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|Savills Vietnam managing director Neil MacGregor|
The fundamentals of the Vietnam real estate market remain strong and many international investors still have considerable “dry powder” ready to invest when liquidity returns. However, risk appetite will change and so must pricing expectations to accommodate this. There have been a limited number of M&A transactions driven by foreign capital in recent years; however for local developers seeking an injection of capital, opportunities abound. Savills are actively working with multiple local real estate groups to restructure their portfolios, strengthening their access to capital and assisting with refinancing. Once sellers adjust their pricing expectations to reasonably reflect the broader impacts of the crisis, capital from foreign investors will quickly follow.
The real estate market is set for a challenging period, which has the potential to reverberate throughout the economy. However, whilst the recovery will vary significantly across different sectors and sub-markets, the government has done a good job to position the economy for a quick rebound that should encourage a return to positive activity in the real estate market.
During 2019 the real estate market had already ground to a halt as developers worked to obtain approvals and the market suffered from a lack of new supply. The authorities have an opportunity to give the economy a strong boost from a revitalised real estate market, released from the shackles of slow approvals and allowed to become a powerhouse for the Vietnamese economy to grow.
With government support, the real estate market has a good chance of a strong recovery in the second half of 2020.
It is certainly true that retail and hospitality have been hit particularly hard. Whilst retailers may now be able to work towards a recovery in sales, bricks and mortar retail developers face the longstanding threat of the shift towards e-commerce, which has accelerated further over the last few months.
Hospitality has a long road ahead, with the prospect of tourists returning on normalised international flight schedules still many months away.
However, there are some bright spots with the rapidly-growing domestic market set to play a much more important role over the next 18-24 months. Destinations that had struggled to gain momentum pre-crisis, such as Mui Ne, Ho Tram, and Dalat have found a place in the so-called new normal, with the growing middle class flocking to these destinations once social distancing was relaxed.
In office markets in Vietnam, especially Ho Chi Minh City, things have been tight for some time with limited new supply. So, whilst we may see more movement from occupiers looking to save costs, the overall impact on office rents over the medium to long term will be limited.
For Vietnam, although a slowdown in global consumer spending may have a short term impact on manufacturing orders, industrial and logistics real estate is set to remain in strong demand.
How are developers preparing for resuming the market as things try to get back to normalcy?
The key challenge for the residential market is the aforementioned slow approvals, and this will remain the key focus for many developers to be able to recommence their projects. The demand for more affordable products remains strong and this will be the bright spot for the market over the coming 18-24 months.
The higher end of the market will face some headwinds, as buy-to-let investors reassess achievable total returns and foreign buyers are unable to visit.
Savills is actively working with a number of developers to help overseas buyers overcome the challenges of buying remotely and government support in this area would certainly assist.
A good starting point would be for the government to encourage local authorities to start issuing pink books to foreign buyers, which has been incredibly slow and has impacted the reputation of Vietnam as a secure investment environment for foreign investors, despite the clarity offered by the changes in the law back in 2015.