The property market in Vietnam’s Ho Chi Minh City is set for some “exciting changes” as the city’s first metro line nears completion.
Marc Townsend, Managing Director of CBRE Vietnam whose real estate firm authored the research into the impact, said: “With the first Metro Line in Ho Chi Minh City making good construction progress and set to open in 2020, all of us who live and work in the city are gearing up for some big and exciting changes. For those of us in real estate, the game will be changing even more dramatically.”
CBRE’s report revealed the introduction of a metro system will bring about a number of benefits. In particular, it will improve the ability of the population to access employment, retail and recreation activities.
The experience of other countries also suggests that one of the most significant impacts of a metro line project is an impact on property values. Rail transit development brings many noticeable changes to areas around transit stations: land prices surge, real estate developments boom and retailers and offices relocate.
Commenting on the impact of the metro line Townsend, added: “In theory, a home located near a public mass transit system should command a higher rent or sales price than one that is further away, because good public transport allows those living nearby to more easily travel to and from destinations that are important to them.”
This fact has been well-proved through experiences in other countries, where the premium for home prices in locations close to public transport ranges from 6 percent to 45 percent.
However, Townsend also stressed: “The impact of a new public transport system on housing prices depends on a number of mediating factors, including housing tenure and type, the extent and reliability of the public system, the strength of the housing market, the nature of the surrounding developments and so on.
“In a metro area with a strong housing market and a reliable public transport system that effectively connects residents with jobs and other destinations, the price premium may well be much higher than the average.”
According to CBRE Research, properties located in metro line areas including Binh Thanh District, District 2, District 9 and Thu Duc District currently sell at small to modest premiums, somewhere between 2 percent and 5 percent, compared to properties having similar finishing and level of facilities but not located in the metro line area.
Asking prices of high-end residential projects in District 2 increased from an average of US$1,490 per sqm in 2012 to US$1,650 today, up 11 percent compared to just 3 percent city-wide (Figure 1).
CBRE believes that in the future, when the metro line comes into operation, the premium for land price on sites located within a ten-minute walk from stations could be up to between 10 percent to 20 percent compared to sites in other areas.
In terms of new launches, CBRE also found that the number of condominium units surged in areas close to stations in the last three years. The average growth in supply in District 2 is 36 percent, compared to just 24 percent in District 4 or 10 percent in District 7. It is expected that condominium supply in District 2 and District 9 will surge by 58 percent and 200 percent in 2017 respectively (Figure 3).
Interestingly, the number of successful transactions has also gone up. According to CBRE Vietnam research, the number of units sold in District 2 was as low as 329 units in 2012 and is now 3,710 (Figure 2). Although no concrete conclusion on the impact of metro line can be drawn from the increase in selling prices as well as transaction numbers, it would make sense that developers have raised their prices in anticipation of significant demand once the metro line starts running.
Regarding land-use impact, Duong Thuy Dung, Head of Research and Consulting Department, said: “Better connectivity will allow commercial activities to be decentralised away from the congested commercial business district (CBD). This will also allow occupancy costs for the city to be controlled and managed by being able to offer alternative locations away from the CBD but yet still being well connected. It is expected that new clusters of commercial properties will arise along the metro lines, especially for properties in the mid-end levels.”
With 186,000 riders per day expected for the first line in HCMC, obvious opportunities will be seen in the retail sector where a retail mall is usually incorporated in a community to benefit from commuter traffic. On the other hand, the metro line will also help in expanding the retail catchment area by providing vehicle cost savings to remote shoppers, encouraging them to come to the city centre for shopping.
Dung added: “One of the things that have traditionally held HCMC back has been its poor infrastructure and lack of an efficient public transport system. For property investors, especially foreign ones, anywhere outside a catchment of half an hour drive from the city centre doesn’t really come into play as a serious investment opportunity. Commuting times are just too long and it can be a struggle to get into the city or to the airport at the best of times.
“However, the introduction of Metro Line no. 1 in 2020 will cut journey times by at least half meaning that anywhere with decent access to these lines will really benefit.
“For this reason, we can expect mixed-use developments along the metro line that will include condos, apartments, offices, hotels, restaurants, shops, outdoor activities, educational institutions and cultural and other attractions – much as can be seen today in cities such as Hong Kong, Bangkok and Singapore.“
Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg
