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Vietnam Real estate Outlook after covid-19

Vietnam Real estate Outlook after covid-19

Covid-19 has a mixed impact on Vietnam Real estate, a slight negative impact on housing and residential areas, and a significant short-term negative impact on retail, office, and holiday properties.

Vietnam’s picture

Advantages of Vietnam:

  • Labor costs are relatively low compared to other countries in the region and young labor force (52% of people of working age).
  • Stable economy and high growth.
  • Large market with increasing purchasing power and growing middle class, with a total population of 95 million.
  • Strategic geographic location: Located next to China, Vietnam is close by making it an ideal alternative location for investors seeking to diversify their supply chains from China.
  • Increasing participation in global connections: recent strategic trade agreements: AFTA, EU-Vietnam FTA, CPTPP
  • Supporting the legal framework: the government is improving the investment environment to become more transparent and fair.
  • Vietnam's picture

Impacts from Covid-19 to Vietnam

In the long run, Vietnam could benefit:

  • Vietnam’s international reputation has benefited from the successful handling of Covid-19 and is currently exporting masks and medical equipment to the world, promoting the nation’s brand.
  • In addition, businesses from the US and the world will tend to withdraw from China, for example, Japan recently spent more than US $ 2 billion to support businesses withdrawing from China because of the Covid-19 epidemic. disrupting the supply chain between the two countries.
  • Besides, Vietnam has joined a series of free trade agreements (FTAs), including EVFTA, which have recently been expected in the long term.

However, in the short term and especially in 2020, industrial enterprises will encounter negative factors from:

  • Global economic activities plummeted from Covid-19, causing businesses to face financial difficulties. Businesses planning / preparing for investment will have to halt due to financial impacts, ambiguous macro factors from diseases, and travel experts to check for new restricted projects.
  • Investment capital into Vietnam in the first quarter of 2020 decreased in both quantity and total investment capital, in the first quarter of 2020 only reached 8.55 billion USD, down 20.9% over the same period in 2019. Investment capital disbursement also decreased but still at a good level, reaching 3.85 billion USD, equaling 93.4% over the same period in 2019.
  • Vietnam’s infrastructure construction process has slowed down by 2020 due to social isolation.

Therefore, at least in the first half of 2020, the revenue of industrial zone enterprises will drop sharply.

Opportunities from Government efforts

To deal with Covid-19 and supporting companies, the government could:

  • Regarding monetary policy, the State Bank of Vietnam (the State Bank) has continuously cut interest rates since September 2019, both mobilizing and lending rates of commercial banks. Credit growth is expected to reach about 10% by 2020.
  • The Government also promotes public investment to promote growth, with a total planned investment of 700,000 billion VND in 2020. At the same time, implementing economic support packages is estimated at 600,000 billion VND, equivalent to approximately 10% of GDP.
  • Infrastructure investment will be supported and promoted by the government after a slow 3 years, first of all by removing bottlenecks related to public-private partnerships (PPP), including the legal framework. Comprehensive PPP projects and improve public response to fares and tolls, etc.
  • Maintaining high GDP growth (in a good scenario where GDP growth is 5%), stable economic factors include inflation and exchange rate.

Covid-19’s impacts on Vietnam Real Estate

Property Cycle

1. Industrial Parks:

– On the one hand, the slow growth of the global economy and capital withdrawal due to Covid19 may negatively affect FDI inflows into Vietnam. Potential foreign and domestic manufacturers may face financial difficulties from viruses and may postpone their plans in new projects. The travel restriction due to Covid-19 also affects the progress of new/potential projects.

– On the other hand, the Vietnamese Government has handled Covid-19 quite well, prevented the spread of Virus completely and the lock time is very short compared to other countries. Vietnam will benefit from supply chain movements away from China, recent trade agreements, and strong macroeconomic factors.

2. Residential

Covid-19 slows down both the supply and demand sides of the market, and can also affect the psychology of home buyers. However, the Government can support by increasing spending on infrastructure and loosening policies/regulations to support real estate developers.

3. Retail

Footfalls in shopping centres decreased significantly due to Covid-19 (about 70% YoY in Q1 / 2020 – according to CBRE). Retail sales decline, leading to tenants facing increases and landlords having to lower rental/payment rates.

4. Vacation property, hotel, condotel

Tourism significantly affected by Covid-19, the Vietnam National Administration of Tourism (VNAT) has forecast two scenarios:

(1) The coronavirus to be contained by June 2020 – international tourist arrivals would reduce by 70% ;

(2) The coronavirus to be contained by September 2020 – international tourist arrivals would reduce by 75%

5. Office

Businesses may delay the decision to rent a new office in the first half of 2020, but demand will mostly return. However, remote working habits/cultures may start in certain businesses, so the demand for offices is lower.

Source: MB

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