Many members have recently expressed concerns and questions about Vietnam’s real estate market and this meeting was organised to have an honest, frank, and informative discussion about where the market is now, and what direction it’s heading. Were joined by our members Ken Atkinson OBE, Michael Kokalari, and Trang Bui for a Zoom session: “Where is the Vietnamese Real Estate Sector Heading.”
The First Real Interruption in Years
Throughout each panelists keynote and subsequent Q&A, a handful of topics and themes flowed from speaker to speaker. Ken began by noting that this is the “first real interruption in the market in Vietnam in the last 15 years.” He pointed out that the lack of supply in both commercial and residential markets, coupled with high-profile arrests of government officials, is impacting the overall confidence levels within the sector.
Furthermore, he added that continued growth in FDI-mainly driven by the growing middle class and its effect on retail and e-commerce-is bolstering the industrial sector. The residential sector, however, he said, is the most adversely impacted sector in the real estate market. In his opinion, one factor contributing to this adversity is the altering demands from the middle class. He sees a change in the dynamics with more and more of the middle class looking to live in their own homes, particularly with a growing number of people in Vietnam working at home.
An Emerging Middle Class
Following up after Ken, Trang also touched on how, compared to 2008, Vietnam’s current real estate market has created a more diverse group of active institutional investors who share great interest and commitment to long-term investment in Vietnam.
From her perspective, this has resulted in massive developments in the country, including nearly ten thousand kilometers of roads being built and the announcement of one of the most massive investment transactions ever at 1 billion USD. More importantly, she stated the key focus of the central government in the next ten years will be to spend more capital to complete all of the infrastructure, specifically leading to a lot of activity in Southern Vietnam. Like Ken highlighted, Trang agreed that confidence will be an essential driver.
After hearing from our first two guest speakers, members were asked to share on a scale of 1-10 how much impact the current real estate crisis has had on their businesses. Members from a multitude of industries shared a wide range of answers – including some at 8 and higher. This illustrated how Vietnam’s real estate metrics can influence surrounding markets in a myriad of ways.
Financing Problems
Michael, the final guest speaker, continued the discussion by saying we’re in an inventory destocking in the US. He mentioned this is the result of several retailers (example: Walmart, Target, Nike, Lululemon) overordering, causing inventories to collapse at the fastest rate in the last nine years. He predicts that things should improve for Vietnam factories towards the year’s end.
Like the other speakers, he also pointed out that the industrial sector is strong thanks to multiple contributing elements, such as factories in Vietnam being free from tariffs by the US and a strong labor force-one that he believes there is still a lot of room to grow, citing the Lewis Turning Point, a stage in economic development where surplus rural labor is fully absorbed into the manufacturing sector which causes agricultural and unskilled industrial wages to rise, as an indicating variable.
More on the real estate market, he said developers continue to have issues with zoning approvals, but Vietnam is ultimately experiencing a “financing problem.” Unlike China, which he says is experiencing an “economic problem” – noting the high level of vacancies due to an excess number of apartments, Vietnam has the opposite issue. Michael called this a “striking wedge.” The consistent growth in population over the last 30 years is being constrained by the low number of new housing units being constructed.
Thus, related to Ken’s earlier questioning concerning the emerging middle class and its changing demands regarding housing, Michael stated there’s “effectively infinite demand.” He also made clear his prediction for what’s next in real estate: “Banks will not be comfortable to lend to real estate until the end of this year.”
However, looking forward into the future, all speakers agreed that real estate in Vietnam is on a growth trajectory that resembles something like Tokyo, with proper suburban development allowing the city to expand outwards, potentially allowing residents the option to commute from over an hour away. Ultimately, as Ken pointed out during the later Q&A session, this would require the government to invest in operating assets (ex. school, hospital, bus terminal, mall, etc.) within those townships. For this to occur, as the guest speakers alluded to, the government would somehow have to flip the switch or at least be patient and open to listening to new possible solutions. This is the crux of the situation that each speaker continues to watch closely.
Despite worries openly shared among our guest speakers and members who joined us over Zoom, many still foresee a bright future for Vietnam’s real estate market and for the country as a whole. We were pleased to welcome Ken, Michael, and Trang this week, and we thank them for taking the time to illuminate both potential issues and rising opportunities still to come within Vietnam’s real estate sector.
We hope this brief summary of our session has given you a better understanding of what’s next for real estate in Vietnam, and we hope to see you at the next members meeting.
