BMI View: Despite our view that credit conditions in Vietnam will gradually improve over the coming quarters, we believe that this will be insufficient to reignite demand for investment property as investor sentiment is likely to remain cautious. We believe that mounting concerns over a potential banking crisis, coupled with an abundant supply of unsold properties, will translate into a relatively weak recovery for the property market in 2013.
Rapid monetary normalisation by the State Bank of Vietnam (SBV) since the beginning of the year -the benchmark refinancing rate was slashed by 500 basis points from 15.00% to 10.00% in H112 - has failed to reignite demand in the property market. According to the latest figures published by CB Richard Ellis (CBRE), asking prices across all major segments of the market including condominiums, landed property, commercial, and retail, continued to decline in Q312. This is in line with our view that demand for residential and commercial properties will remain subdued throughout 2012 and that a recovery is likely to come only in 2013 ( see 'Decline In Property Prices A Healthy Adjustment For Economy', June 29 2012). Despite our bullish out-of-consensus view on the Vietnamese economy (we expect real GDP growth to come in at 7.0% in 2013), two key factors could result in a slow and bumpy recovery for the real estate market over the coming months.
|Credit Conditions To Ease Gradually In 2013|
|Vietnam - SBV Refinancing Rate and Lending Rate, %|
Firstly, we believe that mounting concerns over a potential banking crisis - which would require a large-scale bailout by the Vietnamese government and assistance from the International Monetary Fund (IMF) - is likely to weigh on investor sentiment. Although we believe these concerns are unwarranted given our view that the government is fully capable of financing a bailout of state-owned banks, we nonetheless believe that investors will remain cautious towards investing in the property market. Not only do we see a risk that demand may take longer than expected to pick up as investors gradually realign their expectations towards our view of a more benign economic environment in 2013, we believe that local banks may also set higher income requirements or collateral before issuing property loans to investors. Although we view the tightening of lending practices among local banks as a positive development for the banking sector in the long term, this would act as a further drag on demand in the property market.
|Headwinds Could Undermine Property Market Recovery|
|Vietnam - Real Estate Index|
Secondly, we argue that the existing stock of unsold properties in Vietnam, including a potential pipeline of projects that are due to resume after being delayed or suspended due to tight credit conditions in 2011 and H112, could result in an abundant supply of new units over the coming quarters. Based on estimates published by the local media and real estate developers operating in Vietnam, there are around 70,000 unsold units in Hanoi and Ho Chi Minh City. We believe that this oversupply of units (which is relatively more severe in the larger mid-range segment of the property market) will require an extended period of time to be absorbed by the market. Indeed, the oversupply of units has also been reflected by anecdotal evidence provided by local real estate agencies, where investors seeking to sell their units are competing aggressively in terms of lowering their asking prices in order to offload their units.
Overall, with demand for real estate likely to remain relatively subdued and the property market in abundant supply of new units over the coming quarters, we are maintaining a cautious outlook on the property market in 2013.