There is a property glut in Vietnam. Rental rates fell by double digit rates through 2009 - in each of the three cities for which we gathered data (Hanoi, Ho Chi Minh City and Da Nang) and across all three subsectors. Vacancy rates are generally running at around 30%.

Normally, in an economy that has been growing so quickly - that the authorities are tightening both fiscal and monetary policy in order to curb inflationary pressures - rents and capital values would fall until much of the vacant space is absorbed.

However, this is not the process of adjustment that is under way in Vietnam. The government has intervened to re-regulate the commercial Real Estate sector. Approvals for projects that have been proceeding slowly have been revoked. The aim of this measure may be to prevent/discourage speculation in a country where inflation has been rising. More likely, it is a move to curb supply at a time that rental rates are under downwards pressure.

Our sources - across the three different cities - are adamant that rental rates will stabilize in the coming year and rise in 2011. For the time being, we assume that this is what will happen because the government mandates it. To a certain extent, the government and its agencies will be able to increase the amount of office space (and, perhaps, industrial space) that they are occupying. However, the likely consequence is that vacancy rates will remain high. In essence, it appears that official policy will be to keep rental rates (and probably prices and capital values) above market-clearing levels.

Yields rose in Da Nang over the course of 2009, but fell slightly in Ho Chi Minh City and Hanoi. Interviews with our in-country sources were conducted in mid-March 2010.

Key Features Of This Report
This is the latest edition of a new series of industry reports that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. Once again, the questions that we seek to answer for each country remain as follows: What are the main issues that will matter to actors in and around real estate development in the country concerned, both over the long and the short term? What are the main constraints that they face? What are the key insights that one garners when one compares the real estate sector of the country concerned with its peers in other countries?
For Q3 we have introduced a very substantial new improvement to the reports. We have incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors - office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology sector of this report.

 

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