In the past, the rental market was always stable in terms of value and margin. However, the reality is that this situation is not stable due to the appearance of many new real estate items. According to CBRE’s report, the serviced apartment segment in Ho Chi Minh City and the whole country in general are competing fiercely from the segment of apartments for rent.

This is why rental rates in Ho Chi Minh City continue to decline sharply in the market from the second quarter of 2017.

Reality of rental apartment market in Vietnam

Who those who is still consider what is a serviced apartment, the type of serviced apartments in Vietnam is often known for good quality projects located in central Hanoi or Ho Chi Minh City under the management of reputable international corporations. The Ascott, Frasers Hospitality, Sedona, IHG, Accor, Norfolk Group or The Peninsula Properties, etc.

The supply of this type of apartment compared to the large cities in the area is also quite modest. According to a number of international consultancy units, Hanoi has over 3,400 units, Ho Chi Minh City has over 4000 units while Singapore, Hong Kong and Indonesia have four to five times the size of Vietnam.

Currently, demand for housing for foreign experts living and working in Vietnam is increasing. In the previous years, the segment of high-end apartments, especially serviced apartment in District 7 for rent was not completed and leased, so many rents and capacity of this type of apartment is quite high and stable. According to CBRE, rents from 2009 to 2010 are almost unchanged, reaching an average of nearly $40/m2/month.

However, from the beginning of 2017, the rental rates for serviced apartments have decreased slightly from 3 -5USD / m2 / month and tend to decrease sharply next year due to the appearance of many new real estate items, rich potential.

Fierce competition

In recent years, the types of serviced apartment in Ho Chi Minh city are facing high pressure of strong increase of supply of luxury apartments. In particular, a small part is subleased by secondary investors.

CBRE statistics show that the size of high-end apartment supply in Hanoi is about 22,000 units, accounting for 18% of total apartment supply and this figure in Ho Chi Minh City is about 30,000 units, accounting for 29% of the total supply.

With the high volume of luxury apartments and the number of projects in operation, the large number of high-end apartments are being leased to investors as a good investment channel in the interest rate situation like nowadays.

Director of a real estate distribution company in Hanoi recently said that according to the survey of this unit on the purchase of luxury apartments in a high-end apartment building in the city, there are about 18- 20% of customers buy for lease.

According to some market research agencies, rents for high-end apartments in Hanoi are on average 5% to 6%, and serviced apartment for rent in Ho Chi Minh city is slightly higher-about 7%. The survey on a number of new high-end apartment projects coming into operation in Hanoi shows that rents tend to decrease compared to 2013. For example, in the Indochina Plaza building, the average rent of an apartment area About 100m2 last year at about $1,500/month, now about $1,300/month.

Serviced apartment in Ho Chi Minh city is under pressure

With such a strong increase, serviced apartments are in a fierce competition. This sign is very evident in rents and rents.

Savills Vietnam’s third quarter report shows that the total supply of serviced apartments in Hanoi is about 3,400, up 19% over last year. During the quarter there were 260 apartments from the Lotte Mark project. Mostly located in Tay Ho and Ba Dinh districts (56%).

Average rents fell by 2% compared to 2013 to reach 549,000 VND/m²/month, the occupancy rate in the third quarter of 2017 was only about 75%, down about 4% and average revenue per room also decreased by 4% compared with the previous quarter.

New supply to the market in the next time is not significant

This situation is similar for serviced apartment in District 7 for rent when the capacity decreased by 1% compared to last year, and rental rates continue to decline, at 5% over the previous year.

However, a good signal for the rental segment is a good sign up from attracting FDI inflows in the past year. In Hanoi, FDI inflows increased by 6% over last year and HCM City increased by 7%. Meanwhile, new supply to the market in the next time is not significant, forecast in the fourth quarter Hanoi only received about 30 more, and in HCM City will only add about 690 units in the next two years.

Despite optimism about the market potential, serviced apartment units, especially those new to the market, may be forced to develop apartment types new with different areas and different services, attractive rental packages to increase the competitiveness of the apartment to buy to lease again, and that might be the wise step to take in this situation in the future.

Thang Tran -RaoXYZ