While housing demand is high, Ha Noi’s apartment sector is struggling to meet the calls for more affordable properties.
Lowest Stock Since 2015
According to Savills Q4/2022 market report, new apartment supply was the lowest in eight years at 12,637 units. Grade B apartments had an 83% share, and Grade A had a 9% share. Primary stock in Q4/2022, reached 20,333 units, which decreased by 3% quarter-on-quarter (QoQ) and 6% year-on-year (YoY).
Since launching in late 2018 and early 2019, Vinhomes Ocean Park and Vinhomes Smart City accounted for 45% of new supply and 33% of sales, reflecting continued demand for outlying areas.
The transaction volumes reached 2,890 transactions, 20% lower quarterly and 30% annually. Transactions for Grade B apartments held 76% of the market share. Absorption rates of newly launched projects reached 28%. The average price for primary supply was 47 million VND/m2, the same QoQ and increased 15% YoY.
The primary selling price for apartments is currently 42% higher than secondary prices (increasing from 14% in 2018). To explain this difference, Ms Do Thu Hang, Senior Director, Advisory Services, Savills Ha Noi, shared: “The secondary market grew humbly while the primary selling price increased significantly. Since 2018, the average primary selling price has increased by 11% per annum, while secondary prices improved by 5%. This has resulted in a significant price gap.”
Performance slowed in the final quarter of 2023 with fewer transactions and handovers. This is due to the imbalance between Grade B and Grade C stock and demand; although Grade B apartments have the most stock, popular Grade C units are in short supply.
"Previously, Grade C apartments had as much as 50% of stock, while now they have less than 10%. Although most primary apartments are Grade B, most real buyers can afford Grade C properties. Therefore, in 2023, despite efforts to resolve legal issues, the imbalance between affordable supply and demand is likely to continue," said Hang.
Ms Do Thu Hang, Senior Director, Advisory Services, Savills Ha Noi
Fundamental solutions are key for the market
Hang noted that there must be comprehensive, strategic and long-term solutions to boost affordable supply and solve the imbalance. Several legal issues must be resolved because it is hindering development. Hang forecasts that although change won’t be notable in 2023, the situation can improve in 2024 after the Draft Land Law is passed. For developers to achieve suitable profit margins for more affordable properties, specific mechanisms are needed to encourage and remove obstacles.
Real estate developers also need to satisfy real demand, and most occupiers or end-users are restricted by price. Currently, primary apartment prices in Ha Noi are 47 million VND/sq m, which is too high for many buyers. While developers must deliver more affordable products, they also face difficulties in doing so, given rising input costs.
Infrastructure development is crucial. Grade C projects are often far from the city centre, and need transport links nearby. With projects like Ring Roads 3.5 and 4, developers are investing in neighbouring provinces to meet housing demand from Ha Noi. Hung Yen and Bac Ninh will provide 103,900 apartments between 2023 and 2025 onward. Improved infrastructure, convenient transportation and diverse amenities are key factors for homebuyers to access more outlying projects.
As developers face challenges in securing capital, they also need to consider alternative means of securing capital for development.
See further: FDI – A Firm Solution for Real Estate Businesses
They can implement flexible payment schedules. In addition to traditional financing methods, developers can leverage payment with attractive sales policies and incentives. For example, some developers give buyers who use fast payment schedules discounts on the unit price.
Local developers can also collaborate with foreign businesses with good financial resources. Investors from Japan, Singapore, Taiwan and South Korea are keen to invest in projects with a solid legal standing, transparent processes, and reputable local developers.
Conclusion
Savills Advisory Services teams deliver objective valuations and expert insights, no matter your real estate needs. We work with clients at any stage of the property lifecycle, from conception to disposal. Contact Hang for more information.
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