Ho Chi Minh City's apartment shortage is being alleviated thanks to a sharp increase in supply.

Supply increased thanks to supportive policies.

According to Savills' recently published Ho Chi Minh City Real Estate Market Report for Q3 2023, the supply of apartments returned to the market in Q3 2023, with a 572% increase in new units quarter-on-quarter and an 11% increase year-on-year, reaching 2,528 units.

This supply comes from two new projects and six subsequent phases of projects in the city. Of these, Thu Duc City alone accounts for 74% of the market share, with projects having large inventories such as The Glory Heights (Class B) accounting for 59% of the market share.

The remaining apartments offered on the market are Class B and C projects located in the western area of Ho Chi Minh City, specifically in Binh Tan and Binh Chanh districts.

Primary supply increased by 32% quarter-on-quarter and 12% year-on-year to 7,722 units, partially easing the supply shortage pressure. Class B had the largest supply with a 49% market share, followed by Class C with 34% and Class A with 17%.

Explaining the increase in supply of this type of property, Troy Griffiths, Deputy Managing Director of Savills Vietnam, said: “Lower lending interest rates and supportive measures from the Government are expected to stimulate supply growth and boost the market.”

Ho Chi Minh City's apartment shortage is being relieved thanks to a strong increase in supply (Figure 1). — The supply of apartments is increasing, meeting the supply-demand imbalance in the market.

Regarding market liquidity, Savills reported that projects in the C-segment recorded 651 transactions, indicating that the current market demand for affordable housing remains high. Meanwhile, projects in the A-segment and B-segment recorded 42 and 210 transactions respectively during the same period.

To resolve legal obstacles, the Ho Chi Minh City People's Committee has focused on addressing issues for 148 projects; 39 projects have already yielded results. The State Bank of Vietnam (SBV) has continuously lowered interest rates, and Circular 10 will provide better access to capital for ongoing projects. These mechanisms are expected to help increase supply and promote market development.

It is projected that by the end of 2023, more than 1,900 new units will be offered for sale. Class C will be the main product with 69% market share, Class B will have 26% market share, and Class A will have 5%.

The serviced apartments are operating at near full capacity.

In the serviced apartment market, the supply in Q3 2023 reached 7,463 units, an increase of 6% quarter-on-quarter and 23% year-on-year. Five projects reopened after renovations, providing 233 units, and there were 12 additional existing projects.

Savills reported an occupancy rate of 81%, down 2% quarter-on-quarter due to tenants ceasing lease renewals and reduced short-term demand during the low season. However, occupancy increased 3% year-on-year thanks to a recovery in long-term rental demand from the return of expatriates and short-term domestic business travelers.

“The serviced apartment segment is performing relatively well, but is facing increasing competition from rental properties. This has driven renovations and the entry of new operators,” shared Neil MacGregor, Managing Director of Savills Vietnam.

Ho Chi Minh City's apartment shortage is being alleviated thanks to a strong increase in supply (Figure 2). — Serviced apartments are operating at near full capacity, partly due to the continued high demand for housing in the market.

Accordingly, since 2019, Ho Chi Minh City has had over 100,000 apartment units handed over, creating fierce competition with serviced apartments. To maintain competitiveness, serviced apartment chains have continuously expanded, with supply growth reaching 18% annually, totaling nearly 3,000 units and accounting for 38% of the city's total supply by Q3/2023.

New brands are largely developing in the C-segment and targeting the mass market. Chain-operated projects have synchronized marketing and leasing policies. Most of these projects are performing well, with occupancy rates exceeding 90% and rental prices up to 20% higher than the market average.

Villas and townhouses still have potential in the future.

Unlike the other property types, the villa/townhouse market continued to record no new supply quarterly, resulting in the primary supply of this segment reaching its lowest level in the past 10 years at 766 units, a decrease of 24% quarter-on-quarter and 5% year-on-year.

Of that total, projects in Thu Duc City accounted for 88% of the primary supply. Products priced above 30 billion VND/unit accounted for 86% of the supply.

Transactions in this type of property in Q3 2023 reached only 64 units, the lowest since 2018, down 43% quarter-on-quarter and 82% year-on-year, due to declining demand, lack of new supply, and expensive inventory. The absorption rate was only 8%, down 3% quarter-on-quarter and 36% year-on-year.

Ho Chi Minh City's apartment shortage is being relieved thanks to a strong increase in supply (Figure 3). — The market for villas and townhouses is quite sluggish but is considered to have significant potential in the future.

Against this backdrop, developers continue to maintain a cautious attitude and have even suspended sales, limited marketing activities, and postponed plans to launch new projects until next year. Some developers continue to apply diverse sales and lending policies, as well as lease-guarantee policies, to attract buyers.

However, when commenting on this type of property in Ho Chi Minh City, Neil MacGregor, General Director of Savills Vietnam, stated: “The villa/townhouse market still maintains its growth potential despite current challenges. The development of infrastructure facilitates developers' access to more land to address the current supply shortage.”

Savills forecasts that approximately 200 new units will be offered to the market in Q4 2023. By 2026, the market is expected to see an additional 4,600 units offered, along with the completion of several key infrastructure projects.

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