Vietnam’s biggest city emerges as a market to watch
Sitting on the banks for the Saigon River, Ho Chi Minh City is one of the most complex cities in the world. It is home to some of Southeast Asia’s most striking architecture and has one of the messiest histories in the region: the city’s embassy is burned into the collective consciousness for lingering images of the last American helicopters lifting off from its roof at the end of the Vietnam War.
But Ho Chi Minh City today is far more than just its history. A bustling metropolis of 9 million people, HCMC is drawing increasing numbers of tourists and opening up to multi-national business. Anyone’s who’s ever been to HCMC will recall the harrowing event of crossing the road or navigating the hyper-reality that is Ben Thanh Market. Compared to the relatively laid back attitude in the capital, Hanoi, a day in HCMC can only be described as frantic. It really is like no other place on the globe.
HCMC accounts for the bulk of Vietnam’s economic output as well as its foreign direct investment, with steady increases over the last several years. The activity in agriculture and seafood processing, construction, financial services and of course tourism is staring to show on the city’s main streets. International five-star hotels and serviced apartment providers are springing up all the time, along with fine dining establishments, swanky bars and clubs and upscale shopping. And you’ll finally be able to say goodbye to Ho Chi Minh City’s dinosaur of an airport: the upgraded international terminal opened in 2007, and the shiny new Long Thanh International Airport is scheduled to open in 2020.
Despite the government taking action to curb inflation and tighten its monetary policies, CB Richard Ellis’ Q1 MarketView for Ho Chi Minh City noted the city experienced 10 percent growth over the year before, and that even though investment will be impacted by lending policies, it remains Vietnam’s economic engine, and that status should carry it through rocky waters. Tourist arrivals were also up as of April, and the HCMC is on target to exceed last year’s figures.
In the property sector, the biggest infusion of new units has been in affordable housing: over 100 percent more units came onto the sales market in the first quarter over the last quarter of 2010 and over 60 percent of those were in the mass market. But prices are dropping in the high-end sector, partially due to waning buyer confidence, partially due to increasing supply. As a largely cash market, CBRE predicted that the cocktail of new stock, high interest rates, investor options and inflationary issues will keep demand soft in the short term. That said, “Whilst it is anticipated that there is going to be notable supply — 69,156 unites launched over the next three years — high interest rates and limitation on lending will likely soften some this supply.”
But that doesn’t necessarily carry over into the leasing and serviced apartment sectors. The preferred location for these properties, whose residents are most often the multi-nationals investing in Vietnam’s staff, is the city’s District 1, still often referred to as Saigon. It’s in District 1 you’ll find the city’s upscale hotels and shopping stretch, Dong Khoi, dozens of consulates, the Central Post Office, Notre Dame Basilica, the Opera House and the vast majority of the city’s main attractions and historical highlights. Despite a few boutique developers testing the waters in other districts, 50 percent of HCMC’s best residences are located here.
“Demand for serviced units remains stable … The vacancy decrease in the Grade A and B markets, coupled with limited new supply has led to an increase in the rental rates on both a quarter-on-quarter and year-on-year basis. Most notably, Grade A rents increased by nearly 15 percent y-o-y and look set to increase further as the most high-profile developments are showing high occupancy. It is there feasible that rents at the top of the market may push back towards the peaks last seen in 2008,” CBRE stated. High-end units comprise fewer than 1,000 of the total 3,481 total serviced flats available, with no new supply in the first quarter. And that vacancy rate? Upwards of 20 percent in what CBRE called B and C grade units, and only 5 percent at the A level.
Like so many emergent markets in South Asia, HCMC is also blessed by a proximity to coastal resort areas that are prime second home and branded villa investment developments that may (or may not) buoy the city’s own and its booming hotel scene. Time will tell if all that leads to Ho Chi Minh City becoming the next Bangkok.