According to Neil MacGregor, Managing Director of Savills Viet Nam, demand for residential housing is increasing alongside rising urbanisation levels. However, the market still faces challenges such as complex legal procedures, land fund availability, and investment capital sources, creating a disparity between supply and demand.
On 5 June, Neil MacGregor presented at the 2022 Viet Nam Economic Forum in HCMC. His presentation outlined some of the obstacles and solutions within the capital and real estate markets. He outlined that the residential market is witnessing increased demands and urbanisation is on the rise. However, he noted that new supply remains limited in HCMC, Viet Nam’s largest city. This is an issue that requires practical solutions and planning to solve.
“According to Savills Q1/2022 market report, only 2,150 new apartments entered and there were only just over 4,000 in the primary supply. In a city of over 10 million people, this supply cannot satisfy demand. As such, prices will continue to escalate until the supply improves,” Neil said.
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Neil MacGregor, Managing Director of Savills Viet Nam
Issues with General Planning
For supply to improve, the approval process for project planning should be streamlined as the current process is often long and complicated. Under the current plan, receiving approval is slow. By May 2022, only seven of the 111 plans were processed. What causes issues is that different levels of planning need to go through different departments and approval boards. For example, 1/10000 plans are approved by the Ministry of Construction. They also process projects that are larger than 30 hectares or house over 50,000 people. However, those seeking 1/2000 or 1/500 approval must go to the provincial People's Committee. The lack of clarity and complications surrounding planning approval delays the construction process significantly.
Overlapping Laws
Land and Construction laws overlap, which means that developers and investors face difficulties in gaining approval for their projects. Despite a new Planning Law being introduced in 2017, there is a lack of clarity in the approval process.
Neil added, “Laws need to be arranged, organised, and adjusted to avoid the overlap between the different provisions of the legal framework. This will support the approval process.”
Read more: Changes in Ownership Laws
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Real Estate in Ho Chi Minh City
Limited Land Banks
As speculation is rife, occupiers and end-users can struggle to find affordable properties. This is made worse by the fact that land banks in densely populated areas are in short supply. Ultimately, this creates a market that is unhealthy and unsustainable in the long term.
Neil added: “We need solutions to increase the land fund, especially for affordable projects. The government should support buyers with real housing and build a transparent public land auction process to limit speculation. The land auction process should be publicly available and should be open to valuation from foreign, independent bodies. This is healthy and Viet Nam should refer to the public land auction processes in more mature markets such as Singapore and Hong Kong.”
Tightening Credit to Real Estate
In the first quarter, the State Bank of Viet Nam (SBV) tightened loans and the issuance of corporate bonds to potentially ‘risky’ fields like real estate. While this might challenge investors and developers in the short term, this move will create long-term market sustainability.
Neil added, “To overcome funding challenges, businesses need to utilise alternative capital sources such as investment funds, M&A, and joint ventures. By employing diverse capital sources, the market will become more stable with fewer systemic risks.”
Conclusion
Are you looking to understand more about Viet Nam’s real estate market? Contact Savills Advisory Services for comprehensive research and advisory services that minimise risks and maximise returns. Services include research, valuation, interactive demographic reporting, and banking & corporate.
Read more from Neil here.
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