Supply decreases, absorption rate increases
According to a recent report by Savills, supply of new high-end apartments in 2017 accounted for 20 percent of the total supply, but in the first 9 months of 2018, this figure was only 10 percent.
Last year, report of the Vietnam Association of Realtors (VARS) also recorded a quarterly decline in the supply of high-end apartments. Supply of new high-end apartments in the first quarter was 2,064 units, then decreased by 4.8 percent to 1,965 units in the second quarter Q2, and continued to drop by 6.4 percent to 1,840 units in the third quarter.
Ms. Do Thu Hang, Deputy Director of Savills Hanoi’s Research Department said: “Considering the whole market, the structure of apartment supply among segments is in a very balanced situation”. She expected the current balance of the market is likely to remain in the near future, as the supply of high-end apartments is predicted to be stable, accounting for 10-15 percent of the total new supply.
VARS’s report also pointed out an interesting fact that although the supply is declining, the absorption rate of high-end apartments is stable and tends to increase. Specifically, in Q1-2018, high-end apartment segment accounted for 11.7 percent of the total sales. In Q2, the rate rose to 12 percent and then 13.2 percent in Q3.
Factors that make luxury apartment segment in Hanoi attractive
The first factor explaining the charm of Hanoi high-end apartment segment is the potential of leasing to foreigners, especially when Vietnam is in attracting foreign investment.
A recent survey taken by the Association of American Businessmen in Vietnam (AmCham) with American businesses who are operating in China shows one-third of them have moved or are considering moving some establishments in China to other countries including Vietnam.
Hanoi is leading in attracting foreign investment flows into Vietnam. The wave of foreign businessmen, experts coming to work and settle in the capital city has made the high-end apartments for rent market more bustling than ever, especially in Tay Ho, Cau Giay and Nam Tu Liem districts.
“Foreigners who rent houses in Tay Ho district, especially areas like Quang An, To Ngoc Van are mostly European and American working in the field of education and diplomacy, while in My Dinh area of Nam Tu Liem district, a community of Japanese and Korean businessmen, experts is being formed,” said Duy Khuong, Director of a real estate brokerage office for foreigners.
The second factor is attractive prices of prime apartments in Hanoi. Prices of Grade A apartments there as well as in Vietnam are still much lower than those in other Southeast Asian countries. Since the Vietnam’s Law on Housing accepts foreign home ownership, the domestic market attracts a large number of potential customers.
The third factor is the rapid growth of dollar-millionaires in Vietnam over the past years, reaching nearly 9,000 people in 2017. The middle class is also growing with an expected 8 million people by 2030. Accordingly, the demand for high-end real estate is very promising.
High-end apartment market needs strict filtering
However, the context that supply decreases and demand increases doesn’t mean customers will become easier. "In fact, customers are becoming more and more intelligent, especially when they have to spend a significant amount of money for high-end property. In a digital age with the explosion of social networks, customers now have a constant connection with each other, mutual consultation and even self-production of information, ” said Nguyen Anh Tuan, CEO, Vice Chairman of HD Mon Holdings.
Mr. Michael Piro, CEO of Indochina Capital said: “We consider the increasingly strict requirement of customers as an essential filter to separate gold from sand. High-end real estate needs a filter to show true value. This is a challenge for projects that do not really meet Grade A requirements but at the same time be an opportunity for high-quality projects that have been researched and developed in a methodical, professional way."
