2 contrasting scenarios for the 2017 real estate market

Real estate in the Year of the Rooster may surprise with a continued surge in land prices and an explosion in the supply of affordable apartments, but it may also face a cautious 5-year cyclical slowdown.

General Director of Nam Phat Investment Consulting Company, Nguyen Mac Hoai Nam, assessed that the Vietnamese real estate market has experienced 3 consecutive years of growth (2013-2016). Therefore, the development of 2017 becomes more unpredictable when the opportunity for a breakthrough still exists but the fear and hesitation have begun to grow.

This expert gave two contrasting forecasts for 2017, the first scenario was bold and the second scenario was extremely cautious to predict the market outlook in the next 12 months. Mr. Nam called 2017 a turning point year that will determine the strong shift of the market.

In 2017, the real estate market faces two crossroads: one is a bold growth scenario, the other is a cautious slowdown scenario. Photo: Vu Le

Bold scenario: Real estate continues to grow 40%

In this scenario, land prices are the focus leading the market up with the appearance of many new factors. Land prices in old areas such as: District 2, 7, 9, 12, Thu Duc, Go Vap, Tan Phu, Binh Tan may continue to increase at a narrower range than in 2016 but the price increase rate still reaches the ideal level: 10-15%.

The districts that are being planned to become districts: Binh Chanh, Nha Be, Hoc Mon are considered new factors that will receive a positive psychological boost. Therefore, these three areas have the opportunity to increase prices by 20-40% depending on the location. Land prices in the suburbs or bordering Saigon also have more expectations of a breakthrough thanks to gradually improving infrastructure, increasingly positive urban renovation and the heavy mentality of holding on to land and investing in accumulating assets.

The second important factor creating a long-term growth momentum for real estate is the race to build low-cost housing by large branded enterprises. After 3 years of the market falling into a state of imbalance in the product basket (many high-end and mid-range apartments but few affordable apartments), in 2017, low-cost apartments for the first time had the opportunity to lead the market with a huge supply and sudden liquidity.

Rising land prices along with a balanced basket of goods thanks to the breakthrough of "affordable" apartments can steer the real estate ship to the finish line in the Year of the Rooster with sales equal to or higher than 2016.

The conditions for this bold scenario to happen are that the macro economy continues to grow, the social environment is stable, the transport infrastructure is continuously improved, and the bridge, road, metro, and highway projects under construction are progressing quickly, exceeding the plan. The big challenge of this scenario is the situation of overload and serious traffic jams in Vietnam's big cities, and real estate prices increasing too quickly compared to the rate of income improvement of urban people, which can cause social instability.

Cautious scenario: Real estate faces the risk of a sharp slowdown

In this scenario, the real estate market is viewed from a cautious perspective in relation to the average 5-year growth cycle. According to this expert, in a common growth cycle of Vietnamese real estate, for every 3 years of growth (2013-2016), there are 2 years of deceleration (possibly falling into the period 2017-2018). This deceleration is considered an anti-doping solution (cooling down high-dose stimulants) to bring the market back to a state of balance.

If the cautious scenario takes place, land prices in 2017 will not increase by more than 20%, the average increase will only reach 7-10%, half of that in 2016. Landed real estate prices have had a stepping stone to increase since 2014, broke out strongly in 2015 and peaked in 2016. Therefore, 2017 will be very difficult to set a record of 4 consecutive years of increase.

Low-cost apartments have a strategy of pumping goods into the market with moderate doses to stimulate absorption capacity. Releasing goods in this way will avoid sudden supply increases, avoid local oversupply at a time, contributing to increasing purchasing power. The condition is that the house price must be truly affordable, targeting the group of people with the ability to pay in large cities. High-end and mid-range apartments have significantly reduced supply and are facing the problem of absorbing the huge supply that has been bombarded continuously for the past 3 years.

In the resort real estate segment (apartments, beach villas in resorts), 2017 will be a challenging time for projects with huge profit commitments. This market segment is forced to solve the problem of how to operate this giant chain of goods to achieve a profit of approximately 10% per year or more.

The conditions supporting the cautious scenario are the "tough" policy management for the real estate industry, from credit and investment policies to the issuance, implementation, and application of taxes to reduce speculation... When slowing down, the real estate market enters a phase of self-regulation and self-balancing to prepare to go further in the new cycle.

The General Director of Nam Phat Investment Consulting Company believes that there is a 50% chance for a bold scenario and the remaining 50% for a cautious scenario. However, which scenario will take place in the next 12 months depends on many variables. That is: how much money is flowing in the investment market in Vietnam, how the related investment channels (vents with real estate) including: gold, foreign currency, and stocks are performing. In addition, external factors such as the regional and global economy also have a significant impact on FDI capital flows into real estate.

According to VNE