practice employed by developers is that: The buyer will deposit 10% and pay 20% of the contract value upon signing the contract. The remainder will be paid 20% of contract value upon completion of foundation and basement, 20% upon completion of concrete works of supper structure, 20% upon hand-over of the apartment to the buyer and the rest 10% will be paid when the buyer receive the “Pink Book”. In addition to the apartment value, the buyers will have to pay 10% value added tax VAT (which might be included or excluded in the sale price) and 1% of registration fee to receive the “Pink Book”. Gold is most common method of payment for housing purchase. However, for apartment building projects, price is normally VND dominated and / or  USD$ dominated in some cases.

 

 

SUPPLY                   

 

In late 2007 the HCMC's Institute for Urban Studies & Infrastructure Development (IUSID), said that the city had 84 apartment projects at various stages of development so towards the end of 2009 these projects will supply more than 30,000 units with prices of USD$2,000-2,500/sqm for hi-end apart­ments and USD$400-800/sqm for others, so the supply on the real estate market in HCMC is very big. The Natu­ral Resources and Environment Department say that the sup­ply in the city would be huge in the times to come because in 2006 and in the first half of 2007, HCMC authorities transferred 1,200 hectares of land to develop new urban areas, and assuming one hectare is equiva­lent to 300 apartments, this means that the city will have 300,000 apartments. More than 60% of current apartment buildings were built before 1975, of which 90% are in the inner city. Average areas of these apartments is 30 to 50 sqm. Services and facilities are minimum and normally shared with little active management. Furthermore, 105 out of these 445 buildings are in very poor conditions and need to be demolished. The City has set the target to increase average area per capita from 10.3 sqm in 2005 to 14 sqm in 2010. To meet the goal, housing stock needs to increase from 73 million sqm to 112 million sqm, an equivalent of 5 million sqm of new houses per year.

 

The southern section of the city is comprised of Dis­trict 7, District 8, Nha Be and Birth Chanh districts. In the past, these areas were filled with fields and canals and only very few residents because 90% of the land suffered from salination, therefore produc­tion and crops suffered. The city's southern area also consists of the Tan Thuan Processing Zone, Hiep Phuoc Electric Plant. Hiep Phuoc Industrial Zone, and a deep-water sea port that will be built in the near future. So far, the area has attracted nearly 100 projects with total investment of around USD$1 billion. The Nam Sai Gon ‘Saigon South’ Urban Area project aims to create a new, mod­ern and civilised living space. So far, the Phu My Hung Joint Venture has com­pleted more than 400 hectares of accommodation. Can Gio is a coastal district, located southeast of the city, 50km from the centre, with 50% of its area com­prised of mangrove forests. At the end of 2007 the Can Gio Marine Tour­ism and Urban Area Joint Stock Company started building the Can Gio tour­ism and urban area (also known as the Sai Gon Sunbay) reaching as far as the sea in Long Hoa Com­mune and covering 600 hectares. Investors expect to encroach further on the sea to build a modern ecological urban area that would meet the accommo­dation demands of 33,000 people, and boost eco-tour­ism in the Can Gio area. The Phu My Hung Com­pany has built a 17.8krn long and 120m wide thor­oughfare, at a cost of $79 million, with 10 lanes linking the city's inner districts and passing through Phu My Hung urban area. With its advantageous lo­cation, rivers and canals, Nha Be District will become the largest industrial zone with a sea port in HCM City. With this goal, in the early days of 2008, the city put into operation a passage on the Soai Rap River, providing one more way for marine ships to enter the Sai Gon Port. Soai Rap River has the abil­ity to serve ships with a ca­pacity of 15,000 tonnes but the city plans to dredge the river more so that it can be used by 50,000-tonne ships. This will increase the moti­vation to develop the sea port-urban area of Hiep Phuoc which covers 3,600 hectares and serves many functions for sea port, indus­try and service develop­ment. The Hiep Phuoc sea port project was started by the international P&O port group in mid-2006 and will serve as a gateway for the city to de­velop other sea port ser­vices and will be an impor­tant method to transport commodities between HCM City and provinces in the Cuu Long (Mekong) Delta. In the past, very few people in HCM City would have wanted to live in Nha Be District, because the area was so far from the city centre and with very poor living conditions. In recent years, however, a series of projects and new urban ar­eas have been developed in Nha Be as it continually changes its face as a modern urban area, with mushrooming residential zones and other construction in the service sector.

 

 

HOUSING FOR LOW INCOME EARNERS      

 

Despite the enormous investment in high-class buildings, projects for low-end apartments are still limited. However, demand for this segment is huge and is expected to increase rapidly for many years to come account for the fact that medium and high-end apartments are too expensive for most of HCMC residents. The city has initiated plans to build apartments for relocated people and low-income earners. In early 2004 the city formed the City Housing Development Fund with initial investment capital of US$ 63.5 million to finance construction of houses for low income earners and relocated people on a non-profit basis. People classified as low-income earners will be allowed to buy houses on instalments over a period of 10 to 15 year period. Meanwhile, poor people who have been identified as those who earn less than US$1 a day will enjoy a repayment period of 20 to 30 years. In March 2004 the Department of Construction and Department of National Resources and Environment passed a plan to build 60,000 apartments for payment in instalments. Each apartment will have an area of 50sqm and be sold at around VND200 million (USD$12,690). The buyers pay 30% in advance and the remainder will be paid in instalments over 10 – 15 years. Total investment for this project is VND15,000 billion (USD$ 952 million). In October 2004 the city submitted to the Government a project to build a resettlement area in South Rach Chiec, An Phu Ward, District 2 for relocation of households affected by the Thu Thiem New Urban project. The total area of this resettlement project will be 902,607 sqm, including 5,481 apartments.

 

In May 2005 the City approved a housing scheme called Low-income-earner Housing Program worth US$1 billion. The project is part of the city’s program to provide 10,000 apartments for lease and 60,000 apartments for sale between now and 2010. The project owner will build 30,000 houses in the first phase of the project at city outskirts of Saigon South (District 7 and Binh Chanh), District 9, 12 and Nha Be. Apartments will have floor space of between 36 and 108 sq m and be sold at an average price of 5 million VND/sqm. The  first apartment blocks were started in Binh Chanh  in September 2005 and expects to complete in 18 to 24 months.

 

To encourage investment into building houses for low-income people, the city is providing more incentives such as giving low-cost housing projects exemption from all land use fees and house trading taxes for the first 5 years, and providing developers with soft loans from the Housing Development Fund or other sources with an annual interest rate of 4 -5%. China’s Nanjing Overseas Engineering have since announced plans to invest USD$80 million in apartment buildings for low-income people in Tan Chanh Hiep Ward, District 12 to be sold under deferred payment terms for 5 – 15 years. The Korean National Housing Corporation also still hve plans to team up with Saigon Real Estate Corp (Resco) in a billion dollar project to build 60,000 apartments for sale to low income people in the city.

 

 

HIGH-END & MEDIUM APARTMENT MARKET       

 

Although Phu My Hung launched first apartments of this kind in 1998, the market became active by the start of a wave of high-class apartment projects invested by local developers such as Pasteur Court, The Manor and Lancaster. Good market signals attracted foreign investors to the market, however, most of them targeted at medium-class apartments. High-end and medium apartment market are currently of particular interest to investors. Image plays an important role to the success of a project and buildings normally offer 1-4-bedroom apartments, but 2-3 bedroom apartments predominate. Average area is 83 sqm for one-bedroom apartments, 76 sqm – 125 sqm for two-bedroom apartments, 88 sqm – 263 sqm for three bedroom and 116 sqm – 260 sqm for four-bedroom apartments. Apartments are interior decorated before handing-over. Facilities normally found at the buildings are 24 hours security services, swimming pools, cafeteria, convenient stores and parking lots. All high-end buildings are managed by professional companies while medium-end building owners might appoint their own management team. Besides the purchasing value, residents in these buildings have to pay monthly fees of different kinds. Some of them are service charges of USD$50-100 / month for high-end apartments and USD$20-50 for medium-end ones; management fee of USD$10-20 / month / apartments and parking fees of about USD$30-40 / month / car space. Average development cost of medium-end apartments is USD$600-800 / sqm of which about 20% is usually land cost, 60-65% construction costs, and about 6-8% for consultancy and management fee. Development costs for high-class apartments are around 50-70% higher than that of medium-end apartments. At the current market prices, investing in high-class buildings seems more profitable than investing in medium-class buildings. The majority of end-users of these types of houses and apartments are ‘high-class’ Vietnamese, some foreigners and oversea Vietnamese. People in these classes are becoming increasing interlinked socially and in business as their life-styles change, and so demand for these kind of properties are expected to rise for the next several years. However, the high cost of living, inflation and increasing difficulty in accessing finance for these buildings is starting to affect the market performance.

 

In addition to the emergence of an increasingly affluent ‘middle class’ in the major cities (from a little over 30% in 1999 to 55% 2006), there are an increasing number of foreign­ers interested in owning condominiums, especially close to the city centre where many perceive that rentals and values will continue to increase and remain consistently strong. However the unavailability of any legal rights ‘in’ condominiums (as opposed to leasehold contractual rights ‘over’ property), have sufficiently deterred most such potential foreign buyers from investing. However, as part of Vietnam’s WTO commitments there is talk of foreigners being able to acquire 99 year hold interests. Similarly, more and more of the 3-3.5 million Viet Kieu are now eligible for real estate purchases in Vietnam.

 

 

TOWN HOUSE & VILLA MARKET                   

 

Townhouses are generally 4-6-metre wide and 2 to 4 floors high. The ground floor is almost always used as a retail shop or office space if on a main road, and frequently even if on a minor road. Villas, are detached buildings with a garden and sometimes a swimming pool. In Ho Chi Minh City there are very few such large houses and gardens have long since been sold or leased off, so most such houses are located in the An Phú and Thảo Điền areas of District 2 or elsewhere in the suburbs.

 

Most town houses these days are built by individuals who acquire a plot of land, however there have been some villa development projects away from the CBD area which command prices of between US$500,000 and US$1.5 million.

 

The tenants of these villas are mostly expatriate families working in Ho Chi Minh City (often in District 1). Each family usually comprises 4 members and preference is given to 4 bedroom villas of about 200-500 sqm. The rental prices of the villas on estates in District 2’s Thao Dien range from USD$3,000 to $10,000 depending on the exact location and facilities.

 

In most cases Villa values are much higher than those commanded by condominium units: however they tend to be on a large scale and therefore require greater maintenance, most sought after villas are those that are in a compound and therefore have good management and security. Some of the existing villas estates include : -

  

 

         

CONDOMINIUM MARKET

 

There is strong and growing demand for residential accommodation of all types though the development of apartments in relatively new. Due to the poor construction quality of the few multi-storeys in the 1970’s and the (then) lack of any laws governing maintenance and management, most residential still prefer to buy land and houses. Furthermore, due to poor planning laws these can also double up as ‘shop-houses’ with ground floor commercial space, and extended family can also be squeezed-in. However, more young people are seeking independence and the construction quality and ancillary services now being provided by newer apartments are proving very attractive, especially given their relatively ‘cheap’ price in comparison with the alternative of buying land and / or houses. Hence, apartments are also proving popular with foreign and local developers as they also offer a quick payback period. However, short 10 to 15 year income-based mortgages are to a degree stifling demand.

 

 

 

Since 1997 city authori­ties have allocated 6,360 hectares of land for 766 housing proposals made by real estate developers but only 400 housing units covering 1,400 hectares have been built so far. Figures from the HCMC Service of Construction show that around 180 apartment projects are under way in the city with about 15% of them high class / international standard.

 

 

 

 

 

 

 

 

 

Some Significant Existing & Upcoming International Standard Projects

          Name                                    Address                          Year of completion

          The Manor                              91 Nguyen Huu Canh, BT           2006                  

          Avalon Saigon                         53 Nguyen Thi Minh Khai, Q1     2006          

          The Lancaster                         22-22 Bis Le Thanh Ton, Q1       2007          

          Cantavil                                  An Phu, Q2                               2007         

          The Manor Officetel                 91 Nguyen Huu Canh, Q1           2007          

          Sailing Tower                          51 Nguyen T Minh Khai,D1         2008         

          River Garden                           Nguyen Van Huong, Q2             2009         

          Saigon Pearl                           92 Nguyen Huu Canh, Q1          2009          

          XI Park Tower                          23/9 Park, Q1                           2010         

 

Last Updated ( Wednesday, 06 May 2009 )
 
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