Vingroup promises affordable homes in Vietnam

Nikkei Asian Review | Wed, Dec 7, 2016 09:31:06 AM Share this on

Worried about high-end bubble, property developer goes down market

Vingroup, a leading property developer in Vietnam, has announced plans for a new, affordable brand of condominium complexes.

Vincity condos will start at 700 million dong ($30,800) per unit. The flats will be located inside self-sufficient mini-suburbs together with schools, stadiums, shopping centers, hospitals and parks.

The group projects between 200,000 and 300,000 Vincity apartments over the next five years in seven cities and provinces -- Hanoi, Ho Chi Minh City, Nha Trang, Hai Phong, Hung Yen, Thanh Hoa, and Ha Tinh -- according to an announcement released on Saturday.

The communities will be built on the outskirts of these provinces and cities. As such, they will reflect the group's ambition to makeover Vietnam's suburbs and help ease urban density and congestion, according to Vingroup Vice Chairman Le Khac Hiep.

Up to now, Vingroup has made its name by building luxury developments under the Vinhomes, Vincom and Vinpearl brands. These range from condo complexes and shopping centers to high-end resorts. Housing units in these luxury developments start at about a billion dong.

These products mainly focus on the middle classes, who account for 0.5% of Vietnam's 63 million adults, according to Credit Suisse, and on people buying homes as investments. Homes are among the country's most popular investment vehicles.

Vingroup's announcement came a month after the Vietnamese government suggested it might impose taxes on people who own more than one home in the country. Expecting headwinds in the high-end market, Vingroup hopes to capitalize on affordable housing.

The government officers recently emphasized that Vietnam still suffers from an oversupply of high-end homes and a shortage of affordable units for middle and lower income earners, or 80% of potential buyers.

The government's talk of slapping a new tax on owners of multiple luxury housing units comes with the market already slowing down. In the first nine months of 2016, sales of high-end homes fell 10%, while those in the affordable segment increased 10% year on year, according to a Dragon Capital survey.

Since 2015, real estate experts have warned of an imbalance between supply and demand in Vietnam's high-end housing segment, dominated by Vingroup and Novaland.

The new tax, expected to be implemented before 2020, has been welcomed by local analysts who say it will help to prevent speculation, reduce the risk of a housing bubble and encourage developers to provide more affordable flats for first-time buyers.

In the second half of this year, Vietnam has seen a swell of investments in the affordable housing segment. Even foreign players like Dacin (Taiwan), The Global Group of the U.S. and Hankyu Realty (Japan) have jumped in.

But uncertainty hangs over Vietnam's affordable housing market as lenders, struggling with nonperforming loans, cut back on new lending. Property mortgages already account for almost 40% of total outstanding loans at many lenders, leaving little hope that more cash will be injected into the real estate sector anytime soon.

"Banks will be more careful when they consider lending to property projects," said Tu Tien Phat, deputy general director for sales at Asia Commercial Bank. "And interest rates for real estate loans [will likely] soar next year."

Source: Nikkei Asian Review