Real estate will recover but unevenly across segments

However, experts say the recovery of the real estate market will not be uniform across segments.

According to analysis by Dr. Nguyen Minh Phong, the industrial real estate segment will be more vibrant thanks to increased FDI sector activities and the implementation of infrastructure projects across the country.

The affordable housing and social housing segments will also likely see positive changes and record an increase in new supply as investors are aware of the need to self-orient their product structure to develop in line with market flows.

However, Mr. Phong believes that the recovery of the high-end commercial housing segment will be slower because real demand has not yet been able to change dramatically. It is expected that in 2024, not many investors will dare to develop this product line.

As for the land segment, due to new regulations on tightening land subdivision and sale activities in the Law on Real Estate Business (amended) and low liquidity throughout 2023, this segment also needs more time to regain recovery momentum.

Thus, the two segments expected to have the most changes in the real estate market in 2024 are industrial real estate and low-cost housing and social housing.

Assessing the prospects of industrial real estate, Mr. Le Trong Hieu - Senior Director of CBRE Vietnam commented that the absorption rate for this segment will still grow and continue to receive attention from investors. Because the industrial real estate market is receiving great attention from manufacturers around the world with large investment needs, especially in the fields of technology, green energy, and logistics.

CBRE experts cited that recently, the Vietnamese market has recorded a large FDI inflow in some localities, typically Binh Duong. Recently, this locality has attracted two major projects from the Lego Group and Pandora Group. Specifically, the Lego Group project has been approved for a construction permit and is in the process of starting construction. The Pandora Group project has also been granted an investment certificate.

By mid-2023, the land valuation procedures of VSIP III Industrial Park in Binh Duong will also be urged to be resolved quickly and completely. At the same time, recently there have been a number of expansion projects in the southern region such as Long An... adding new supply to the industrial real estate segment in the near future.

In the long term, Vietnam can absolutely attract investment through bilateral and multilateral trade agreements to reduce taxes and provide investment incentives for the manufacturing sector. In addition, political factors will also help keep investment capital in Vietnam relatively stable.

“However, the industrial real estate market is a long-term race. There will not be many changes at the end of 2023 compared to the beginning of the year, but in the new year 2024, the recovery and development will be clearer,” Mr. Hieu commented.

Currently, Chinese enterprises are still very interested in Vietnam and mainly in fields such as electronics and car assembly. Therefore, if the economy recovers, industrial parks that produce consumer-related industries such as food, daily consumer goods, garments, etc. will expand production in the southern region.

However, some experts also warn that the imposition of a global minimum tax from 2024 will also have some impact on the industrial real estate segment.

Regarding this issue, Mr. Le Trong Hieu said that, up to now, all large projects in Vietnam (about 15-16 projects) have enjoyed very good preferential tax rates. However, the global minimum tax rate of 15% will soon be applied, so Vietnam is researching to come up with a suitable policy for this issue.

Along with industrial real estate, the affordable housing segment is also forecast to recover early in 2024, although the ability to balance supply and demand remains a big challenge.

According to the forecast of the Vietnam Real Estate Research Institute (VIRES), the supply of apartment market will increase by an average of 20 - 25%/year during the recovery period of 2024 - 2026, the demand and average absorption rate will reach a high level of 9 - 96% compared to 88 - 89% in the period of 2020 - 2021.

In Hanoi and Ho Chi Minh City, the supply of apartments in the 2024 - 2026 period will recover to 70,000 - 85,000 units/year (equivalent to the time before the COVID-19 pandemic) with a value equivalent to about VND 4,000 - 5,000 billion/year.

The supply structure will be increasingly diversified thanks to the expansion trend of investors from the South to the North; the excitement of mergers and acquisitions (M&A) activities and the development of the markets in the suburbs of Hanoi and Ho Chi Minh City. However, there will be differentiation in supply and absorption rates by segment.

Dr. Le Si Tri - economic expert, MBA lecturer at Ho Chi Minh City University of Economics and Finance commented: "In the current gloomy real estate market picture, the housing segment with mid-range prices and below to serve real housing needs will be able to recover faster and sooner during this time."

To overcome the situation where the market continues to lack suitable new supply, this expert offers 5 solutions to create momentum for the affordable housing segment to recover sooner. First of all, preferential policies for investors in this segment need to be "legalized" to support investment activities in this segment.

Next, it is necessary to reduce investment costs in this segment such as: increasing the supply of construction materials, rationalizing the construction process, reasonable division of labor, reducing financial costs, etc. to lower product prices.

In addition, the suburban areas are urbanized with suitable infrastructure and utilities to attract residents. This significantly reduces land costs when investing in suburban areas compared to the central area when implementing investment in this segment.

Along with applying flexible payment methods, encouraging buyers to pay quickly, high payment amount ratio with reasonable discounts to reduce financial pressure for investors when implementing the project, it is necessary to find foreign partners with strong financial potential to cooperate in investment.