Many challenges in the short term
Savills' recently released Ho Chi Minh City real estate market report for the fourth quarter of 2023 shows that the apartment segment is experiencing many short-term challenges.
Accordingly, the primary supply in 2023 will only reach 10,700 units, the lowest number in the past 10 years. In the fourth quarter of 2023 alone, the primary supply will be 7,600 units, unchanged quarter-on-quarter but down 5% year-on-year. New supply accounts for 37% of the primary supply. Of which, two prominent projects, The Privia and the next phase, The Glory Heights, led 88% of the new supply. Meanwhile, the report did not record any new Grade A supply in the quarter.
In addition, the number of apartment transactions in the past 10 years has also decreased by 7% each year. In the context of scarce supply and high selling prices in 2023, the market recorded only 6,200 transactions. In the fourth quarter alone, the transaction situation improved with 3,000 units, an increase of 52% quarter-on-quarter and 120% year-on-year.
Primary supply recorded in 2023 is the lowest in the past 10 years.
Mr. Troy Griffiths, Deputy Managing Director, Savills Vietnam commented: “The short-term challenges of the apartment segment still come from the scarcity of new supply and high selling prices. When homebuyer sentiment improves and there are not too many alternative investment options, the housing market will recover.”
Absorption improved 14 percentage points quarter-on-quarter and 23 percentage points year-on-year to 40%. New supply accounted for 78% of the transaction volume and was absorbed 84%; these projects performed well thanks to clear legal documents before launch, long payment terms, bank loan support and accessible prices from VND2-5 billion/unit. Excluding new supply, market transactions remained weak with only 670 units sold, corresponding to an absorption rate of 14%.
Report on apartment transactions according to Savills data.
One positive point in Savills data is that in 2024, new supply is expected to increase fourfold compared to 2023. Grade B will account for 44% of the market, Grade A will have 37% while Grade C will only have 19% of the market. By 2026, 40,800 units from 116 projects are expected to be launched.
Affordable apartments are only found in provinces surrounding Ho Chi Minh City.
According to Savills' report, primary selling prices in the fourth quarter of 2023 returned to the 2020 level of VND69 million/m2, down 36% quarter-on-quarter and 45% year-on-year after many expensive projects had to temporarily close their inventory. Along with that, products under VND2 billion completely disappeared from the market last year. Supply priced from VND2-5 billion led the market with nearly 90%.
Between 2024 and 2026, the supply of apartments priced between VND2-5 billion will decrease significantly, while products in the VND5-10 billion range will dominate the market. Buyers in Ho Chi Minh City may choose to explore neighboring provinces for more affordable housing options. By 2024, Binh Duong, Dong Nai and Long An are expected to account for 96% of the supply of apartments priced below VND5 billion.
According to a survey by Savills in 2023 at 30 Grade A and B projects, rental yields were stable year-on-year at 4.8% but asset value growth decreased by 1.9 percentage points year-on-year to 2.9%/year. Therefore, the total profit from apartment investment in 2023 decreased by 1.7 percentage points year-on-year to about 7.7%/year.
Ms. Giang Huynh, Deputy Director, Head of Research and S22M Savills HCMC analyzed: “Investment profits from apartments in HCMC tend to decrease slightly in the period of 2019-2023. According to our data, areas such as the old District 2, District 3 and District 10 have had the highest investment profits in recent times".
Ms. Giang Huynh, Deputy Director, Head of Research and S22M Savills HCMC
Over the past decade, the supply of new apartments in Ho Chi Minh City’s 22 districts has seen a decrease of 253,000 units. Notably, supply in the old District 9 area decreased by 21% with a price increase of 15% annually. Supply in District 1 also decreased by 2% but witnessed a significant annual price increase of 39%.
This expert also said that although total profits have decreased over the past 5 years, they are still higher than deposit interest rates. This shows that apartments are still a profitable investment channel. In the short term, rental yields are expected to increase due to a decrease in the number of apartments handed over and deposit interest rates will remain low.
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