Middle class buyers drive Vietnam’s housing market

Over 80 percent of new apartments in Vietnam’s major cities in recent years have been bought by the fast-growing middle class amidst rapid urbanization.

Vietnam, middle class, real estate, housing market, VinaCapital

This has happened because housing products in the affordable and mid-tier housing segments are within reach of most emerging middle class buyers despite price increases, fund management company VinaCapital said in a recent report.

About 350,000 people move to HCMC and Hanoi each year, and the population of Vietnam’s major cities grew at a fairly constant 3 percent annually over the last decade, reaching 9 million in HCMC and 8 million in Hanoi, it said.

It expects Vietnam’s urban population growth rate to decelerate to 2 percent compound annual growth over the next decade, which implies that nearly 11 million people will live in HCMC and 10 million in Hanoi by 2030.

This influx means that demand for new housing units in HCMC and Hanoi combined is around 250,000 a year, but with approximately 60,000 units being constructed annually in recent years, demand will far exceed supply.

Another growth driver for the market is increasing availability of mortgages to finance new units.

In recent years, about half of new apartments developed by Vietnam’s real estate firms and purchased by middle-class buyers were financed with mortgages.

The middle and affluent class is categorized as those earning $714 a month or more, according to the Boston Consulting Group. Meanwhile market research firm Nielsen has estimated that the number of middle class Vietnamese will reach 44 million by 2020 and 95 million by 2030.

There seems to be more potential for this kind of payment in the future as Vietnam’s current mortgage penetration rate of 6 percent GDP is well below other countries in the region, such as Thailand, at 24 percent of GDP.

Despite rising demand, new apartment sales in HCMC and Hanoi are likely to drop by about 40 percent this year due to Covid-19 and legal issues, the report said.

Data from real estate consultancy CBRE shows that current prices of affordable ($900-1,100 per square meter) and mid-tier segment ($1,200-1,600) are up about 10 percent year-on-year, partly because demand is exceeding supply.

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