Although Vietnam property industry has faced many difficulties, property stock could go up.

Mr. Chu Duc Toan, senior analyst at VNDirect believes market sentiment has improved thanks to some factors. First, Vietnam’s CPI decelerated to 3.1% yoy in July (vs. 3.4% in the previous month) thanks to a decline of domestic petrol price. Second, the 5th draft amendment of Decree 153 to be issued which loosen some requirements relating to corporate bonds issuance than previous drafts. Third, SBV signal its plan to increase commercial banks’ credit growth quota. Fourth, the draft amended Land Law 2013 has been published in end-Jul 2022.

The worst is likely over for Vietnam property sector but bumpy road to recovery as hurdles remain. “We believe property developers still face challenges in funding in 2H22F due to limit ed credit room and stricter supervision on corporate bond issuance for real estate enterprises, in lining with the government’s policy to encourage credit into manufacturing and services. Additionally, we believe property demand to be more challenge in 2H22 from cost push inflation, expected interest rate hikes and limit ed credit room”, said Mr. Chu Duc Toan.

Mr. Chu Duc Toan suggests investors should focus on enterprises that possess following traits: 1) huge land bank, especially located in Hanoi/HCMC’s neighbouring provinces and suburban areas, which is already completed legal procedures as well as infrastructure to be launched in 2022F, 2) high exposure to the mid-range and affordable condo segments as these segments are driven by real end-user demand and 3) sustainable earnings growth and scalable business models with a healthy financial position (low leverage, strong liquidity) to counter the risk of tightening credit for the real estate market as discussed above.

“We believe Nam Long JSC (NLG), Vinhomes JSC (VHM) and Dat Xanh (DXG) are on this list as they meet above key criteria”, said Mr. Chu Duc Toan.

NLG could be in uptrend as 1) NLG has a sizeable land bank of 681ha as of 1Q22 with a diversified portfolio of projects to mitigate risks, which are located across Southern Vietnam such as Dong Nai, HCMC, Long An, Can Tho and 2) NLG’s high exposure to the mid-range and affordable condo segments as these segments are driven by real end-user demand.

Mr. Chu Duc Toan believes most of NLG’s projects are now reaping the fruits of their past investment, evidenced by NLG’s presales to surge 43.8% yoy to VND5,895bn in 4M22. “We project FY22F presales value to soar 91.3% yoy to VND16,910bn, driven by six projects launches. We forecast a 48.9% of revenue compounded annual growth rate (CAGR) and 45.7% of net profit CAGR in FY22-24F, mostly driven by strong property handovers. Re-rating catalysts are 1) higher-than-expected selling prices and 2) sooner-than-expected capital raising at Waterpoint phase 2 (190ha). Key downside risks 1) delays in handovers and obtaining permits for new launches, 2) higher mortgage rates as these may dent NLG's mid-range condo presales, and 3) continuous upward trend in construction material prices”, said Mr. Chu Duc Toan.

Meanwhile, Vinhomes’ (VHM) total land bank, including land under acquisition, was 16,800ha as of Sep 2021, about 3 times higher than that of the second-ranked company – Novaland, which translates to 16,400ha of residential GFA. This highlights its strong land acquisition and master planning capability. As of Sep 2021, 90% of its total land bank had not been deployed yet, showing the huge potential of the VHM in the future.

“We expect FY22F presales to return to its strong trajectory with 51,535 units of presales volume (47.7% yoy) and VND152.1tr of value (109.4% yoy) with the noticeable launches of three new projects including Vinhomes Co Loa, Vinhomes Ocean Park 2 and Vinhomes Wonder Park. Even though FY22F will see a step backwards in business results, FY23-24F will be exceptional year when units in the three new mega projects are delivered”, said Mr. Chu Duc Toan.

A positive view on DXG in short term and long term is expected as (1) it is leading position nationwide in brokerage market with 33% market share (DXS) in FY21. The prospect of DXG’s brokerage segment is still bright, DXS has set a target of FY22F revenue of VND8,400bn (94% yoy), FY22F net profit of VND1,250bn (132% yoy). Besides, potential land bank in HCMC, especially Gem Riverside (launch in 3Q22) will contribute VND9,155bn in FY24-26F EBT.

“We appreciate the real demand for DXG's inner-city projects in HCMC, we expect the absorption rate to be high at launching time. Contributing to DXG's main revenue growth in 2022 comes from projects such as St Moritz, Opal Boulevard, Gem Sky World”, said Mr. Chu Duc Toan.

However, Mr. Chu Duc Toan said property stocks would face downside risks.

First, housing prices have increased rapidly, especially in decentralized and sub-urban areas, which are raising concern and pricing out of the market for home buyers.

Second, construction cost is rising on material prices hike, especially steels prices have increased more than c.20% since early-2022. Steel accounts for 12-15% of total construction cost (based on industry estimates), this could drive up housing prices if those remain at current high level in the next two years.

Third, if credit for homebuyer is tighter and interest rates rise more quickly than the market currently expects, some interested homebuyer with weak repayment ability may not be able to obtain mortgage loans, in our view. This could create another negative impact on the property sector, as presales cash flow is critical to developers’ operations.