Three factors to drive Vietnam property demand in 2H21- 22F

There are three key factors to drive Vietnam residential property demand in 2H21- 22F

There are likely to be more challenges for property market in 3Q21F due to 4th COVID-19 outbreak. However, VNDirect believes the property market will bounce back strongly as soon as the outbreak is under control in 4Q21F. It expects good times for property market since 4Q21F with housing supply gradually recovery thanks to loosening regulatory bottleneck while higher housing demand fueled by the recovery of macro fundamentals, stepping up infrastructure development and low mortgage rates.

A board-based recovery of macro fundamentals

The rising vaccination rollout will be expected to provide a significant boost to the global economy in 2H21F as economic reopening gathers pace. Being the largely net exporting economy, Vietnam is well-placed to reap the benefits from global demand recovery. As 1H21 performance of Vietnam macro fundamental has heralded a couple years of recovery, VNDirect expects the Vietnam economy to grow 6.5% yoy and 7.4% yoy in 2021F and 2022F respectively, underpinned by robust manufacturing expansion and a strong bounce back in service.

Meanwhile, the inflation risk is rising in tandem with macro momentum but still under control. Vietnam’s inflation could be under control in 2H21F thanks to (1) lower food & foodstuff CPI amid a declining pork price and (2) effective measures to control inflation by the government, including reducing electricity prices and limit ing exports of input materials essential for production. So, VNDirect keeps unchanged its forecast of the 2021F average headline CPI increase of 2.9% yoy.

Leverage from low mortgage interest rates

The average mortgage rate from local banks stayed relatively flat in 1H21, in a range of 9.2-9.5%, still a 10-year low. Given the benign inflationary pressure, VNDirect expects the SBV to maintain its accommodative monetary policy into 2021F. Although it does not expect the central bank to cut its key policy rates further, it also thinks it would not lift them either in 2021F, in a bid to continue supporting the economy by maintaining a loose monetary policy. Following that reason, it believes mortgage rates will still be maintained at a low rate in 2H21F to lower barriers to financing and owning a property.

Accelerating infrastructure development

In a bid to speed up the recovery in GDP growth, VNDirect sees the government has been stepping up public investments in 2H21F, especially in infrastructure development. As of 09 July 21, the government had issued Directive 01/CT-BXD on speeding up the implementation and disbursement of 2021 public investment capital; in which, the disbursement of public investment must be completed 100% of the government’s full-year target. In the long term, VNDirect believes public investments, especially in infrastructure development with a direct impact on the property market, will become its key growth engine going forward.

Noticeable infrastructure projects include those starting construction in 2021 such as (1) Long Thanh international airport Phase 1 project (broken ground in early 2021), (2) Six of the 11 sub-projects in the eastern section of the NorthSouth Expressway which have started construction while five others are expected to kick off in 2021F; and those expected to complete construction in 2H21-22F such as Nhon – Hanoi Station; Thu Thiem 2 bridge 2Q22 and Metro Line 1 (Ben Thanh – Suoi Tien).

In addition, VNDirect sees there are some upcoming approval for new zoning plans that should enhance infrastructure development and land prices as well. Of which, the proposal on establishment of Northwest City comprising Cu Chi and Hoc Mon, in tandem with planning for urbanizing Hoc Mon, Binh Chanh, Nha Be, Cu Chi and Can Gio into urban districts lifted land prices rapidly in 1H21 in those area. It believes the developers that own landbank in those areas such as VHM, NLG, KDH will enjoy the benefits of rising land prices.