Limited supply, a strongly growing middle class and good quality products, will ensure this asset class remains sound for the midterm.
Limited primary supply
Q1/2020 primary supply was up 46% QoQ but down -6% YoY over 1,200 dwellings. Stock increased with large scale entries, the Zeitgeist – River County 1 in January; and Verosa Park, in early February. Four of five new launches occurred before social distancing effects were felt. Many developers subsequently halted construction which may increase launches in the second half of the year. Leading suppliers were Districts 2, 9 and Nha Be with 72% of primary stock, mainly in compound projects by high profile developers.
New projects performing
First quarter sales of 500 villa/townhouses were up 103% QoQ but down slightly -3% YoY. Landed property is perceived as a long term investment with steady growth, compared to stock markets or bank yields. Increased economic uncertainty has resulted in investor caution, but a minority are still seeking longer term opportunities in premium products. New launches GS E&C and Khang Dien, both with compound projects, accounted for 65% of total sales.
Tighter cash flows have motivated developers to discount and ease payment terms. However, with a lack of larger projects, land plots in Q1/2020 had their lowest sales and absorption for five years. Risk averse buyers tend to prefer larger scale developments for their higher liquidity.
Competitive landscape
Limited new supply and high-priced inventory has HCMC increasingly competing with surrounding provinces. Satellite cities such as Dong Nai and Binh Duong that have large land banks and more affordable prices. These two provinces future supply, at over 16,200 units will increasingly meet HCMC housing demand. Good infrastructure improvements connecting the city to surrounding provinces has boosted residential in recent quarters. With more limited investment options in HCMC, investors are seeking lower priced alternatives with long term growth potential. Infrastructure connecting HCMC with Binh Duong and Dong Nai provinces was further enhanced with the completion of Ring Roads; Bridges connecting HCMC-Dong Nai; and the Ben Luc Long Thanh highway.
Outlook
The pandemic has temporarily affected Real estate that is under short term pressure. Many projects’ construction and site clearance programs were put on hold, inevitably resulting in extended timelines.
In the longer-term end-user demand is expected to continue increasing with population growth and the downward trend in household sizes. For those able, there will be increasing opportunities to buy more reasonably priced property while taking advantage of the latest developer promotions.
Up to 2023, over 19,000 dwellings/plots are expected to launch, with 50% scheduled for Eastern districts. Villa/Townhouses accounting for 88% of future supply, are set to maintain their leadership position.