Should You Invest in Condos for Rent?

Vietnam’s property market has witnessed a notable shift towards renting, as indicated by PropertyGuru’s Consumer Sentiment Study (CSS) report. Soaring property prices and challenging economic conditions have propelled a predicted rise in rentals during the first half of 2024. Among renters, apartments emerge as the most sought-after property type (43%), followed by detached houses (18%) and room rentals (18%). Only a small fraction (9%) expressed interest in renting shophouses.

Le Bao Long, Strategy Director of PropertyGuru Vietnam, offers insight into the appeal of rental apartments for long-term investors. He highlights that rental apartments offer attractive average profit margins, combining capital gains over time and rental yields, averaging around 12.5%/year. This return surpasses many other investment avenues, including stocks, gold, foreign currencies, land, and savings accounts.

“The challenge of affording condominium purchases is mounting as income growth lags behind escalating property prices. Future primary condominium projects will likely command higher price points as developers optimize profits amidst rising costs. This dynamic partly explains the trend of young families opting to rent rather than buy,” Mr. Long elaborates.

Tran Quang Trung, Business Development Director of OneHousing, echoes a similar sentiment, noting that in Hanoi, the average selling price of primary apartments has been increasing by 10-15% annually. In contrast, low liquidity persists in land, resort real estate, and low-rise buildings, causing investors’ capital to remain stagnant in these sectors.

“In my opinion, now is the opportune time to invest in real estate that caters to either personal use or rental at competitive rates, with the expectation of future price appreciation,” advises Mr. Trung.

Mr. Trung also draws attention to a strategic shift among investors. Instead of solely focusing on low-rise buildings, investors are now opting to purchase 10 mid-to-high-end apartments with the same amount of money. This diversification offers a more dynamic cash flow. While renting a villa may yield 50-60 million VND/month with limited financial flexibility, renting out 10 apartments can generate 15-18 million VND/unit, resulting in a total monthly income of up to 180 million VND. Naturally, the prices of mid-to-high-end apartments are also projected to increase steadily over time.

Dr. Pham Anh Khoi, Director of the Institute for Economic-Financial-Real Estate Research at Dat Xanh Services, underscores the growing popularity of condominium apartments, accounting for 74% of total consumed products, a 10% increase compared to the previous year. This shift underscores the rising demand for practical housing and investment opportunities that offer stable cash flow.

Additionally, the real estate investment landscape continues to attract significant interest, with 33% of investors prioritizing it over gold (30%). This trend is further fueled by the low-interest rates for home loans that have persisted throughout 2023 and the first half of 2024.

“The overall market absorption rate has witnessed a remarkable improvement, almost 2.5 times higher than in 2023. Absorption rates have been gradually increasing each quarter. The demand for apartment rentals in central areas and satellite towns remains on an upward trajectory, signifying the recovery and development of the real estate market,” emphasizes Dr. Khoi.

Nguyen Van Dinh, President of the Vietnam Real Estate Brokers Association, provides insights into the challenges of 2023, noting that short-term investment strategies, such as flipping properties for quick profits, have lost their appeal. Instead, the focus has shifted towards commercial properties with long-term exploitation value, offering profit margins of 4.9-5% and above.

The profitability of commercial real estate will be a key determinant of a product’s absorption rate. Investment funds will gravitate towards rental-oriented properties, including apartments, shophouses, and factories. These asset classes offer easier access to loans and provide a safer option in a market that is not yet fully balanced.