There are many new pre-construction premium property projects and thousands of apartments units to choose from, in a fast-developing real estate market like Ho Chi Minh City every year. In a market where there is poor information flow due to its opaque nature, it is a daunting task for retail home buyers and investors to access enough information to make an informed decision and choice on the right premium apartment project and unit to buy.
The hard truth is that not all pre-construction projects are worth investing in. I have a proven methodology to identify the investment worthy pre-construction premium apartment projects. When we make a conscientious effort to focus on following the methodology I designed, we can smoothly navigate Ho Chi Minh City’s landmine and bamboo pit filled pre-construction and off-plan apartment market.
The method I preach is not some well-kept secret, ground breaking strategy nor does it involve cutting edge technology; it is simply understanding and going back to basic property investing fundamentals. Starting off with identifying the right project to focus on, you should always draw a balance between three basic considerations: 1) creditability and strength of the developer, 2) great or promising location, and 3) yield good value and potential upsides. Below is a diagram on how all the three factors interact with each other and their implications:
It is important to have the above three factors in identifying a worthy pre-construction property projects. If you cannot tick ALL the boxes, then it is best to take a step back and look over your options once again. It is of upmost importance that the real estate project is characterised by a strong developer, good value and great location.
DEVELOPER – only buy from reputable and credible developers
Buying a pre-construction apartment basically translates to buying a piece of drawing on paper; it is a future property that only exists if the developer delivers on its promise on what was marketed. And this is a significant part of the accepted risk in investing in pre-construction premium apartments. Investors will have to trust that the developer will deliver the future property according to the quality and specifications specified and also within the timeline as promised. It is important to invest in a premium apartment product from a reputable and good developer, as its after sales service is necessary to resolve any outstanding issues during the handover of the apartment. So, the question is how do we know if a developer is reputable?
The easiest way is of cause to turn to a reputable and experienced real estate agent as they tend to have inside knowledge about which developers are reputable in Ho Chi Minh City’s apartment market and which are notorious. If you so wish to do your own background checks, there are a number of other indicators that you can rely on out there:
Completed portfolio of relevant grade apartments: This indicates that the developer has a proven track record of experience and expertise required to deliver a building of similar class as the pre-construction project that it is marketing. At the same time, you will be able to physically inspect the quality of the handed over product.
Sales status of ongoing under-construction projects: Good sales results of majority of a developer’s existing projects is a good indication that the developer is financially stable and has the ability to secure much needed bank credits, as well as the necessary financial resources to carry over into subsequent pre-construction projects.
Issues lodged on the developer surfacing in the media: An online search on the developer is a good way to throw out the negative feedbacks and complaints (if any) on the developer over past property projects, or worse still if the developer is facing other bigger problems (think management, financial standing, etc.).
LOCATION – look for locations of good existing or potential value
Every investor knows that when choosing the right pre-construction premium apartment project, location is of upmost importance. It is one of the prominent factors in the minds of investors. But, what is often overlooked is the fact that when investing in a particular project, you are also endorsing or buying into the lifestyle it brings. Understanding this fact will help you to stay focus on what you want and it then becomes much easier to identify a suitable location. When analysing locality related to a neighbourhood and actual location potential of a pre-construction premium apartment project, do consider some of the following tips:
Potential increases in location value: Lookout for investment in improvements to make the neighbourhood of the project more desirable. Where the government and developers are investing to improve infrastructure. For example, the Metro Line Project in Ho Chi Minh City, or new neighbourhoods such as Thu Thiem New Urban Area, South Rach Chiec, Saigon River West Bank, Binh Quoi Peninsula, which are all planned for a drastic makeover.
Close to jobs: Due to incessant traffic congestions that plague Ho Ch Minh City, many people are now opting to reside closer to work and therefore it is important to focus investments on areas in close proximity to major employment centres such as industrial parks, central business district (financial hub), commercial centres, and institutions of higher education (university villages).
Close to amenities: As Ho Chi Minh City grows increasingly metropolitan, people are increasingly taken to all the conveniences of urban living. As a result, it is now a necessity that premium apartment projects have to be close to a variety of amenities. The lack of close-by amenities will affect the value of a project.
Close to transit: The government has plans to turn Ho Chi Minh City into a first world city and key efforts are made to create an efficient public transport system that was previously non-existent. Therefore, transit lines are becoming increasingly important. A location close to key transit lines like rapid bus transport routes and metro rail lines have become important for new pre-construction premium apartment projects
Value – always work out your numbers
In Ho Chi Minh City, when a new premium apartment project is handed over to buyers, both its resale pricing and rental rates tend to be higher as compared to the rest of the market as buyers and tenants alike would always want to reside in the newest building in the neighbourhood. At this point in time, there is a window for investors to make some money, especially when you have purchased the property pre-construction or off-plan at a profitable price earlier. A general rule-of-thumb to follow is to buy at a lower price compared to the existing resale value of nearby similar classed apartments and sell at a premium to those same resale premium apartments once completed.
Whether you are buying a pre-construction premium apartment project for your own stay or to invest for profits, it is of upmost importance that your choice has to be of good value. Nobody would buy an apartment if they could know beforehand that it will diminish in value in the future. When you are evaluating the right project to invest, you need to draw comparisons and analyse the following three critical dimensions, to help you make an informed decision:
Compare versus other pre-construction premium apartment projects available: Identify and analyse other premium class apartment projects that any potential buyer might compare and consider prior to making a decision. The important statistics to note will be 1) the percentage sold for the projects in comparison (if other projects have a lot of unsold inventory, this could be a negative indication), 2) Price of still available units, and 3) Price of available stock compared to the subject property.
Compare versus resale premium apartments in the area: Look at how the pricing of the subject property compares to similar property types in the resale market. This is one of the most important statistic to have because it tells us what buyers in the market are willing to pay currently to live in the neighbourhood of the subject project.
Analyse the rental market in the area: Analysing the rental market helps us determine an appropriate and realistic rental rate to assist us in forecasting rental incomes to derive the calculated yield achievable on monthly rents. By working backwards, we can see how long it takes to recover our investment cost and help us decide if we should invest depending on our comfort level with the return on investment and timeframe.
In conclusion, the above three considerations serve as a general rule of thumb method to run through each and every pre-construction apartment project you are considering. After shortlisting the projects that you rate highly after basic analysis, we will have to dive further into additional details such as investment return horizon, income priorities (capital appreciation versus rental yields), financing plans, and the likes.
Keeping in mind that every investor’ needs are different from each other, I strongly advocate that you should seek professional advice from a real estate consultant (not a project salesperson) who has the credentials and knowledge to advise and assist you in running through the different aspects of your pre-construction premium apartment investment in Ho Chi Minh City. Such a consultant will have the necessary methodology and experience to guide you every step of the way on your property investment.