I work as a broker for the luxurious and high-end apartments in the Thu Thiem area in 2020. Although I am quite familiar with luxury real estate, I still can't believe it when I am assigned to sell penthouses for more than 90 billion Vietnam Dong (~$3.9 million).
But in fact, many of my clients have not been able to buy these penthouses. Most expensive penthouses quickly ran out of stock as soon as they opened for sale, even before those with lower prices. A customer compared Thu Thiem to Manhattan - the wealthy American neighborhood.
Element of surprise could come from anything & anywhere, this real estate market is not an exception.
The land auction in Thu Thiem at the end of the year recorded the highest winning bid of more than one billion USD for a land plot of more than one hectare. Besides the one billion USD that promises to bring to the budget, there are many opinions about the price that is said to be "overrated/unrealistic value for a land in a newly developed city" or the fear of a "real-estate/housing bubble", distorting the land valuation. To clarify the problem, let's try to look at some aspects.
Price exceeds land value is the opinion of many real estate experts. However, what is the real value of a property? It is not difficult to give a theoretical definition for the intrinsic value, but giving specific numbers is nearly impossible.
People often talk about the market price and the equilibrium price because that is the price at which the market will adjust around it in the long run whenever supply and demand are out of balance. In a stable/balanced market, the equilibrium price is usually calculated as the average market price for about 10 years or more. When the trading price is far above the equilibrium price, some people will expect the price to fall in the future. Therefore, the market price is unlikely to be altered by just one auction. Like the P/E ratio of stocks, long-term real estate investors also take a look at earnings per price to calculate. Depending on each investor's point of view, the price can be expensive, cheap, or affordable. Investors with a 50-year vision will look different from speculative businesses in a few years.
When the real value cannot be determined, one will have to compare the market price and balance supply and demand. Instead of comparing Thu Thiem with other areas, try to put Thu Thiem with Asia's "super luxury" real estate, we will see a different result.
It is not difficult to find apartments with an area of over 100 m2 on sale for about 10 million USD and higher in Repulse Bay, Hong Kong. The price of a two-bedroom apartment in a high-end area in Singapore's Bukit Timah is also approximately $6-7 million. Even the most luxurious apartments in Thu Thiem are currently still far away in price compares to the most expensive apartments in other countries.
In the network of super-luxury real estate urban areas "the Asian Manhattan", house prices in Vietnam are still very low while the super-rich is growing rapidly in Asia, including Vietnam. Knight Frank's 2017 survey showed that the number of people with a net worth of 30 million USD or more in Vietnam increased by 320% from 2006 to 2016 - the fastest growth rate in the rest of the world. Moreover, concerning the supply of luxury real estate in the region, it can be seen that the "golden land" of Thu Thiem is the last remaining land area.
Vietnam's real estate is attracting capital investment thanks to its "comparative advantage" with neighboring markets and other real estate markets in the region. As most Asian real estate has become expensive after more than a decade of strong post-crisis growth in 2010, Vietnam has become an attractive destination for capital outflows from markets that appear to have hit their peak of saturated.
International real estate investors often rate Vietnam's real estate industry similar to China, but the development rhythm has a lag/delay of 10 to 20 years, of course with a much smaller scale.
In 2021, with a total area of 330,000 km2, Vietnam's real estate market is estimated at 21 billion USD, accounting for 0.1% of the global real estate market size. Meanwhile, Singapore has only about 700 square kilometers of land, but owns a real estate market of 241 billion USD, accounting for 0.8% of total global real estate value, according to Prudential Asset Management. Vietnam still has a lot of reasons to attract foreign capital investment.
With the current scale, concerns about blowing up the price of "golden land" in Thu Thiem to push up lands prices in the area have not answered the question from speculators. How much is enough to compensate the spend of the price "pump" if they buy the "golden land". However, with the current bounce in value, what other resources will Vietnam bring out to absorb potential capital inflows; Or what do we have to trade if we have sold the last remaining "golden lands" for cheap?
Ho Chi Minh City is the economic gateway. Furthermore, housing prices will become more and more expensive according to the national growth momentum. However, the price increase has not been evenly everywhere. Housing prices will increase sharply in the central/downtown area, where the density of commercial activities is most dense while the supply is scarce. High-value central lands are prioritized for economic benefits to attract resources for the City. Lands with lower value will be devoted to solving social problems.
It is no coincidence that Thu Thiem is the "golden land". Unlike other areas, where real estate developers have to invest a lot in infrastructure to convert functions and add value to the land, the land auctioned in Thu Thiem is considered a pure land - a good product, ready to be mined.
When a large amount of capital flows pour into Ho Chi Minh City for remaining "golden lands." The remaining area of "golden land" can only be sale for once, so at any time, in my opinion, it must be on sale at the highest possible price. This is to maximize the financial return for the budget, as a resource to solve social problems which we are facing with the post-epidemic reconstruction.
Real estate has always been and will always be seeing as a profitable commodity from speculations. But for the country, it needs to be seen as a resource. Urban development is a big vision that needs up to 50 years or more. Overall, a strategy for infrastructure development is not enough but also requires resource and resource arrangement.
Truong Tri Vinh (Vnexpress)