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NEWS UPDATES Asean Affairs           8   August  2011

Vietnam property market declines

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Efforts by the Vietnamese government to control runaway inflation coupled with signs of an economic slowdown are starting to have a negative effect on the property market, according to the multinational property services firm CB Richard Ellis (Vietnam).

CBRE said the adverse economic headlines that were witnessed during the first quarter continued throughout the second, notably two upward adjustments to the refinancing rate, ending the quarter at 14 percent; one adjustment to the rediscounting rate, leaving it at 13%; and two upward changes to the reserve ratio for banks.

All of these signs emphasised the concern over the state of the macroeconomy. Thankfully, the tightened monetary policy now appears to be having an effect, with month-on-month inflation showing its lowest increase this year in June at 1.09 percent even though the same month saw year-on-year inflation of 20.8 percent, the agency said in a research report.

The office sector continued a long-term trend of rents across all grades declining during the quarter. The rental slide in the period ranged from 1.9 percent in the Grade A market to 1.4 percent for Grade C.

"This is a result of the softening in demand that has been witnessed as both foreign and Vietnamese enterprises maintain a cautious approach to expansion in 2011 and as new supply continues to come online, albeit at a slower rate than in in the first quarter," said senior manager Adam Bury.

He said that during the first half of last year, net absorption totalled 130,000 square metres across all three office grades, while this year absorption in the first half was 67,000 sq m. Mr. Bury said softening demand is affecting rental prices. However, it is notable that some landlords are able to hold onto existing rental levels.

The most obvious example is in the established Grade A market, where the mature buildings have all reached sustainable occupancy levels of at least 90%. In these properties, landlords have held rents at existing levels, knowing that potential tenants have few options should they desire Grade A space.

Besides supply side pressure, demand side pressure conspicuously continues to influence rents. The second quarter saw 37,865 sq m of new supply come online, a respectable amount despite being down from 42,000 sq m in the first quarter.

Mirroring the office sector, residences saw a continued softening of asking prices in the second quarter, said CBRE.

Data that also take into account asking rates, suggests prices across all sectors fell by 1% or less.

However, buyer confidence remains low, and actual transaction prices are believed to represent significant discounts. This means residential selling prices in the secondary market will keep dropping in the second half.

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