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Buy-to-rent housing investment is no longer lucrative
29/08/2019 18:20
Real estate investors are struggling due to the soaring condo price yet no sign of rental price to increase.

Most real estate investors in Ho Chi Minh City are no longer interested in the buy-to-rent investment as the market has shown strong downward momentum since the beginning of the year.

Falling rental price could not attract tenants

Minh, a landlord in District 2, Ho Chi Minh City, said that one of his tenants returned the key for his 14-million-rent condo two months ago and, despite of his effort in advertising, he haven’t found a new tenant. “I reduced the rent to VND12 million/month as the broker advised but still couldn’t find new tenants,” Minh worried.

Quoc Vinh, another real estate investor in District 4, has a 2-bedroom condo in Ben Van Don for rent at VND18 million/month. The rent is already under average but continues to decrease by VND2 to 3 million/month since the beginning of 2019. He believes the rising number of rental property and the unchanged number of tenants is the cause of the falling price. 

Buy-to-rent housing investment
Rental price of condominiums is currently in a downtrend. Photo: Quang Huy

The downtrend also happens in other market segments. Condominiums segment priced under VND1.5 billion with the rental price of VND7 million/month also has a high vacancy rate. Ngoc, an investor in Tan Binh District, paid VND1.1 billion for a condo in District 9, expecting to make a profit from renting this 60m2 apartment. After a year, while the apartment price reaches VND1.5 billion, the rental price has signs of falling.

“The rent is low, undoubtedly, only VND6.5 million/month. Still, the vacant condo for three months has not been rented. I lowered the price to 6 million but the situation hasn’t changed," Ngoc said.

According to data from Batdongsan.com.vn, 6 out of 10 districts in Ho Chi Minh City recorded a decrease in the average rental price, compared to the beginning of 2019. At District 1, 2, 4, 8, and Tan Binh, the price has slipped by 10 to 14%.

Falling price also means less profit. The data also shown that rental income has drop from 6% - 6.7% in 2018 to 5% - 5.9% in the first half of 2019. In order to not get swiped away by the down trend, secondary investors has to put on new business strategies like, for example, to rent apartments by day.

Tran Khanh Quang, General Director of Viet An Hoa Investment JSC, pointed out the contrast between the rising value of condominium and the falling rental price. The selling price of the medium-sized condo (around 60m2) has increased by half compared to the number VND2 billion of 2018, reaching VND3 billion this year. On the other hand, the rental price has reduced over VND1 million/month, from VND15 million/month in 2018 to VND13.5 – 14 million/month in 2019. These number clearly shows a sharp fall in the rental price compared to the selling price.  

“Three years ago, investors could easily earn 6% to 7% profit annually from renting apartments. Now, the number is only 4.5% to 5% per year, even lower than bank interest.”

Buy-to-rent trend weakens

Le Hoang Chau, Chairman of Ho Chi Minh City Real Estate Association, considered the falling trend as good news for tenants. "The downtrend was the result of market self-balance on supply and demand," he shared.

He also indicated that the market received new supply as numerous new project launched, yet no change in demand. Condos that are not rented will be on sales to prevent losses, which push the selling price up high. 

According to Chau, the rental price of apartments is recovering to the point in which balance with income. Besides, the affordable housing segment is lack of supply, especially condos with under-5-million rent.

Tran Khanh Quang, from a different perspective, pointed out a paradox in the matter. Normally, if the rental price decrease and the supply increase, the selling price would also decrease. In foreign property markets, the rental price and the rental rate determine the value of the property or the selling price. Thus, the area with a high rental price and rental rate will have a high selling price. In Vietnam, people consider properties not only as an accommodation but also as a store of value. This explains why real estate prices increase continuously, not affected by the rental price.

According to experts, costs like taxes, brokerage fee, repair costs, maintenance fees, make a huge deduction to profit from rental houses, especially in a high-competitive market with large supply. Hence, investors using financial leverage from liability should carefully consider the profitability before investing (Does it higher than the Bank interest or not?), avoiding unwanted losses.

From the market forecast by experts, the downward momentum will continue in the following months. According to Quang, the demand for accommodation property will account for the majority, about 40%, while the demand for investment property is 30% - 40% and for buy-to-rent property is 15% -10%.

(Source: Phap luat HCM Online)