By Andrew Batt:
Improving macroeconomic fundamentals have seen residential property buyers exploring the Vietnamese market for opportunity, although a wide-scale increase in transaction volumes is still someway off, according to new research from CBRE Vietnam.
Vietnam’s slow economic recovery has continued in Q2 2012. The battle against inflation has finally been won with the provisional year-on-year inflation at the end of June being recorded at 6.3 percent – well below the psychologically important 10 percent figure.
Coupled with this, the country saw currency stabilisation. A growth in exports to 24.1 percent year-on-year as of the end of May was seen, and thus an improvement in the trade deficit, (US$700 million in May – a decrease of 58.8 percent year-on-year) was recorded.
CBRE also highlighted firm evidence of prices stabilising or even reducing, pointing out the three reductions that have been seen in the price of petroleum in May and June 2012. Longer term pressures on inflation appear to be subsiding.
Given the stability seen within the economy, the state bank has moved quickly to ease monetary policy, most obviously through the three rates cuts that have been witnessed year to date.
Adam Bury, Senior Manager of Research and Consulting at CBRE Vietnam, said: “It is a relief to see that inflation is finally below the 10 percent benchmark, over which is considered entirely unsustainable, and that the state bank has managed to soften monetary policy. Though the three rates cut have caught some by surprise in terms of their aggressiveness, given the slowdown in growth that has been evidenced and the contraction in economies globally, it is not an unreasonable policy.”
CBRE went on to highlight the limited economic growth that has been witnessed in 2012, where growth is expected to reach only 4.3 percent year-on-year at the end of the second quarter, and was predicted to be 5.5 percent by the end of the year. Whilst this is certainly not exceptional it is above that seen in 2009 when the country was recovering from a bout of high inflation.
Despite the relatively strong economic fundamentals, which was witnessed for the second quarter in succession, it is noted that the residential real estate market is yet to see a notable increase in transactional volumes. CBRE was quick to highlight that this was expected, and that the residential market would not turn overnight, or indeed in a single quarter.
CBRE was also careful to point out a trend that was witnessed as the country last moved out of a high inflationary period. Analysing past sales velocities, CBRE highlighted evidence that suggested there was a six month lag between inflation and interest rates dipping below 10 percent and residential sales increasing.
Bury added: “Historic performance is clearly no indicator of future performance, but if the market was to perform as it did in 2009 then we can expect at least a two quarter lag between inflation and interest rates dipping, and residential sales velocities increasing.”
He went on to note that whilst inflation the most recent cycle had not peaked at the same levels as in 2008, and also noted that GDP growth whilst slowing, is above that in 2009 which is prompting further cause for restrained optimism.
When considering residential pricing it is apparent that the stand-off previously identified between developers and purchasers continues, as prices on the primary market remain relatively flat. Pricing on the secondary market has continued to soften very slightly across the majority of sectors.
The high-end, mid-end and affordable sectors have seen quarter-on-quarter prices drops of around 1 percent, whilst the luxury sector saw no notable movement on a quarter-on-quarter basis. In identifying this, CBRE suggested that the majority of developers were beginning to believe that buyers would soon come back to the market and that further price reductions were not necessary.
Marc Townsend, Managing Director of CBRE Vietnam, said: “Whilst we are not out of the woods yet, we believe we are now heading in the right direction. Macroeconomic fundamentals are moving in the direction that the market wants, whilst unit pricing appears to be stabilising. Both CBRE and our clients have spent money on sales events in the second quarter, and we have been positively encouraged by the turnout. It seems that buyers have finally stopped hiding and are now scouring the opportunities that present themselves.”
Summing up his thoughts on the market, Townsend concluded: “Obviously buying a residential property, be it for investment or personal occupation, is a huge decision and financial commitment. We are now seeing buyers looking, but not touching. We expect this increase in enquiries to translate to an uptick in sales around the turn of the year.”
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