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Tony Milton MRICS

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Office market continues to challenge developers after 1st Quarter – April 2011
Monday, 04 April 2011
The first quarter of this year is over, but the worries and challenges for many land­lords
The first quarter of this year is over, but the worries and challenges for many land­lords and project develop­ers who see their business moving sluggishly,' continue. Like other sectors, the local property market has faced pressures of an increase in interest rates and input costs given that prices of most commodities and materials are on the rise. Across the market, most realty sectors recorded a decrease in sales in the past quarter, forcing landlords and developers to offer different incentives to woo potential clients who now have many options and advantages in deals given the abun­dant supply. "Many property developers look as if they were sitting on fire during the first three months of this year, working with ail efforts to cope with difficulties to survive and to grow," Le Hoang Chau, chairman of the HCMC Real Estate Association (HoREA), was speaking to participants at the association's real estate night themed 'Vietnam Real Estate Update and Market Overview' held at the Wind­sor Plaza Hotel in the city's District 5 last week. Chau noted that by issuing the Resolution 11/NQ-CP featuring solutions including controlling infla­tion, stabilizingmacro economy and social security, the Government had tried to help the local economy, but the policy has only had a moderate impact. Under the policy, the State Bank has set a target to limit credit for the property sector below 20%. Chau highlighted that increased interest rates, high inflation and the increase in electricity and petroleum prices were elements that put more pressure on the market. Chau reiterated the fact that property developers could suffer the increase in input costs and high interest rates. The problem was that the local property market remained quiet, especially in the luxury condo segment. Three years ago, a credit tighten­ing policy was applied, causing a lot of difficulties to the property market. However, many developers at that time had weathered the storm thanks to their financial sources ac­cumulated from the golden age in previous years. However, the prolonged gloomy market in the last three years is continuing to test the nerves of many developers. It is expected to see some developers hit hard by the credit crunch escape from the market by transferring their projects to rich companies, or to cooperate with oth­ers for project development. "Many developers faced a lot of difficulties in 2008, but they will face a double challenge this year," Chau said. Talking to participants at the event as a speaker and representing a property services company, Marc Townsend, managing director of CB Richard Ellis Vietnam (CBRE), said CBRE earned no money in the first quarter of this year as it received fewer inquiries for office space and condo sales than the same period of last year. Office rents continued to soften, offering a great opportunity for ten­ants who want to expand their office space. Given an abundant stock plus a significant amount of new supply, tenants are now shopping around for office space. According to CBRE, the HCMC of­fice market has recorded the Grade A rent offered from US$35-40sqm, down by 1% against the previous quarter, while the Grade B rent was around US$20sqm, down by 5% against the previ­ous quarter given a stronger supply in the segment. The office market was awash with over 1m sqm of of­fice space across the market, in which Grade A office accounts for 250,000sqm. Vacancy rate across the market is recorded at around 25%. Townsend projected that grade A rents would continue to soften in the coming time due to a large quantity of supply. Besides offering incentives in a flexible approach to attract ten­ants, most new office buildings need time, even a year, to fill their spaces. He foresaw that net absorption this year would not exceed the record 227,000sqm absorbed last year, and most of this year's net absorption would come from Grade B and C office buildings. Regarding the residential sector, Townsend said many high-rise developers were entering this year with large amounts of stock, primar­ily condominiums. As of the first quarter of this year, there were some 95 condo projects with some 46,600 apartments across the market. Stiff competition has resulted in a fight for buyers with developers becoming more aggressive and more creative to fuel sales such as lucky draws for cars and motorbikes. Speculators are absent in the market given poor liquidity, and most buyers are end-users or investors who buy apartments for lease. Townsend said that the policy change to reduce gold and dollar trading and people's fears that their money will lose value in the bank may lead to an increase in residential purchases. He, however, said the market feedback depended on the future of the economy, and that buyers main­tained their 'wait and see' attitude hoping prices and interest rates will come down in the foreseeable future. SGT
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