This year is shaping up to be an interesting one for the Vietnam real estate market. While the economy continues its upward momentum, the property market is facing several challenges that could halt positive sentiment. It will be interesting to see if the strong economy and focus on infrastructure can help alleviate some of the pressure currently facing the real estate sector.
Vietnam real estate 2020 – 3 key issues
Economic growth continues
The Vietnamese economy continues to outperform its regional peers and has been one of the great success stories in Southeast Asia. The country’s GDP increased by more than 7 percent last year and most estimates have 2020 growth coming in above 6 percent. In particular, the country benefited from firms shifting their production away from China and into Vietnam.
According to the United Nations Development Programme, per capital annual income reached close to USD2,800 in 2019 with the percentage of poor households falling to less than 1.5 percent. However, given the unstable nature of the global economic climate, Vietnam could be vulnerable should either the US or Chinese economies suffer a slowdown.
Shrinking supply and transactions
Research from the Vietnam Ministry of Construction found that the number of apartment transactions in key areas, such as Hanoi, Ho Chi Minh City and select coastal provinces, fell 26.1 percent last year. Meanwhile, the resort real estate segment was down 20 percent on the year. Some developers in this sector even stopped paying out guaranteed returns.
A lack of supply in Ho Chi Minh City is also causing some headaches. Nguyen Tran Nam, Chairman of the Vietnam Real Estate Association, told local media that falling supply and market shortages are hurting the market and the issue could linger for the next couple of years. Numbers from the Ho Chi Minh City Real Estate Association showed that they number of completed units plummeted 53 percent during the first nine months of 2019 while project approvals sank 72 percent. A report from VN Express cited legal issues as being a key reason behind this decline.
Infrastructure to the forefront
Infrastructure and property are intrinsically linked and the government has invested heavily in this sector during the past few years. Work will continue on several notable projects in 2020 including the North-South Expressway. Eight more sections of the roadway will be built this year as the 654-kilometer motorway comes even closer to completion.
Additionally, improvements and upgrades on the North-South Railway that connects Hanoi to Ho Chi Minh City will be carried out this year. Remaining in Ho Chi Minh City, construction progresses on the metro line with the first route tentatively slated to begin service in the third quarter of 2021. The local transportation department is now working on a prefeasibility study for the fifth metro line which could be approved later this year.