VIETNAM REAL ESTATE: SET FOR YEAR-END SURGE
The year-end surge in supply offers a unique opportunity for investors, but it also comes with significant risks. The market’s rapid growth could lead to an oversupply, particularly in the luxury and high-end segments, which may struggle to find enough demand to absorb the influx of new properties. The resort real estate sector, despite a few promising developments, remains fragile and uncertain.
Seize the Moment but Tread Carefully
As 2024 nears its end, Vietnam’s real estate market is at a critical crossroads. The Vietnam Association of Realtors (VARS) forecasts a substantial 20% increase in housing supply over the next few months, largely driven by an influx of luxury and high-end properties. On the surface, this might seem like a golden opportunity. But with developers flooding the market and demand growth uncertain, savvy investors should tread carefully. The decisions made now could either secure prime assets in an evolving market or lead to exposure in an oversaturated segment.
VARS predicts a significant increase in low-rise property offerings as major development projects near completion. These new listings will mostly be concentrated in suburban areas and the surrounding provinces of major cities. While this might seem like an expansion into untapped markets, the real question is whether these areas are truly ready for such an influx. The risk here is clear: investing in underdeveloped areas could either unlock massive growth or result in properties that sit idle as infrastructure struggles to catch up.
Optimism abounds in VARS’ outlook on demand, suggesting the market will see a robust resurgence from both homebuyers and investors. According to Dr. Nguyen Van Dinh, there’s substantial pent-up demand, not only for housing but also for investment. Demand for owner-occupied homes is expected to remain strong, while investment demand could rebound by around 30% compared to earlier in the year, particularly in emerging markets with significant growth potential. But here lies the challenge: are these forecasts too optimistic in a market that has seen significant fluctuations? Investors must weigh the potential for returns against the risk of an overheated market.
With both supply and demand on the rise, VARS projects that transaction volumes by year-end will increase by about 20% compared to the first half, with apartments expected to drive this growth. While this may seem like an encouraging sign, it could also herald a speculative frenzy that risks pushing real estate further out of reach for genuine homebuyers. Investors who move quickly could benefit, but those who delay may find the market slipping away from them as prices rise and affordability declines.
The Q2 2024 VARS report shows a dramatic increase in both new supply and transaction volumes, with the former tripling and the latter growing 2.4 times compared to the previous quarter. On the surface, this sounds like a positive trend. But dig a little deeper, and the warning signs are clear: the market’s early surge in 2024 could easily be a sugar rush rather than a sign of sustained recovery, driven by a fragile confidence in the market’s rebound and low-interest rates that could reverse without warning.
New apartment projects in Hanoi are reporting absorption rates of up to 90% in just a short time, and average primary prices are nearing VND 60 million per square meter. This sharp rise—58% higher than in Q2 2019—signals a market that’s both thriving and perilously close to overheating. Investors need to be acutely aware that while returns may look strong now, they could be chasing a peak rather than buying into sustained growth.
Resort Real Estate: A Mirage of Recovery?
The Ministry of Construction has recently announced that several hotels and resorts have opened their doors, while new resort real estate projects are poised to add fresh supply to the market. High-profile developments like Beverly Hills Ha Long, Sun Symphony Residence, and The Pathway at Sun Grand Boulevard are expected to invigorate the sector. Phu Quoc has also seen the launch of the Lagom Phu Quoc project, spanning 1.1 hectares with 81 low-rise units. Despite these promising new offerings, the broader resort real estate market remains sluggish, with no clear sign of a meaningful recovery.
Ms. Pham Thi Mien, Deputy Director of the Vietnam Institute of Real Estate Market Research (VARs IRE), notes that while the tourism and resort real estate segment showed some positive signs in Q2 compared to Q1, the reality is far from a turnaround. Supply and transaction volumes have indeed risen year-over-year, but the market still lacks the momentum needed to drive a true recovery. In the first half of 2024, the market saw 3,114 new units launched—more than double the amount in the first half of 2023—but this still represents only 27% of the volume seen in the same period in 2022. More tellingly, 87% of the new supply and 94% of transactions came from a single condotel project in Nha Trang, one of the few nationwide with land use certificates. This concentration of activity highlights the fragility of the market and suggests that true recovery is still a long way off.
Optimists point to the upcoming implementation of three new real estate-related laws as a potential catalyst for change. Mr. Hoang Hai, Director of the Department of Housing and Real Estate Market Management (Ministry of Construction), argues that the Housing Law 2023 and Real Estate Business Law 2023, effective from August 1, 2024, will provide a much-needed legal framework to stimulate the market. While these laws could indeed help clear some of the bottlenecks that have plagued the industry, their impact may not be as immediate or as profound as some hope. Investors should remain cautious and consider whether these regulatory changes will truly unlock the market’s potential or merely offer temporary relief.
Visa Policy: A Silver Bullet or A Temporary Boost for Tourism?
Vietnam’s National Tourism Administration reports that nearly 10 million international visitors arrived in the first seven months of 2024, surpassing 2019 levels by 2%. Visitors from the 13 countries with unilateral visa exemptions accounted for more than 3.7 million arrivals, representing a nearly 1.4-fold increase compared to the same period in 2023. These countries now represent 37% of the total international visitor market share, a significant achievement for a sector that has been eagerly awaiting recovery.
The fastest-growing markets include South Korea, Japan, Russia, and Italy. In the final months of 2024, the National Tourism Administration plans to continue promoting Vietnam’s tourism in key markets like China, India, Australia, and New Zealand, as well as organizing a tourism and film promotion program in the United States and participating in major international tourism fairs, including the World Travel Market (WTM) London 2024.
These efforts are commendable and likely to provide a short-term boost to the tourism sector. However, investors should be cautious about interpreting this surge in visitor numbers as a sign of long-term stability. While the increase in tourist arrivals is encouraging, especially in light of recent challenges, it remains to be seen whether this momentum can be sustained. Investors looking at the tourism-related real estate market should carefully assess whether this uptick will translate into consistent growth or if it’s simply a temporary rebound driven by pent-up demand post-pandemic.
Get professional insights in Vietnam properties, residential leasing and asset management services by Arcadia Consulting in Vietnam, reach our Residential Services team at rs@arcadia-consult.com.vn.
