Jeremy King, managing director of Knight Frank Vietnam, a property services provider, projected that rents will decrease this year given an increasing supply entering the market and demand remaining flat.
King said there was supply coming onto the rental market from various sources. This includes apartments which were purchased by investors or speculators in hopes of a quick re-sale, but have now turned to leasing the property while awaiting more favorable conditions for selling. And of course the vibrant serviced apartment sector.
“High interest payments are also putting pressure on some owners to generate a yield from their properties,” King commented.
The two cities saw a peak in demand for rental property in the last quarter of 2007, in line with the economic and property boom in the country but since the height of the bull market, demand has eased off and this has in turn led to some softening of rental levels in the mid to high end.
However, he cited the ECA International’s survey 2010 saying that rental levels were generally high in Vietnam compared to other South East Asian cities.
The number of expatriates coming to HCMC and Hanoi to live and work is seen as a major source of income for the serviced apartment market, which offers reception, security, laundry services and international management services.
This has been a growing segment with high occupancy levels, especially in prime central business district locations.
According to Knight Frank Vietnam, there are now 3,300 units in HCMC and 2,250 units in the capital city of Hanoi, with demand traditionally from foreign workers.
However, it has seen a recent trend where wealthy Vietnamese are entering the serviced apartment market.
The serviced apartment market in HCMC has recorded an average rent from US$30 to US$32 per square meter and from US$22 to US$25 per square meter for Grade B facilities.
The market observer projected that demand this year would depend largely on the economic prosperity of the country as a whole, with the demand from foreigners continuing to depend on macroeconomic stability and the levels of direct foreign investment into the country.
Landlords in the serviced apartment market will continue to fight for tenants within the segment, as well as competing with a significant supply in the buy-to-let apartment segment.
It is expected that up to 15,000 apartment units will join the HCMC market and 17,000 units onto the Hanoi market this year.
“This increase in supply could put downward pressure on rents in secondary locations, although prime rents are likely to be maintained,” King said.
He added that the rental market performance would be closely related to the state of the owner occupier market. Given weak apartment sales, some developers with unsold units may consider letting some of their apartments to generate cash flow to help meet costs.