How did the apartment perform in H1/2023 and were there any notable features?

Stock is unbalanced with mid to high-end properties taking the lion’s share, while there are few affordable apartments. Although real demand for apartments is high, most buyers are looking for affordable products with good internal and external amenities. However, primary stock is limited, and secondary stock is occupied. This leaves little room for real buyers looking for affordable homes.

Prices in all segments have increased since 2021. Occupiers and investors are hesitant because they are concerned about the levels of possible returns and affordability.

However, the first half saw the introduction of new policies that will support performance and development. Decree No.08/NĐ-CP has helped relieve the pressure of paying bonds for businesses. Regulation 33/NQ-CP will help to resolve three core challenges, including legal issues, access to capital, and social housing. The Government’s economic and financial management policies will be positive for the market. The Ha Noi People’s Committee has been considering withdrawing projects that have been delayed for years, which will gradually increase transparency and eliminate poor-quality projects.

View more: Savills Quarterly Market Report (QMR) Q2 2023

How does the current market compare to the market in 2011 and 2012?

We are seeing similarities and differences compared to the previous decline cycle. In both cases, the market is impacted by tightened credit to real estate, high interest rates, and a sharp drop in liquidity.

However, the market was smaller in 2011 and 2012 and was only in large cities. However, it has expanded and many areas are now developed. By Q1/2023, selling prices were higher than before Covid-19 and affordable stock was limited. Meanwhile, at the end of 2012, low-rise housing prices dropped by -30% YoY when Ha Noi entered a recession.

Currently, there are greater difficulties in accessing development and investment capital and many projects are facing legal issues. This has created a situation where supply is low, there is a lack of suitable products and development costs are higher with rising input costs. Several updates to laws also mean projects are waiting for approval. Revised laws include Land Law, Real Estate Business Law, and Bidding Law. 

The Government, ministries and local authorities are trying to resolve difficulties for real estate. How will this impact recovery?

Their efforts will greatly benefit the market in the short and long term.

Decree 08/NĐ-CP will relieve pressure on bond payments and restore confidence in the market, while Resolution 33/ NQ-CP has created a specific roadmap, urging all relevant agencies/authorities to join hands, which has supported the market to follow safe and sustainable goals. It has focused on removing two basic obstacles, including legal processes and capital sources.

There have also been commitments to deliver 1 million social houses, according to Project 338/QĐ-TTg. Compared to Ha Noi’s future supply of 95,200 apartments, social housing will equal 59% of this. 

What are the solutions for market recovery?

There should be synchronous solutions from all stakeholders, including government agencies, authorities, developers, investors, and credit institutions. It is necessary to have a combination of many solutions from legal policies to completing amendments to Land, Housing, and Real Estate Business Laws. New supply is essential and so are reduced approval times. Land price policies, land use fees and rents must harmonise with common interests, towards stable and sustainable development. Infrastructure development also maximises housing demand.

Developers must look for alternative development capital sources, such as investment cooperations, offering good products, attractive prices and diverse sales policies. There are positive prospects of attracting credit and capital from foreign real estate investment funds and enterprises; although they are already in Viet Nam, foreign investors are looking for more opportunities. This will be valuable for domestic real estate companies.

Developers must review their portfolios and classify their projects. They must also ensure their products meet legal requirements to attract buyers and potential investors. They should have attractive and flexible sales policies like advanced payment, long payment, and bank loan support. For projects still to be launched, developers should consider speeding up procedures or collaborating with experienced foreign investors. Improving cash flow is imperative.

What is the outlook for H2/2023?

Recovery depends on legal processes, capital sources and suitable products. We expected positive changes toward the end of this year when laws are revised and approved and when new resolutions and decrees start having an impact. We also expect loans with more reasonable interest rates compared to the first half of 2023.

In the short term, new supply will still be limited, particularly affordable products. For low-rise housing, in the next two years, there will be large-scale projects from leading domestic and international developers in Dong Anh and Dan Phuong.

Conclusion

To learn more about residential development in Ha Noi, contact Savills Advisory Services or Do Thu Hang, Senior Director of Advisory Services, Savills Ha Noi.

See further:

• Key Considerations When Investing in Real Estate in Asia
• Worker Housing Opportunities