While America is going through one the greatest housing slumps it has ever witnessed, with housing prices down 15% across the states and one out of every three Americans living in a home that is worth less than their mortgage, Vietnam is experiencing a building boom. Sure, inflation has gotten us down a bit -- headline inflation peaked in August at 28.3% -- but developers are still going at it.
FDI continues to pour into the country, reaching a record high of US$57 billion as of September. And a lion share of that, roughly 40%, is committed towards real estate development across all sectors: office, retail, residential and tourism.
In the September issue of Travel + Leisure, Peter Lindberg dug up some personal stories of Saigon's new blood, both native and fresh off the boat (including yours truly), that are feeding the city with a new vibrancy. Albeit, what's also happening is a complete remodeling of the built environment. In ten years to come, the city that was once revered for its charming French colonial vibe will be a bustling metropolis, resembling a shadow of its former self.
For those who have fond memories of Saigon, the article may bring a tear to your eye. Don't say I didn't warn you...
Albeit, one of the neighborhoods that he singles out is Phu My Hung, where I first moved to back in the spring. (Personal update: I now live in a little villa in the heart of District 1.) Peter's claim is that the PMH development is a Singaporization of Vietnam. For those who have never been to DinsneySpore, the general consensus is that the city (country) is too sterile for its own good.
And this is pretty much my take on PMH. From the Google earth shot above, the area looks like any planned community in the States with its neatly organized streets and rows of villas. It's what you would expect of suburb. However, it has taken a lot to get this squeaky clean community to where it is now. And as told in a recent Forbes article, the story is riddled with backstabbing, suicide and bribery.
8 comments:
It's about time I heard from you! You should post pictures of your new neighborhood. I'm intrigued.
PMH may look all nice and planned from Google Earth, but if there was Google Streetview of that place, you'll quickly see that it is no Singapore. Step 3ft outside that concrete bubble and it's the dust and bustle of a typical HCMC street. If you Google Earth the Chicago projects it'll look nice too :)
I disagree with the contention that there is a building boom - the boom was 2 years ago. Prices have fell perhaps 40% from this time last year, but that's a good thing as it is a recovery from the 50% drops that some local areas have seen. There are more stories in the local press these days of unsold apartments, unfinished buildings due to lack of project financing, and developers going broke and leaving homeowners essentially a concrete shell.
D,
Thanks for involved comment and taking issue with my wording of Saigon’s current state of affairs. Calling it a building boom is a little stale, and you’ve made some very poignant remarks.
I agree with you. If you Google Earth the Townships of South Africa, you don't see the cobwebs of electrical wires and open sewers running out the back of wooden shanties. For a proper juxtaposition, it would be best to compare the PMH satellite image with some of Saigon's inner districts. You can then compare density and see the contrast in urban planning.
However, the streets of PMH are quite far from “bustling.” The only real disturbance is caused by the families of construction workers who inhabit their construction sites, with a toothbrush in one hand and hammer in the other. And as the T+L writer pointed out in his article, PMH is one of the only places in Vietnam where you can actually walk around and not feel as though you're doing something out of place.
I also agree that the heyday of the boom has passed and that the government's monetary policies to staunch inflation has resulted in a credit crunch -- which is now compounded by the lack of liquidity in the global market. However, most of the under-capitalized developers that have scaled back or slowed their development aren't my immediate concern. These projects don't change the urban fabric in the same manner as some of the other projects where the cranes are still rolling. (See: Kuhmo Asiana towers in HCMC and the Keangnam Landmark Tower in Hanoi -- only to name two.)
Prices are a different story. You didn’t mention in which market you’ve noticed this precipitous decline. There has been a sharp decline in asking prices for Land Use Rights since the start of the year, but these are all in the outer districts, not the CBD. The CBD land prices that I have tracked have all risen, not as dramatically as they did in 2007 though. But if you are referring to the Residential “For Sale” market, particularly Grade-A condos which are my only real concern, than I would agree that there has been a decline in the secondary pricing market but nowhere near the amounts you stated. A 40-50% decline would be a gross figure covering all apartment classes, an unfair assessment IMHO.
- H
Fascinating. I've heard my friends talk about PMH but never saw it like this before. Villa in Quan 1? Pretty fancy! You got guest quarters? ;)
Update more! Where have you been hiding?
I didn't read the T+L article 'cause, well, it's probably not that interesting. I did skim the Forbes piece.
I like PMH, it is much better organized than the Hanoi equivalent of Trung Hoa Nhan Chin. But in both places, if you simply walk the right direction for a few minutes you'll see the city as it has been. Sure, PMH is no longer a swamp, but the 'backside' of the development you'll see the same bustle of Saigon.
It is similar to the shiny new buildings lining the big boulevards of Beijing, behind those buildings and inside its borders away from the street frontage, you'll find old Beijing and its hutongs alive and well, communal bathrooms and all. The same can be said a block over from the Sunwah Tower in the CBD of D1 of Saigon.
As for the rate of construction and prices, the prices I quote are for within the city limits of Hanoi and HCMC. Of course prime D1 real estate have bounced back up more readily, but they were the ones that fell the hardest too. And I have no faith in these self-serving reports by CBRE and their ilk. Office rents are not going up, hotel rates are not going up, occupancy rates are in fact falling.
While some of the big projects are continuing, and you'll find a lot of small projects still being built, the worldwide credit crunch is having an effect. Asiana is going up impressively, and I hope that Keagnam is also. But you'll also see the site for Vietcombank tower in CBD D1 being converted to a gravel car park after laying fallow for two years waiting for money.
Keagnam is not changing Hanoi because it's out in BFNowhere, and Asiana will be an impressive bubble. Saigon will still be Saigon. Right across the street from Asiana, on Hai Ba Trung, there are metal guide wires for the utility poles, strung right in the middle of the sidewalk. If you're not paying attention or if it is dark, it can take your head off (particularly if one motorbike on the sidewalk like everyone else here).
I predict that a year from when Asiana opens in 3Q 2009, those guide wire death traps will still be there. That's the sort of urban fabric of Saigon that will never be changed by these developments.
Now, D., if you really wanted to rib me, you would have read the T+L article...
Catch me at the end of the month. I will let you know how we're performing as per office rental rates and hotel occupancy. While you're mistaken about office rents not going up -- they have -- we're certain to see a softening in the sector in the near-term as more supply comes online and demand from companies entering the market weakens as everyone tightens their belt. The most sobering forecast comes from Cushman & Wakefield, the new kid on the block, who says office rents could dip to as low as $30/sqm in the Grade A sector, down from $90/sqm in the second quarter.
And yes, while occupancy has fallen off over the course of the year in the urban markets (Hanoi & HCMC), the operators have offset this by increasing their rates. In destination resort markets, I see operators responding to a decline in occupancy with the typical knee-jerk reaction: lowering rates.
Thanks for the tip about the death traps on Hai Ba Trung. Let me eyeball them before I take the bet on whether or not they'll be there in a year's time.I'll get back to you on that one.
cheers,
H
ps: your post on the the subprime tranches was one of the best pieces I've read about the situation. thank you for that.
Haha, about that T+L piece - I didn't open it or anything, so apologies if you were said author of that piece. Now you've made me interested, so I'll go and look.
I'm not a real estate professional or all that in tune with the local market. My reaction is only as a consumer and over the past year while rates may have crept up slightly to accommodate inflation and/or the currency, in real terms I haven't seen it change all that much. And landlords have both been 'nicer' to their current tenants and more of a 'stickler' to contracts - that is because they know that it is relatively more difficult to fill vacancies and the rental prices haven't appreciated. But again, these are just anecdotal stories within my small circle of contacts here.
For instance, my company's HCMC CBD renewal for 2009 just came up, and the quote is the same as what we signed for 2008, which was a discount off their original listing.
I don't know where Cushman is getting their numbers from, or what they consider Class A. Most good buildings were going for $30-35/sqm for 2008 (when I was looking for space in late 2007). The only building that was a significant outlier was the sailing building (Bitexco Financial Tower) that was yet to open, was quoting at $60 or so. I dare say there is not more than 3-5 buildings in all of HCMC that legitimately leases for $90/sqm, if that.
Heck, the business center types of offices don't even rent for that much.
I dunno, it's just my experience. But my experience does not bear out these crazy numbers, originating from CBRE, Cushman, etc., that I see quoted all the time in the local press.
I mean, just call up the business center in the Bitxeco building on Nguyen Hue and see what the $/sqm cost is for a 1 year lease. This would pretty much be the top end of the $/sqm cost for HCMC CBD.
p.s. thanks for the read, and the compliments, on the subprime bit.
I drove through it in Jan of 2009...the article says it all...these guys are not about building communities...they're about making lotsa money! PMH must be the least inviting burb I've seen so far...also wondering who is actually going to live there...apart from the standard expat crowd...
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