HoREA: no grounds for a property crisis, but Ho Chi Minh City is short of affordable homes

After years of booms, busts, recovery and growth, the property market slowed in the first half of 2018, in both supply and the number of transactions. Nowhere was this clearer than in Ho Chi Minh City, where total housing supply from projects fell by 44.5%. Amid concerns that the market was entering a ten-year crisis cycle, HoREA said there were not sufficient grounds to conclude that a property crisis would recur.

A supply mix turned upside down

Supply in the high-end and luxury segment fell by 25.9%, yet still accounted for 41.8% of the total. The mid-range segment declined by 32.6% to 37.7% of supply. The affordable segment fell most sharply, by 69.7%, leaving it with only 20.5% of supply. HoREA described this as a mismatch between supply and demand, and a sign of unsustainable development.

“In a balanced, sustainable property market, affordable apartments account for the largest share, followed by the mid-range segment, with high-end apartments the smallest,” the association explained. The acute shortage of low-cost commercial apartments, social housing and affordable rentals within reach of workers and low-income households, it warned, leaves the city’s market exposed to instability.

Why this is not 2007

HoREA Chairman Le Hoang Chau based his view on a study of the two previous bubbles, in 2007–2008 and 2009–2011. In 2007, Vietnam’s GDP grew by 8.48%, and Ho Chi Minh City’s by 12.6%, its highest in the ten years since 1997, making money easy to come by for many businesses and individuals, with real estate a favoured outlet.

A more direct cause was loose credit: lending grew by more than 37% in 2007, large volumes of credit and capital flowed into real estate, and banks were not strict in their lending. The market was already tilted towards the high-end segment, crowded with secondary investors and brokers, and prices rose frequently as speculators pushed them far above real value. The authorities, meanwhile, did not use tax, credit and planning tools in time, or effectively, when the signs of a bubble appeared. According to Chau, the 2010 bubble was also fuelled by the stimulus package of mid-2009, some US$1 billion of which was used for the wrong purposes and spent on real estate without tight control by commercial banks.

Weighing those causes against current conditions, Chau concluded that no bubble would form in late 2018 or in 2019.

Two land fevers, and a cooling ahead

HoREA’s report also noted that, between early 2017 and mid-2018, there had been two speculative fevers in land plots and illegally subdivided agricultural land, in several outlying districts of Ho Chi Minh City and around the areas earmarked as special economic zones. Speculators and land brokers created waves of activity to push prices far above real value. These fevers drew part of the available credit and investment capital away from apartment projects.

The association expected the land fever, spontaneous plot sales and the condotel segment to stall and return to real values.

Affordable homes to lead the recovery

HoREA forecast that the market would pick up in the final months of the year and towards Tet 2019. Affordable homes would see strong growth and, together with the mid-range segment, would dominate the market. The basis for this is a new construction standard, expected shortly, allowing commercial apartments smaller than 45 square metres, which will encourage investment in low-cost apartments, including rentals.

The association urged developers to focus on small and mid-sized homes priced within reach of ordinary buyers, at around VND1 billion per unit: the core of the market, and the most liquid. At the high end, developments will compete on distinction and integrated services. “Smart residential areas, buildings and apartments that use renewable energy, are friendly to the environment and guarantee safety, security and fire protection will be highly favoured,” HoREA said.

Sources: The Saigon Times, Zing