There are literally many new launch projects with thousands of property units to select from in Ho Chi Minh City’s rapidly developing housing market every year. As HCMC’s housing market is semi-transparent in nature, information on prices and transactions is not readily available. It is a daunting task for HCMC property investors to acquire enough information to choose the right new launch project and make an informed buying decision.
As with any other real estate markets, the truth is that not all new launch projects are worth investing in. We have a proven methodology to identify the right new launch projects worth investing in HCMC. Property investors that make a conscientious effort to follow the methodology we are about to share, can smoothly navigate HCMC’s new launch projects market. Steering clear of potential risks and maximising your return on investments.
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▸Method for identifying the right new launch projects
The method we use is not some ground breaking strategy nor does it involve cutting edge technology. Above all, it is a simple understanding of the basic property investing fundamentals. If you want to be able to identify the right new launch project to invest in HCMC, you should always draw a balance between three basic parameters:
- Strength and creditability of the developer.
- Desirable or promising location.
- Good value with potential upsides.
Below is a diagram that shows how all the three factors come together and interact with each other:
It is important to consider all the above three parameters and their interaction with each other in order to identify the right new launch projects. While the best new launch housing project is characterised by a strong developer, desirable location and good value, most are far from being that perfect investment opportunity. Hence, if you are unable to tick all the boxes, it is best to take a step back and look over your options and list out your priorities.
▸Judging the strength of a housing developer
Buying a new launch project is about initially buying a piece of drawing on paper. You will be buying a product that will only exits in the future only if the developer delivers on its promise at the time of launch. Consequently, this is the significant risk when investing in new launch housing projects. In a new launch project in HCMC, everything begins and ends with the developer.
The reason for this is that in Vietnam, the government plays a comparatively passive role in regulating the housing development industry. Whatever intervention from the authorities are likely fiscal policies. Even laws to regulate the industry are not comprehensive enough. Causing bottlenecks in the project development process. Each developer interprets the laws differently and often takes their own initiative so that they can properly execute or speed up the development process.
Property investors will have to trust that the developer knows what it is doing and will deliver the project. In accordance to the quality and specifications specified at launch and within the timeline as promised. So, the question is how do you judge if a developer is strong enough to make good their promises? There are a number of indicators that you can rely on out there to gain an insight into the strength of the real estate developer.
Financial capability: debt-to-equity ratio
Equity of a housing developer can be attained from liquidating its inventory, land holding and cash reserve. A high ratio means the developer is financially riskier because the developer might not be able to produce enough money to repay its debts. If the ratio of close to zero, it means that the developer has not replied on much debt to finance its operations. Such financial information can be attained from press releases and annual report of companies.
Past portfolio: projects completed and put into use
An extensive portfolio of prominent and successful projects indicates that the developer has a proven track record of experience and expertise. Which is required to execute and deliver a new launch project as marketed. Completed projects in sensitive locations such as within the central business district and part of key government masterplans (Example: Thu Thiem Financial Hub, Saigon Sports City, Truong Tho Future Hub, et cetera.), as signs that the developer has the support of the existing government and has the ability to clear any legal bottlenecks.
Additionally, surveying completed projects of the developer will enable you to physically inspect the quality of the handed over properties. And this will give you a good idea on the abilities of the developer, as well as how credible the developer is in adhering to its promises at launch.
Public reputation: note red-flags surfacing in the media
An online search on the developer is a good way to find out if the developer is embroiled in faults and legal wrangling over certain property projects, or worse still if the developer is facing other bigger problems. Here in HCMC, property buyers and home owners are publicly vocal about developers not making good on their promises. And the local medias are very quick to pick up such problems afflicting developers when it affects customers. For example, projects that are not constructing after launch and their respective developers are popular information that the media likes to highlight. And by just spending time doing a bit of digging online on the internet can potentially help property investors identify the reputation and creditability of developers.
Identifying a location that is desirable with potential for improvement
Every property investor knows that a desirable location is of upmost importance when choosing the right new launch housing project. But what is often overlooked is the critical fact that when investing in a particular project, you are actually betting on the characteristics of its location to support the value of your new launch property. Understanding this fact will help you to stay focus on your priorities. So, what constitutes the right location to invest in a new launch project? The following considerations will help make the task of identifying a desirable location to invest in a new launch project easier.
▸Locations with potential to appreciate in value
Firstly, real estate in localities that benefit from infrastructure improvements will appreciate in value. Spending on infrastructure improvements is not evenly allocated in HCMC. Certain locations will be prioritised to receive more monetary disbursements to speed up completion of construction works. Take for example the newly formed Thu Duc City within HCMC. Thu Duc City benefits from having more infrastructure works in the pipeline and receives the most amount of public and private investments compared to other districts in HCMC. It comes as no surprise then that District 9 (now part of Thu Duc City), has the fastest real estate price growth. This despite being one of the furthest districts from HCMC’s central business district.
Secondly, locations that are in abundance of undeveloped land areas can support massive township projects. These mega real estate projects have the potential to drastically change the characteristics of the location leading to increasing real estate values. A good example, is the formation of Phu My Hung urban area. Before its development, the area that it stands on today was a swamp land and occupied by low-income residents of HCMC. Today, it is the model urban area for whole Vietnam that attracts affluent residents with its expensive high-end housing. After Phu My Hung, HCMC has seen the launch of other massive real estate township projects such as Zeitgeist Nha Be and Vinhomes Grand Park in District 9. With many more such “location-changing” projects in the pipeline having been approved by the City’s authorities.
Proximity to employment
Locations that have acceptable travelling time to business and manufacturing hubs with many employment opportunities are desirable. The main mode of transit is still private transportation, and due to unresolved traffic congestions, that continue to plague HCMC, the threshold most people have is up to one-hour’s motorbike ride. However, in order to save travelling time, most would prefer to relocate and reside closer to work. Therefore, residential locations in District 2, District 3, District 4, District 7, Binh Thanh District, Phu Nhuan District and Tan Binh District, that are close to major employment hubs such as Saigon Hi-tech Park in District 9, HCMC’s central business district in District 1, HCMC’s University Village in Thu Duc District, et cetera, have high demand for housing. Other zones such as logistics, ports, industrial parks, trade, commercial and retail centres across HCMC also employs many people. The residential locations in proximity to these zones guarantee strong home-user demand and desirability of the location.
Decent range of neighbourhood amenities
The emergence of residential neighbourhoods will lead to increasing demand for neighbourhood amenities. Especially, in affluent and upmarket neighbourhoods as middle-class residents (not to mention affluent residents as well) will want to live in a neighbourhood that provides for all the conveniences of urban living. As a result, it is now become a necessity for new launch projects to cater for amenities both within the project itself. And be within reasonable distance to other external amenities. Importantly, the lack of nearby amenities will negatively affect the value of a project.
Taking for example, Thao Dien-An Phu neighbourhood in District 2 is self-contained with international schools, medical establishments, shopping centres, restaurants, cafes and bars. Such amenities and more cater to lifestyle and entertainment needs till late at night to meet the different needs of residents. The same can be said for Phu My Hung urban area in District 7. As HCMC aims to develop more self-contained satellite regions, this will trigger the emergence of more desirable locations.
Close to public transportation routes
As part of HCMC’s planned transformation into a megapolis, authorities are making key efforts to create an efficient public transport system that was neglected. Therefore, in the future, access to public routes will play a key role in the desirability of a location. Locations that have direct access to key routes like rapid bus transit and metro lines have become an important factor when deciding on which new launch projects to invest on.
A case in point will be Metro Line 1 that runs from a part of District 9, passing District 2, before making its way into District 1. New launch projects’ pricing along this metro line in whichever district have continued to rise unabated. Even for other metro lines that have not been constructed such as Metro Line 2 and Metro Line 4, new launch projects along these routes have all registered price increases. Examples of the above trends can be seen in the 2020 launch of Celesta City in Nha Be District along the yet-to-be constructed Metro Line 4 and the 2021 launch of The 9 Stellars in District 9 (now Thu Duc City) along Metro Line 1.
▸Valuate the current and future price of new a launch property
In order to know the real value of a new launch project, you must always work out the numbers. Developers set the playing field by solely determining the selling price of new launch properties. As property investors, you will have to determine if a new launch property has value to be worth investing in. In value, we mean upside on how much more can the price appreciate from the acquisition cost. Nobody would buy a property if they knew beforehand that it will diminish in value in the future.
A general property investment theory is to buy at a lower price compared to the existing resale value of nearby properties of a similar standard. Unfortunately, this is not always possible, as the primary prices of new launch projects tend to increase at a faster rate compared to secondary resale prices. So then, how would you evaluate if a project has value to invest? By analysing and making comparisons using the following dimensions, you will be able to make an informed judgement on the value of a new launch project.
Survey the sales of other new launch projects in the market
Identify and analyse the sales of other recent new launch projects of a similar grade and location (if possible). The important things to pay attention will be firstly the average launched price of released units. Secondly, the sales rate in terms of percentage sold for released stock list and thirdly, the price of existing unsold properties.
Note the interaction of price quantum and unit price (per square meter) versus sales rate. If at X amount per square meter the sale rate is only 50% of released inventory, this reflects negatively on the buying demand at X amount for that period in time. Additionally, the overall price quantum of sold and unsold inventory also provides valuable insights. If the there is a clear indication that units above Y price quantum is not selling, it means that the market demand has reached a limit.
Having a good grasp over prices and their respective sales rate for similar grade properties can help you identify if a new launch project is priced with any value for property investors.
Compare new launch project prices versus resale properties
Resale properties usually being cheaper than equivalent new launch projects always puts a downward price pressure on it. If the price difference between a resale property and new launch project gets too wide apart, buyers tend to choose the cheaper alternative. Always survey the price of previous new launch projects, if it is not appreciating faster than the resale properties in the same area, this is a sure sign that the market price is reaching its limit.
Another important way to benchmark new launch project prices is to compare them to resale properties in adjacent areas. For instance, as new launch prices keep increasing, a new launch project in District 2 is now more expensive compared to a similar resale property in Binh Thanh District which is much nearer to the central business district. Such situations, creates pressure on limiting the future price appreciation of the new launch project in District 2.
Analyse the current rental price in the area
The true value of a property is the amount of income it is able to generate. Analysing the current rental price of completed equivalent properties in the same area helps you to forecast potential income derived in the future. By taking a conservative rental income estimate of the future for new launch projects, you will derive with a rental yield per annum. The rental yield per annum determines the time frame it takes to recover your investment capital. New launch projects with a potentially high rental yield takes less time in order to recover the investment capital and such projects are of better value.
Older properties that were cheaper at launch will give property investors a better rental yield. While new launch projects with higher acquisition price will provide for a lower rental yield especially if rental prices do not increase proportionately over the years.
▸Last note
In conclusion, the above three parameters of “developer”, “location” and “value”, serve as a general rule of thumb method to analyse each and every new launch project you are considering. It provides an easy-to-follow method for property investors to shortlist projects for investment. For advance level property investors, there are even more complicated considerations to make. Delving further into additional parameters such as investment return timeline, capital gains versus cashflow, leveraging on loans, et cetera, in order to identify the best new launch project to invest in. After all, every property investor’s needs are different from each other. You are advised to spend some time to do your own research and analysis before investing into a semi-transparent housing market like HCMC. Successful property investing in residential properties here depends on this.
If you do not have spare time to do your own homework, it is best that you should seek professional advice from a real estate investment consultant (and not simply a salesperson), who has the credentials and knowledge to advise and assist you in going through the different aspects of new launch project investment in HCMC. Such a consultant should have the necessary methodology and experience to guide you every step of the way on the investment process.
