Vietnam buy-to-let apartment rents in Q2 record worst quarterly drop in seven years

Rents in high-end units dropped 6.7% in Q2 as foreign tenants sought cheaper options.

The leasing market in Vietnam’s largest city Ho Chi Minh is pressured by the ongoing pandemic as tenants’ job security is threatened. JLL reveals rents of buy-to-let high-end apartments in 2Q20 decreased 6.7% q-o-q, the most severe quarterly drop for the past seven years. This was the result of many tenants, especially foreigners, reportedly returning the units and downgrading to more affordable ones as COVID-19 affected their budget and job security.

Primary prices in both segments continued to move higher q-o-q, supported by the higher-than-average projects launched in the quarter. Meanwhile, the average prices of completed projects decreased q-o-q, as most of these transactions took place in the secondary market, where property owners’ confidence was affected by the financial difficulty and subdued leasing market.

Here’s more from JLL:

Healthy demand driven by owner-occupiers continues

Take-up totalled 674 units in high-end apartments, up 23.4% q-o-q, mainly driven by owner-occupiers. Meanwhile, investors remained cautious and hesitant in making the investment because although Vietnam had succeeded in containing COVID-19, worries about financial instability due to lay-offs and pay cuts were still pervasive.

Total take-up in villas/townhouses increased by more than 50% from 1Q20, reaching 569 units. The majority of buyers remained owner-occupiers; however, some large-scale projects also saw a number of long-term investors looking to open their own shops or business or simply keep the assets for capital gain. Most of them had deep pockets and seemed to be less affected by the slowing economy.

New launches show signs of improvement q-o-q

New launches in high-end apartments, albeit only half of the quarterly average for the past 3 years, reached 648 units, up 40% from the previous quarter, the Galleria phase of the Metropole project in Thu Thiem Urban Area comprised the majority of these launches. Market-wide sales events started to gain traction as gatherings was allowed again as COVID-19 had come under control in Vietnam in 2Q20.

New launches of villas/townhouses amounted to more than 600 units in 2Q20, up 37% q-o-q, yet still lower than the quarterly average for the past three years. The eastern areas of the city, where some key infrastructure projects are underway, were again bright spots in 2Q20, with Manhattan phase in Vinhomes Grand Park contributing nearly 65% of all units launched.

Outlook: Limited supply to continue in the market

Legal issues and economic uncertainty continue to keep the number of units launched in 2020 short of the annual average seen in the 2016-18 period. A total of about 20,000-25,000 units are scheduled to come online in the high-end apartment segment and villas/townhouses are expected to see 2,500-3,000 units officially launched in 2020.

In both sectors, prices of completed projects will likely fall in 2020 under COVID-19’s impact, similar to what happened in 1H20. However, rents are expected to fall faster than capital value, caused by the weakening leasing demand, which will lead to the market yield compressing further.