Apartment segment is of interest to investors

Apartment rental is an investment channel that is favored by many investors because it brings a stable source of income in difficult times like today.

According to experts, for a long time in Ho Chi Minh City, there have been very few apartment projects sold on the market. Meanwhile, many investors still focus on this segment and look to buy projects with suitable prices and good progress. Currently, many investors buy apartments mainly for rent, not for the purpose of "surfing" like when the real estate market was still hot. Although the profit margin from renting apartments is no longer as high as in the previous period, and in some areas is even lower than the savings interest rate, this is still an investment channel of interest thanks to its ability to bring a stable source of income.

Ms. Hang (an investor) who just bought an apartment in Binh Tan District (HCMC) said: "Bank deposit interest rates have dropped sharply, so I don't want to save anymore, but withdraw money to buy an apartment to rent. Partly to accumulate assets for my children in the future, partly to invest to have money coming in and out every month."

Similarly, Ms. Ly has just bought an apartment in District 8 (HCMC) to rent out with a fixed income of 7 million VND/month. Ms. Ly said: "If calculated, the rental profit is still much lower than the purchase cost, but at this time, I don't know what to invest in. Moreover, many homeowners are currently financially overwhelmed, so the price has been reduced significantly compared to before, so I bought it to rent out to earn monthly income, and wait until the market warms up to sell for profit."

According to Savills Vietnam data, in the fourth quarter of 2023, primary supply in Ho Chi Minh City reached 7,600 apartments, stable quarter-on-quarter but down 5% year-on-year. The average primary selling price in the quarter in Ho Chi Minh City returned to the 2020 level at VND69 million/m2, down 36% quarter-on-quarter and 45% year-on-year. Ms. Giang Huynh, Deputy Director, Head of Research and S22M, said that the current supply of residential real estate in Ho Chi Minh City is very low, especially for a market with more than 10 million people. Meanwhile, the demand for buying from investors is very high, especially at the end of 2023, when many people withdraw idle money to buy apartment projects.

"In the past, when real estate was still "hot", many investors rushed to trade land, selling one place and then using the money to buy another place to make a profit. But now, when the market is unstable, investors mainly put their trust in apartments because the prices are reasonable, not changing much like land or townhouses. Meanwhile, they can be rented out to have a stable source of finance", Ms. Giang Huynh commented.

According to real estate market research units, the profit margin from apartment rentals has now decreased significantly compared to the pre-pandemic period. The reason is that the fiercely competitive market has forced owners to reduce rental prices to ensure high occupancy rates. This is also the reason why the trend of investing in rental apartments has been in decline for a long time and has only partially recovered in the context of economic recession, when other investment channels are fluctuating unpredictably.

Batdongsan.com.vn's report shows that in the period of 2017 - 2018, the profit margin of rental apartments was always high at 6-8%, calculated according to the formula of 12-month rental price/apartment selling price. The decline began in 2019 with a profit margin of 5.2% and "free-fall" in the period of 2020 - 2021 when the pandemic hit, falling back to 4.3-4.5% in 2020 - 2021 and 4-4.3% in 2022 - 2023.

Mr. Le Bao Long, Strategy Director of Batdongsan.com.vn, commented that the price level of apartments is increasing rapidly. In the third quarter of 2023 alone, the average selling price of apartments in Ho Chi Minh City is from 45.5 million VND/m2, including both primary and secondary prices, but the rental price of apartments has not increased accordingly. In particular, many apartments have a selling price of 3-4 billion VND, but the rental price is only around 8-12 million VND/month, while for apartments with a selling price of 4-6 billion VND, the rental price ranges from 15-25 million VND/month.

"Although rental prices have decreased compared to before, for investors with a long-term vision, rental apartments are still an attractive investment channel because they have a high average profit margin, the combined price increase over time and rental profits, at around 12.5%/year. This is a better and more stable profit compared to many other investment channels such as stocks, gold, foreign currency, land, and savings," Mr. Le Bao Long analyzed.

Many experts also highly appreciate the investment potential of the apartment segment, this is a group of products that maintain their value thanks to meeting real housing needs. In the context of a difficult market, products that meet real needs such as apartments are a bright spot in the real estate market. The rapid urbanization rate makes real housing needs continue to grow, so the room for apartment projects is very large.

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