Ray of sunshine to thaw market

Published: 26/10/2008 05:00

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VietNamNet BridgeJones Lang LaSalle Vietnam, a real estate consulting company, predicts that the Vietnamese real estate market will be subdued until 2010.

The ongoing credit crunch has left many developers in a tight spot.

Getting inflation under control is seen as a major step to getting the property market’s house in order. “We are expecting a period of pricing stabilisation over the balance of this year and into the first half of 2009,” said Andrew Brown, country head of Jones Lang LaSalle (JLL) Vietnam.
Brown predicted that until the inflation rate was brought under control and started to track back towards single digit again, there would not see any significant improvement in pricing, sentiment and activity levels which was not likely until the latter part of 2009 or 2010. However, in the last quarter Brown had seen some positive moderation in inflation which now appeared to have peaked.

“The current credit crunch being experienced in Vietnam as it is elsewhere in Asia and many markets globally means inaccessible and expensive loans and discourages market entry. As a result we believe residential prices will continue to be subdued for the rest of 2008 and into 2009,” he said. Unless interest rates drop to more affordable levels demand will not return to a level sufficient to influence home prices.

According to JLL, there were signs of positive responses to the government’s recent stabilising measures as the consumer price index has increased at a much slower pace and rose only 0.7 per cent for September. “The State Bank’s decision to increase the interest payable on banks’ compulsory reserves from 3.6 per cent to 5 per cent in September 2008, is yet another positive signal of a softening in the State Bank’s stance on the credit crunch by increasing banks’ liquidity indirectly, albeit in a limited and measured way,” Brown said.

“The government is committed to stabilising the economy and if inflation achieves a significant correction, we believe there is scope for interest rates to soften throughout 2009. This will provide impetus to the current sluggish sentiments, and a gradual return of optimism to the housing market, including the supply side,” he added.
The real estate market across Vietnam has been a generally tough and challenging environment for most domestic and foreign players over 2008.

Though market fundamentals remain healthy with limited supply and robust demand across most sectors, the macroeconomic situation has subdued activity levels and sentiment. High inflation is largely to blame with rising construction costs and costs of debt resulting in the “go slow” or stalling of many projects.

According to JLL’s overview, new entrant real estate investors in 2008 have been much fewer when compared to 2006 and 2007. However, those already committed investors have remained active with many looking at further opportunities to invest. These committed investors remain optimistic on the compelling medium to long-term outlook for Vietnam.

Most investor interest is likely to remain in Ho Chi Minh City and Hanoi and their surrounding provinces, with limited interest currently for coastal opportunities and second tier cities where higher risk is perceived especially around aspects of occupier demand drivers.

The residential sector, JLL commented, has been most affected with pricing as well as particularly turnover levels having dropped dramatically compared to the second half of 2007. “The speculation that was rife through this period has been halted by the events and cooling down of the market over 2008 and this is a positive outcome as speculation is not good for anyone,” it said.

JLL expects a further correction which was witnessed over 2008, something many emerging markets encounter and is necessary to help stabilise the market and avoid more dramatic falls. Many local developers are struggling, especially those that relied heavily on pre-sale and bank loans to finance their developments. As a result, these developers are facing difficulties in carrying out projects.

“This situation paves the way for foreign investors to enter talks with local partners who have been resistant to their approach before, and this puts them in a strong position in joint-venture negotiations,” Brown cited.

Stability for Vietnam’s real estate market is interrelated to the macroeconomic environment particularly if inflation and the trade deficit do not worsen further then the market should not see any significant downward pricing adjustment. Recent indicators are promising in this regard with a positive outlook on food and fuel pricing which should help reduce inflation whilst the governments import restrictions will help moderate the trade deficit situation.

“Furthermore we are not forecasting over the short to medium term any market or sector within Ho Chi Minh City or Hanoi having a risk of over supply and in all likelihood demand will continue to outstrip available supply through the balance of 2008 and 2009. Therefore we can reasonably expect this will contribute to maintaining existing pricing levels,” Brown concluded.

(Source: VIR)

Update from: http://english.vietnamnet.vn//files/2008/10/810359/

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