Vietnam property sector started at Overweight by VNDIRECT

Vietnamese currencyVietnamese currency

Residential property demand in Vietnam will be “abundant” in 2018-20, said VNDIRECT, launching coverage on the sector with an Overweight call.

“We estimate that Vietnam’s two major cities, Ho Chi Minh City (HCMC) and Hanoi, need 110,000 new housing units every year in 2018-22F to support the influx of rural migration, as the country rapidly urbanises,” VNDIRECT, which has a tie-up with CGS-CIMB, said in a note on Thursday.

“Population demographic and social changes, including household fragmentation and a falling age dependency ratio, are further reinforcing property market demand,” the note said. “Meanwhile, Vietnam’s robust medium-term economic outlook and rising income per capita are attracting first-time homebuyers who view property as an asset class that provides future capital gains, while offering protection against inflation.”

Infrastructure developments

It pointed to infrastructure developments as helping to boost the residential market, particularly metro rail networks in HCMC and Hanoi.

“Creating new commuting routes will expand the urban area and create new mixed-use development opportunities in areas near the lines by triggering a shift from private vehicles to public transportation,” it said. “Condominium prices in close proximity to these infrastructure projects have been rising faster than the rest of the market in the past few years, while properties with convenient access to metro stations are trading at a premium.”

However, near-term transacton values might be hurt by rising interest rates and property prices, it added. VNDIRECT pointed to CBRE data showing mid-range Vietnamese condo prices rose by around 11 percent a year over 2015 through the first half of 2018, with mortgage rates at 11-12 percent, up 100 basis points on-year, at the end of the first half of 2018.

VNDIRECT estimated mortgage rates could reach 13 percent next year, but it added that the rise in income per worker would help maintain mortgage carrying cost-to-income ratios at manageable levels and that it didn’t expect the rate increases would affect the sector negatively until 2020.

Top stock picks

It tipped its top stock picks as Khang Dien House Trading and Investment, or KDH, and Nam Long Investment JSC, or NLG.

It started coverage of KDH at Add with a 36,700 Vietnamese dong target price, noting it has the third-largest landbank in HCMC among its listed peers.

It initiated coverage on NLG at Add, with a target price of 35,500 dong, pointing to its deep exposure to the mid-range and affordable condo segments, which it expected to have sustainable demand.

“We expect continued high transaction volume and strong absorption rate for apartment presales, especially for the mid-range and low-end condominium segments that see demand from actual owner-occupiers,” it said.

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