Property firms tap opportunities outside HCMC
HCMC-based property firms’ expansion to neighboring provinces is not only intended to take advantage of the movement of people out of the city but also part of their sales strategy.
Major markets such as HCMC are now restricting new high-rise property projects, while the city’s available land is shrinking.
In addition, Vietnam’s urbanization rate is 37.5% and estimated to rise to 45% in 2020. Nguyen Nhat Cuong, deputy head of the research and analysis center at VietinBankSecurities, said that property firms are expanding to neighboring areas where the average income per capita is high and there is more room to grow.
While in the past, small property firms favored provinces to avoid direct competition in the HCMC market, large companies are now actively approaching these areas.
In fact, since last year, many industry giants have acted to seek new land and develop new product lines. They have planned large-scale projects in the southwestern and southeastern areas and are willing to adjust their investment strengths to adapt to the market in the provinces.
For instance, Hung Thinh, a property developer in HCMC, has turned to Dong Nai Province’s Long Thanh District to develop a project there. More than 3,600 land lots priced below VND1 billion each have been offered for sale in the first phase. The price is low compared with land prices in HCMC.
In Ba Ria City of Ba Ria-Vung Tau Province, some 1,000 land lots for various projects near the Phu My and Chau Duc industrial parks are up for sale. Of these, Hung Thinh Land has some 400 lots.
Land lots and townhouses in projects close to the center of Ba Ria City are being traded at VND35-40 million per square meter, equivalent to VND3.5-4 billion per house.
Nam Long, known for low-cost apartments in HCMC, has also developed a land lot project covering 355 hectares in Long An Province. The company recently spent VND2.3 trillion buying a 192-hectare project in Dong Nai Province.
Novaland, a firm specializing in developing medium- and high-end apartments, has moved to other localities such as the cities of Phan Thiet and Can Tho. Vingroup and Thaco are also present in Long An Province, building shopping malls and urban areas.
According to Le Hoang Chau, chairman of the HCMC Real Estate Association, provinces neighboring HCMC are building better infrastructure and are often regarded as HCMC’s suburban areas. This makes the shift of property firms to these localities inevitable.
Property expert Phan Cong Chanh noted that property firms in HCMC are expanding to the provinces and developing products beyond their strengths, indicating the limited supply in the city.
According to Chanh, one major problem faced by property firms in HCMC is the long time needed for project development, as it takes three to five years to acquire a plot of land, carry out legal procedures and launch a project. During that time, firms are under pressure due to capital stuck in unfinished projects and operational costs.
Projects outside HCMC are well located. Although the distances between them and HCMC are wide, transport connections are convenient and products can be offered sooner.
One of the gains of the movement to neighboring provinces is that firms can diversify their products, approach new groups of clients and have more chances of increasing their market share and brand recognition. Lower prices in the provinces are also an advantage, enabling investors to move from high-end to more affordable products.
LDG General Director Nguyen Minh Khang noted that the firm will reduce property investments in HCMC in 2019-2020 to seek better investment opportunities.
According to Khang, over the next two years, his firm will make considerable investments in Long An, Binh Duong, Dong Nai, Vung Tau and Can Tho. HCMC will not be the focus in the new investment plan of LDG.
Despite rising property developments in provinces being forecast for the coming year, the expansion to these areas bears risks, such as a large supply and land prices not picking up as much as expected. There are also risks that investors may get stuck in local land fevers and infrastructure problems.
Economic expert Bui Quang Tinh said the success of property investments in the provinces depends on the location and timing.
Purchasing power is not returning to buyers with real needs, and there are few opportunities for secondary investors.
It might be simple to develop a project outside HCMC, but the issue of selling the product might not be as simple as the purchasing power of buyers remains unknown. Therefore, firms need to be patient and capable of attracting investors over the long term.