Should Apartments Lower Rental Fees During The Pandemic?

A few weeks ago, there was a discussion in one Facebook group created for female expats in Ho Chi Minh City concerning rent fees, specifically the high management rate despite the impact of the pandemic.

It all started when Gina (not her real name) posted that at the moment they do not have management offices, technical and maintenance services, and the receptionist or any staff at the lobby, yet they still pay high management fees. Claiming she’s paying to an international corporation that’s also popular and huge in Vietnam. 

One member who’s also living under the same real estate provider replied: “In our place, we still have to pay and we were even encouraged to give donations for the epidemic fight for things like facilities and food and protective equipment for staff.” Another one stated practice in Canada as a reference, “Even in more legally-established countries like Canada, condo rent for existing tenants doesn’t change during the pandemic, even though we can’t use building amenities such as swimming pools and gym rooms.” 

More individuals left their sentiments, some felt the unchanged high fees are justified, others demanded lower fees. 

For expat tenants, renting an apartment in any place in Vietnam involves several interconnected individuals — from the agent or broker to the landlord and then to the management, which also consists of different people. Rental and management fees have been set even before an apartment building is built. But with the economic effects of the pandemic, many of these long set rules and fee regulations have been adjusted, at least in some properties.

One member of the group told the concerned expats that they should reach out to their landlords or seek help from the management office to find out about any changes or steps taken by their apartments to help pandemic-stricken tenants. 

Unfortunately, Gina’s got no way to contact them on Facebook or email, and their MO didn’t answer her previous messages and mails. “To be honest, I can pay and do not want to be "the white bitch" who complains all the time. But most of my Vietnamese neighbors have moved out.” 

Turns out, aside from the stricter labor rules being implemented for foreign workers in Vietnam, another problem the expat community seems to be facing is their accommodation and how their respective MOs can at least provide considerations, if not a big slash from the rates they’re charging.

Domestic property market

In 2020 alone, apartment prices in HCMC have risen in response to limited investment options outside of the housing market, and grew by a staggering 90% in three years from 2017 to 2020, according to the Cushman & Wakefield data.

In a report we published in late April this year, Vietnam recorded YoY GDP growth of 4.5% in Q1 which means as the economy rises, so does the living standard of the people. Economically speaking, an increase in the GDP signifies more money in the domestic economy. 

The HCMC Statistic Office posted that the total FDI in H1 was US$1.4 billion with new capital of around $264 million, while the city’s GDP grew 5.4% YoY. 

As for the domestic property market, it continues to indicate steady increases in pricing during the first half of 2021. According to the Ministry of Construction, this is a result of a lack of new supply due to the increasing threats of COVID-19. 

In Q2 this year, because of the low new supply, a 2 to 7% quarter on quarter increase in the housing prices in Hanoi and HCMC is expected according to the MoC. Additionally, there’s a slight climb of 3% in other localities. Hai Phong, Binh Duong, and Dong Nai increased by 5 to9% QoQ.

Furthermore, rental prices for serviced apartments and offices continue to fall at a rate of between 1 to 3%. And in some big cities, rental prices for retail space decreased by 10-30 percent QoQ.

Serviced Apartments in HCMC

Savills Vietnam, one of the country’s largest real estate firms, recently released its Q2 Market Briefings focusing on HCMC and Hanoi. According to the report, the average rental rate decreased further to -4% QoQ. Because of the disruptions caused by the restrictions and social distancing measures, they are offering discounts and incentives such as free car parking, utility allowances or upgrades for longer-term contracts to give assistance to affected tenants. 

Deputy Managing Director of Savills Vietnam Troy Griffiths said that COVID-19 has impacted the Serviced Apartment sector, “however not to the extent first thought. Overall SAs are showing remarkable resilience, mostly through captive long-term contracts.  FDI commitments remain sound, that will convert to demand in the near-term.”

One of the reasons, as per Savills Vietnam, why stocks are decreasing is the lack of new launches and the withdrawal of three CityHouse projects in Q2/2021. 

On the good side, the average occupancy of 64% was up by 1 ppt QoQ as inefficient projects closed. It increased 3 ppts YoY, supported by resilient long-term accommodation and the return of expats. Short-term leases for local tenants, mostly businessmen, have been challenged during the ongoing outbreak, reads the report. 

Savills Vietnam also mentioned that with the borders blocked, flights canceled and immigration limited, the future remains uncertain. “Full recovery might be expected from 2023 onwards, aligning with global vaccination progress.”

Serviced Apartments in Hanoi

In the capital, the stocks remained stable in Q2 2021 at 1.6 million m2, with a slight decrease in occupancy. 

Savills Vietnam’s key findings in Hanoi show the total supply surged up to 20% YoY, reaching approximately 5,500 units. However, the average rent lost -8% YoY to US$24/m2/mth. In the same way that the market is still struggling with low occupancy at 69%. 

The West Lake area is progressing with a large supply increase of 20% YoY.  There are 19 future projects planned that will continue to lift the quality of stock, reads the report.

Director of Savills Hanoi Matthew Powell said that the recent increase in industrial development in Bac Giang, Thai Nguyen, and Hai Dong promotes future supply in the belt areas of Hanoi, with easy access to these areas. Large investors and operators are positioned early.

In fact, rural Gia Lam has notably improved by 32 ppts QoQ, coming from VinHomes Ocean Park S2.17, which met high demand from nearby international universities' students as well as Korean expats. “After a year, Koreans now outweigh the Japanese as the most common tenants in Hoan Kiem, Cau Giay, and Nam Tu Liem districts.

Hanoi attracted US$761 million of registered FDI in H1 this year, ranking sixth nationwide. Aside from Vietnam’s capital, the top 10 most invested destinations included four other northern provinces: Hai Phong, Quang Ninh, Bac Giang, and Bac Ninh — with 25% total registered FDI, Hanoi’s included.