What challenges will the real estate market face?

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The real estate market experienced a sharp decline in the first nine months of 2018, both in terms of project and product supply and transactions across all market segments. In addition, localized speculative bubbles in land prices, agricultural land, and illegally subdivided land in some areas across the country have absorbed a significant amount of credit and social capital, negatively impacting the market.

The high-end and mid-range real estate segments continued to dominate the market supply in 2018. However, the high-end segment also showed a clear shift towards prioritizing quality, smart, green, and environmentally friendly features. This trend is expected to continue in 2019. Industrial real estate is likely to experience strong growth in 2019 due to the trend of investors relocating production to Vietnam, leading to increased demand for office space and rental apartments.

The housing segment with high liquidity in the market, but still insufficient to meet demand, is affordable commercial housing and social housing. The market is experiencing a supply shortage, but investors are not enthusiastic because the profit margins in this segment are not substantial.

The real estate market in 2019 is predicted to face many difficulties.

Professor Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, argues that developing social housing projects to meet market demand is unsustainable for any budget. Therefore, the focus should shift to affordable commercial housing, and this segment should be encouraged.

"The government supports commercial housing through policies such as tax reductions and administrative procedure support... thereby attracting more businesses to invest in this segment, helping low-income people buy affordable housing," Professor Vo said.

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According to the Ho Chi Minh City Real Estate Association (HoRE), the most worrying issue in the real estate market in the last months of 2018 and in 2019 is the imbalance between supply and demand. The supply of real estate still fails to match market demand.

Businesses are facing challenges as the State Bank of Vietnam implements a roadmap to restrict credit to the real estate market. However, this also presents an opportunity to restructure businesses, reorganize investment capital, and gradually reduce dependence on credit loans in order to develop stronger and more sustainable businesses.

HoRE recommends that businesses focus on the small and medium-sized housing market segment (1-2 bedrooms) with affordable prices. Businesses should increase their equity capital to strengthen their internal capacity and prioritize cooperation, joint ventures, alliances, and mergers to form real estate conglomerates.

Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, suggested that businesses should consider converting into joint-stock companies to facilitate raising capital from the public and aiming to become public companies to qualify for listing on the stock exchange. Businesses need to strive to meet the requirements for issuing corporate bonds, project bonds, issuing shares, and ultimately, listing on overseas stock exchanges.

“The trend of businesses choosing reputable and financially capable foreign direct investment (FDI) companies and funds for investment and business cooperation is also a source of capital mobilization. This enhances project development, strengthens resources, and gradually reduces dependence on bank credit,” Mr. Chau said.