Advice
4 challenges ahead for investors joining apartment market
08/03/2019 09:46 | Source: Vnexpress
Tens of thousands of new apartments enter the Ho Chi Minh City market every year, putting pressure on investors who want to reap returns from rental apartments.

There would be many obstacles ahead for the Saigon apartment market in the next 6-12 months, Mr. Nguyen Cong Chanh, General Director of Phu Vinh Real Estate Investment Company, predicts. Therefore, investors need to carefully consider opportunities and challenges of the market this year.

The expert also adds that amenity is the market’s opportunity at this time. Competitiveness of an apartment project depends heavily on amenities, quality of living space and traffic connection. However, there are also many challenges that investors need to be aware of. Mr. Chanh pointed out 4 main challenges awaiting apartment investors in HCMC market.

4 challenges ahead for investors joining apartment market
Expert points out 4 chachallenges for investors in rental apartment market

1. The number of apartments handed over increases sharply

In recent years, the increasing supply of apartments in HCMC has created a great challenge for buy-to-rent investors. The competition on rents of this market is predicted to become more intense in the future.

The total number of apartments handed over in 2018 was nearly 35,000 units, of which high and mid-end apartments account for a combined proportion of 60% of the market share. More than 35,000 units are expected to join the market within this year. Earlier, between 2016 and 2017, the market also saw tens of thousands of units put into operation each year.

Specifically, buyers who are end-users and investors account for more than 50%, half of them want to sell or rent out their apartments, making the competition become fiercer. Once the supply is too plentiful, it will make it difficult to get the expected rents. Investors have to reduce profit margins, but tenants benefit more from softer rents.

2. Selling prices keep soaring

District 2 has continuously witnessed new record of selling price with an average of VND55-70 million per sqm in the high-end segment, even peaking at VND 90 million per sqm. Meanwhile, the average price of newly-launched apartments in District 9 hít VND 30 million per sqm or more. Improving infrastructure and a large number of investors poured money in the Eastern part of HCMC are considered strong factors that push prices up.

In the 2015-2018 period, apartment prices in HCMC have increased by an average of 10-15% per year, depending on each area, equivalent to a rise of 40-60% in the last 4 years. This fact makes it hard for investors to gain profits at high-priced segment, and creates big barriers for consumption.

3. Legal bottlenecks

In recent months, the Southern city has seen many legal changes such as strengthening the review and inspection on legality of various housing projects; restricting the licensing of new projects in 2018-2020 period; revoking long-stalled projects. Buyers will become more cautious and more demanding to choose apartment products to avoid legal risks.

4. Falling liquidity 

The tightening policies on property credit have led to a severe shortage of new supply on the primary market. Liquidity in new projects at the first sale phase also plummetes.

A combine of declining supply and weak liquidity makes investors' sentiment fall, putting real estate investment under pressure of deceleration this year. This fact turns the market into a defensive state: Both sellers and buyers are very cautious.

The HCMC real estate market reached its peak in the 2016-2017 period. Last year, it slowed down and showed signs of deceleration which is expected to be stronger this year and make the investment environment face many challenges.