Stephen Wyatt, country manager of Knight Frank Vietnam, tells Bich Ngoc his real estate market assessment and expectations for 2012′s first six months.
What are the impacts of positive monetary market signals on the residential market and what are the market expectations in near future?
Overall, economic conditions within Vietnam have improved dramatically in the past 12 months with inflation plummeting from highs in 2011 and interest rates falling. Despite this news, the residential market continues at a sluggish pace with limited signs of activity. There are a number of reasons for this.
Firstly, banks remain reluctant to lend unless buyers/developers meet strict lending requirements.
And secondly many developers are trapped, having sold half their project in the past three years for every square metre rates that are no longer realistic in current market conditions. So they either sell, which upsets the original buyers or hold until the market improves.
And in many cases land prices are far too high and when added to construction costs, many projects are unfeasible in this market.
Can you comment on the current real estate market?
This is a buyer’s market and they know it, there is a huge amount of stock available and buyers are prepared to study all projects and developers incentives until they find the best deal. In addition, most buyers believe the prices will reduce further so many are prepared to wait.
With further interest cuts we believe the market will start to see increased activity in the second half of the year.
The office market has remained quiet, what are your comments about the performance of this sector in Q2 2012 and what are your expectations in Q3?
Under our research, Grade A office space in HCM City will become a rare commodity. Due to lack of development activity, there is very little Grade A office space coming to the market within the next six months. Therefore, existing grade A space like Bitexco Financial Tower is in a fortunate position and has a six month window of opportunity to increase occupancy levels.
Meanwhile, Hanoi office market continues to see a shift from the Central Business Districts to the west, with Charmvit, Keangnam and Indochina Plaza all attracting strong interest, due to attractive incentives and improved infrastructure. We expect this will continue in the third quarter and beyond.
What is the performance of retail market in the second quarter? What are the retail market challenges this quarter?
Many retailers are struggling in cities, with an increasing number of shop houses vacant in prime and secondary locations. Landlords need to understand that the rental rates achieved two or three years ago are no longer sustainable and landlords and developers need to be commercially minded.
There are some ideas that the retail market development in Vietnam is not on par with quality. What do you think?
Many international retailers seriously consider Vietnam due to the attractive headline figures, large young population and growing middle income sector.
Unfortunately, the reality is that most retailers consider Vietnam too difficult to break into, especially when the global economy is suffering.
Restrictive legislation and licencing issues, lack of transparency, lack of good quality retail space and poor infrastructure are the most common reasons for international retailers not wanting to invest in Vietnam compared to other countries.
Vietnamneeds to encourage and attract overseas investors and retailers to continue the growth within the country.
What is the development trend of service apartment segment?
Overall the serviced apartment sector is performing well with high occupancy levels being reported from all of our clients that have good quality developments within prime locations in both cities. There appears to be a growing trend from residential developers that are struggling to sell apartments to convert at least one tower of the development into serviced apartments so we are set to see increased supply in the coming months in secondary markets which could appeal to larger corporate companies looking to tighten their belts.