Industry leaders warn that the market will suffer a severe imbalance in supply if developers keep chasing after upscale buyers.
Major cities in Vietnam have been told to prepare for more urban challenges ahead as the housing market is expected to fail the large number of low to middle income earners over the next 10-15 years.
This group, believed to account for 80% of the market, has been consistently overlooked by developers who mostly focus on the lucrative high-end segment.
Housing demand is rising fast in Vietnam, which has one of the highest urbanization rates in Southeast Asia. Just 15 years ago, only 24.6% of its population lived in cities. Today, about 32 million people live in urban areas, accounting for approximately 34.1% of the total population.
Urban planners estimated that Vietnamese cities will be home to 40 million people by 2025. But not all will be able to find a home.
Since the country pushed through economic reforms 30 years ago, Vietnam's urban housing policy has been radically changed and reshaped by involving private developers. However, even as more products hit the market, they are mostly beyond the reach of low-income households and migrants.
Marc Townsend, general manager of property consultancy firm CBRE Vietnam, said that in the next 10 years, Hanoi and Ho Chi Minh City will still struggle with the supply-demand imbalance of affordable housing. The company also believed home prices could increase by about 3% annually.
“By 2030, the largest cities Hanoi and Ho Chi Minh City will remain thirsty for low-cost housing,” said Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association.
He said Ho Chi Minh City’s supply of affordable housing has kept shrinking in recent years, estimated at 27% of the whole market in 2014, down to 25% in 2015 and then to 20% in the first nine months of 2016.
A changing market?
In an effort to meet the expected demand for low-cost housing, same developers have started going down market, shifting their attention from high-end condominium complexes to affordable apartments.
Property giant Vingroup, for instance, has recently unveiled its new brand Vincity targeting low-income residents. Apartments will range from VND700 million (US$30,800) to VND1 billion (US$44,000).
To put the figures into perspective, the country’s average annual income was estimated at US$2,200 last year, according to the General Statistics Office.
Vingroup planned to build between 200,000 and 300,000 of these affordable apartments over the next five years on the outskirts of seven cities, including Hanoi and Ho Chi Minh City.
“The new supply of affordable home priced between VND700 million and VND1 billion is expected to catch up with the demand, as the result, mitigating the risk of a housing bubble,” said Chau from the association.
Stephen Wyatt from consultancy firm Jones Lang LaSalle said investors have been courting Vietnam’s expanding middle-class population with higher incomes and they prefer high-end apartments, which they believe can quickly bring back the money.
However, since 2015, experts have warned of an imbalance between supply and demand in the luxury segment. Sales of high-end homes fell 10% in the first nine months of 2016, while those in the affordable segment increased 10% from a year ago, according to Dragon Capital market data.
As several property giants announced large-scaled plans for affordable housing, the year 2017 may mark a big move for the real estate market, said Wyatt.
Source: VOV