Residential property waits for more aggressive policies

According to CBRE, the 4Q22 new condo supply dramatically decreased by 81% yoy (38% yoy) due to the weak real estate market, which caused sales volume to decline sharply by 80% yoy (63% yoy) in both HCMC and Hanoi.

With the exception of the mid-end market (2-5% QoQ), VNDirect observed a 1-3% QoQ decline in condo primary prices in both HCMC and Hanoi in 4Q22. While landed property secondary prices in HCMC were unchanged in 4Q22, they decreased 8% QoQ in Hanoi.

After the Prime Minister hosted a national virtual meeting on February 17, 2023, the government released a draft resolution to address the risk in the real estate market by allowing developers with liquidity problems to postpone debt repayment, encouraging financial institutions to lend more to reputable developers, and lowering interest rates to support the real estate market.

The Ministry of Finance has also made available the most recent draft of Decree 65/2022, which permits real estate developers to reschedule their bond repayments and soften the terms of issuance. If these rules are put into practice, the liquidity strain on real estate developers should be significantly reduced in the near future.

At the moment, the Vietnam property market is experiencing limit ed supply and a mismatch of supply and demand, with mid-end condos shrinking by only c.2% in HCMC and Hanoi new supply as of end-4Q22."We see the regulators making efforts to rebalance supply and demand. Besides the stimulus credit package for social housing, the government has committed to building more than 1 million social housing units and homes for workers by 2030 to meet the demand for middle- and low-income households. We believe the social housing segment could be in recovery, driven by flourishing supply and the government’s support. We see some developers have announced plans to step into social housing projects, such as Vinhomes plans to develop 500,000 social housing units in the next five years, Him Lam, Hung Thinh, etc.,", said VNDirect.

"We believe it might take a shorter time to ride out this downcycle. We observe that in HCMC and Hanoi, new condo supply has been in shortage since 2020, with a high take-up rate, pointing to a high housing demand in our view. Thus, we believe that the on-schedule Land Law 2023 affected in 2H24F should mark a turning point for the property sector as they tackle the bottlenecks in the approval of new residential projects, leading housing supply to recover gradually in 2024–25,", emphasized VNDirect.

In VNDirect’s view, Vietnam's property valuations currently look quite cheap, trading at only 1.5x their current P/B, a 44% discount to their 3-year average of 2.7x. However, it thinks that property share prices could potentially be under more pressure in the next 3–6 months during another peak season for bond maturity. Despite the regulators rushing to resolve the property market risk recently, this will depend on the timing of the implementation of these policies. Besides, if implemented, these policies would benefit large and quality developers more than smaller developers with weaker credit ratings, who look unlikely to get refinancing in the near future. While the recovery in property sales is unlikely before end-FY23F amid weak housing sentiment, high mortgage rates, and sluggish new supply, the project approval process is likely to be delayed while waiting for the Land Code Amendment.