RESIDENTIAL REAL ESTATE – The big picture remains attractive

What news?

► All real estate segments have been impacted by COVID-19.
► Some speculators are trying to sell at a 5-10% loss from last year, but buyers are not in a rush.
► Medium term outlook remains positive given supportive policy, especially infrastructure policy.
► Longer term outlook is still bullish given the demographic outlook.

Our view:

► The real estate market is a proxy on national prosperity.
► Cyclical factors are significantly impacting the current real estate market.
► But huge demand and rising wealth support a positive longer-term outlook.
► The property market has a solid foundation for a cyclical reset. If you can find a good property.

All real estate segments have been affected by the economic shock, in our opinion. Based on our observations of the market, some investors are asking for prices in the secondary market that represent 5-10% discounts to their 2019 cost base. Data on actual transactions is opaque, but we believe that prospective buyers are in no rush given 1) the obvious trend in pricing, 2) curtailed ability to obtain financing, and 3) concerns about personal financial security and health that likely trump the desire to own a home, at least in the short term.

But the longer-term outlook remains highly attractive. Vietnam’s demographics dividend (including urbanization and the rising middle class) still has two decades to run, and we think that the demand for housing will remain resilient long after the current crisis is in the history books.

The rollout of public infrastructure projects, spurred on by the government’s efforts to counteract the economic impact of COVID-19, should also support the real estate market in the medium term. Rolling out transportation infrastructure should increase the liveability of suburban areas, where housing affordability is more realistic for Vietnamese residential buyers.
Positive legislative trends have increased the protection of homebuyers’ rights (including the rights of foreign buyers). This should also continue to support demand in the years ahead.

These conditions support our strategy call to focus on quality management, balance sheet strength, and cash flow across all sectors (and to forget about chasing short-term earnings momentum). In the property sector, we would add well-positioned land banks to the list of defensive characteristics. This is because developers with ample land banks in attractive locations have greater financial flexibility and should also outperform operationally during the eventual recovery (possibly in 4Q20, and very likely in 2021).

As such, our top picks are VHM (BUY) and KDH (BUY). We reiterate HOLD-Outperform on NVL, we also have a BUY call on NLG

For the complete report, please access here: The big picture remains attractive – Residential RE sector

Analyst: Tam Nguyen, tam.nguyen@yuanta.com.vn