Q&A with Paul Tostevin, Director of Savills World Research

As part of his regional Impacts tour, Paul Tostevin recently visited our office in Ho Chi Minh City. We had the chance to catch up with him, unpacking topics like affordable real estate in Viet Nam and around the globe, what is driving shifts in global production, and the movements in global investment landscapes.

What's your take on the global demand for affordable real estate, particularly in countries like Viet Nam? How can markets overcome affordable housing challenges?

The global demand for affordable real estate, particularly in countries like Viet Nam, is a critical issue as the housing market grapples with significant challenges. The total value of global real estate reached US$380 trillion by the end of 2022, with a notable 19% growth in the residential segment over the past three years, driven partly by low-interest rates. However, recent interest rate increases have strained individuals in their ability to purchase homes, leading to a noticeable shift toward the rental market, despite the persistent global desire for property ownership.

In Viet Nam, despite significant demand for affordable housing, supply is limited, with developers focussing on mid to high-end properties. According to the 2023 ULI Asia Pacific Home Attainability Index, Ho Chi Minh City, with a median house price of US$296,000, outpaces both Da Nang (US$214,000) and Ha Noi (US$182,000). The median household income to monthly rent ratio ranges from 48% to 78%. A significant portion of the housing supply is concentrated in the mid to high-end sector, leading to a scarcity of affordable housing options. This poses a considerable challenge, but underscores the importance of having affordable housing near the city centre; proximity facilitates easy access to work and enables active participation in the city's growth.

Governments worldwide are responding to the affordable housing challenge by introducing various measures, policies, and targets. In Viet Nam, the government is implementing initiatives such as amendments to the Housing Law and incentives to boost affordable and social housing. Notably, in designated industrial areas, industrial parks are required to allocate 2% of their land for workers' housing. A resolution includes a VND 120 trillion credit package for social worker housing development, offering developers favourable access, while workers buying or renting such properties can secure loans at rates 1.5-2% below the average mid- to long-term loan rate.

How is the global investment market performing? In 2023, how will this impact real estate markets in the Asia-Pacific region, and Viet Nam more specifically?

Over the past year, the global real estate investment landscape has undergone substantial changes, marked by a 50% decrease in total global real estate investment, notably in the office segment, which has experienced nearly a 60% decline. These shifts are partly attributed to challenges in the United States, where there's a significant move toward hybrid working, particularly evident in cities like San Francisco. Vacant office spaces have surged from 9% pre-pandemic to the current 35%, reflecting a shift in working trends and reduced tenant sizes in the information technology sector. Although this narrative predominantly applies to the US and Western countries, its reverberations are felt indirectly in Europe and to a lesser extent in Asia. Global investment in the retail and hotel sectors has also seen a 40% decrease.

Despite these challenges, investor confidence in APAC real estate markets is gradually recovering, and there are several notable deals under due diligence. Notably, regional industrial investments have outpaced office investments, propelled by sustained demand for modern industrial and logistics warehouses, coupled with attractive positive carries. In Australia, UniSuper NPS secured a deal for a 50% stake in a US$322 million Australian industrial portfolio, and Korea played a substantial role in regional office investment, with two major deals.

Download Savills Asia Pacific Investment Quarterly (APIQ) Q3/2023.

We forecast global investment levels to improve by the third quarter of 2024. We have seen inflation peak, which implies that interest rates will decrease toward the end of the year. I understand that in Viet Nam, the situation is somewhat different, and the government has taken measures to lower interest rates. Therefore, I believe this will reassure investors, and encourage their investment plans and businesses. There is significant capital waiting to be poured into the market. Investors are awaiting the right conditions and transparency in project development.

View Savills Real Estate Investement Services

What opportunities can Viet Nam capitalise on, particularly regarding semiconductor manufacturing?

This is a very interesting topic because the world is becoming increasingly digitised. Technology is expanding across all aspects of life with electric vehicles, autonomous cars, and artificial intelligence. All of these require a supply of chips and technology. Therefore, there is a strong push from governments to develop this sector, as the future of economic growth depends on the ability to control chip supply.

Currently, TSMC (Taiwan Semiconductor Manufacturing Company) controls 60% of global chip production. Acknowledging the need for diversification in both chip production and manufacturing locations, various governments worldwide are implementing local incentive programs. Notable examples include the United States with its CHIPS and Science Act, a US$5 0 billion initiative aimed at supporting the reconfiguration of the semiconductor manufacturing supply chain. Similar policies are emerging in Europe, China, Japan, and India, all keen on seizing opportunities in this rapidly evolving field.

Viet Nam, with its growing technology sector and favourable business environment, is well-positioned to benefit from this trend. To capitalise on this segment and attract investment in the industrial real estate sector, Viet Nam should continue to foster an attractive investment climate, provide infrastructure support, and offer incentives to semiconductor manufacturers. Ensuring a skilled workforce and a robust supply chain will also be essential to Viet Nam becoming a regional semiconductor manufacturing hub.

According to JPMorgan's forecast detailed in Savills Industrial insider report 8M/2023, Apple is anticipated to shift the production of 65% of AirPods, 20% of iPads, 20% of Apple Watches, and 5% of MacBooks to Viet Nam by 2025. Apple's official announcement in September 2023 confirmed the transfer of 11 audio device production facilities to Viet Nam. Currently, key Apple suppliers such as Lux Share, Foxconn, Compal, and GoerTek collectively manage 32 factories in Viet Nam, employing 160,000 workers dedicated to producing and assembling Apple's components. Among these, GoerTek stands out as a global leader in the manufacturing and supply of electrical and electronic components, specialising in cutting-edge hardware sectors like virtual reality (VR), augmented reality (AR), wearables, and hearables.

Viet Nam is welcoming foreign direct investment (FDI) into tech. Recently, Hana Micron, a semiconductor company specialising in assembly and product packaging and test and module manufacturing services from Korea, held a completion ceremony for its Hana Micron Vina facility spanning 66,000 m² within Van Trung Industrial Park in Bac Giang. This is a significant semiconductor investment of US$1 billion.

Download Industrial insider report 8M/2023.

What real estate advantages do Viet Nam and APAC countries have?

Generally, growth is happening in areas where wealth and knowledge are developing, with skilled individuals driving fast-growing knowledge industries, particularly technology. This trend is driving Asian economies in many locations, including Viet Nam. One way to measure this is by looking at education growth and scientific research output by country.

At the domestic level, household savings are high even after the pandemic. There are two headwinds, weak economic sentiment and supply shortages, especially in China. However, we expect to see continued growth at an Asia Pacific level of up to 5% across the region in the next year.

Conclusion

The anticipated upturn in global investment by Q3/2024, coupled with Viet Nam's unique economic measures, suggests a more positive outlook for real estate by the end of 2024. To capitalise on semiconductor investment, Viet Nam should continue to create attractive investment opportunities, improve infrastructure, and ensure a skilled workforce.

Contact our Market Research Consultants for more insights on Viet Nam’s real estate landscape