Vietnamese people are not rich but like to live in luxury apartments

By 2016, the luxury apartment segment accounted for 44%. Is it true that Vietnamese people are getting rich so fast that they have a need to live in luxury homes?

Jones Lang LaSalle (JLL) Vietnam has just released a report assessing the potential of Vietnam's real estate market with shocking numbers for the poor who intend to buy a house. According to JLL's forecast for the period 2016-2018, apartment prices are expected to increase by an average of 5-7% per year, while low-cost apartments alone can accumulate an additional 10% per year, equivalent to a 30% increase in the next 3 years.

Sad for the poor and happy for the rich

If JLL's predictions come true, real estate will become the most attractive investment channel for rich people. No need to do anything strenuous, just buy a cheap apartment, wait for the price to go up and resell.

Because no industry can have a 30% growth rate in 3 years, and have top capital safety. Perhaps, this forecast brings joy to the rich but sadness to the poor.

The average income of Vietnamese people is only about 1/4 of that of Thailand, but the structure of high-end housing in Vietnam is equivalent to that of Thailand.

With current housing prices, poor Vietnamese people cannot afford to buy a house, not to mention that housing prices increase by 10% each year, while the income of the majority of people does not increase significantly. It can be said that with limited financial capacity, the annual income increase is insignificant, even though the Government has support programs, in reality, it is increasingly difficult for the poor to reach their dream of owning an apartment to settle down. According to calculations by the Ho Chi Minh City Real Estate Association (HoREA), housing prices in Vietnam are 25 times higher than the income of the majority of people. Meanwhile, housing prices in developed countries are only 5-6 times higher than income. That means, the difficulty in accessing housing for Vietnamese people is 5 times higher than that of people in developed countries.

On the other side, a small group of high-income earners still dominate the housing market in Vietnam’s major cities. Cash continues to flow into the attractive investment channel of real estate.

According to JLL data, in the first half of 2016, there were 16,800 successful apartment transactions, 250% higher than the number of apartments sold in the entire period 2011-2014. Not only has the number of transactions increased sharply, but the quality has also increased significantly following the trend of increasing apartment values ​​every day.

In 2011-2014, the high-end and luxury apartment segment accounted for only 10% of the market basket, in 2015 it jumped to 27%, nearly tripled, and in the first half of 2016 it reached 44%. JLL also forecasted the overall growth rate, housing prices in Vietnam will increase by about 5-7%/year.

Indulge in real estate

According to JLL, the total supply of apartments in Ho Chi Minh City is currently about 80,000 units. Of which, the affordable apartment segment accounts for 43%. This is a much larger number than the figure that HoREA gave at the beginning of 2016, which was about 57,000 units.

Also according to JLL, within the next 3 years, based on the number of apartments offered for sale, the apartment supply is expected to increase by 74%. For the high-end and luxury apartment segment with selling price > 2,000 USD/m2, the supply is even expected to double.

The surge in supply, JLL explained, was due to confidence in the growing economy, which helped restore returns on real estate investments. In November 2014, a new policy was introduced that allowed foreigners to buy 30% of the value of any apartment building or a maximum of 250 residential units in any area.

This policy officially took effect from July 2015. Foreigners are allowed to own the purchased property for 50 years and have full rights to lease, transfer or resell the property. They can also extend their ownership after 50 years depending on approval. This is the reason why investors are more interested in real estate in Vietnam.

Despite the sudden increase in supply, JLL reassures investors that the market will be able to absorb this supply. The current apartment supply compared to the population density in Ho Chi Minh City is still quite low when compared to other countries in the Southeast Asian region, even when taking into account the number of future apartments being offered.

However, the supply in the high-end and luxury apartment segment is currently quite high, especially after the projects are completed. JLL estimates that the density of high-end apartments per capita in Ho Chi Minh City will reach 3 units per 1,000 people, almost equivalent to the levels in Bangkok (Thailand), Kuala Lumpur (Malaysia) and Manila (Philippines), but still higher than Jakarta (Indonesia).

The real estate market may have strange developments in the short term, but in the long term, it certainly cannot escape the laws of supply and demand and payment capacity. Payment capacity depends on the actual income of the majority. It is these strange developments in the market that are forcing the management agencies to take action.

Risk of real estate bubble

The forecasts of the companies are very optimistic about the real estate market. On the contrary, the actual developments of the market show a real concern, which is the risk of a real estate bubble.

Data from market research companies shows that the number of successful apartment transactions in the second quarter of 2016 decreased by 45% compared to the first quarter of 2016. Data from the Department of Housing and Real Estate Market Management (Ministry of Construction) also shows a trend of exhausted demand for home purchases in recent times.

In July 2016, in Hanoi, there were about 1,250 successful transactions, down 3.85% compared to June 2016. For Ho Chi Minh City, there were about 1,200 successful transactions. However, the number of transactions has shown signs of slowing down and decreased by 4% compared to June 2016.

According to the Vietnam Real Estate Association, the phenomenon of increased supply but decreased transactions and mainly concentrated in the mid-high-end market segment has shown the inadequacies in the supply-demand structure of goods. From this reality, the Vietnam Real Estate Association recommends that State management agencies need to have measures to control the market, especially paying attention to the quantity, supply and progress of projects in the high-end segment to better suit the real needs of the market.

Previously, the Ministry of Construction also noted that Ho Chi Minh City and Hanoi need to have measures to regulate supply to avoid deviation and excessive development of high-end real estate. The State Bank has taken measures to adjust the capital flow that is pouring too much into real estate.

According to LDO