Property market difficulties and policy uncertainties in Vietnam warrant a more conservative valuation approach

Insights:

Vietnam’s property market has suffered from a series of government crackdowns on speculation and corruption, shaking investor confidence. Prices are down 30–40% in some areas from their peak.

The government is now trying to stimulate the market again through lower interest rates, easier credit access, and incentives for first-time buyers. However, success relies on restoring investor trust.

While demand remains reasonably strong, particularly in major cities like Hanoi and Ho Chi Minh City, investors are wary of oversupply issues in some segments and further potential interventions.

Changes in Valuation Model:

Growth projections for property development firms need to be adjusted down to account for the market downturn and policy impacts.

Risk premiums should be increased to reflect higher investor uncertainty. This will lower valuations.

More weight should be given to bearish supply/demand indicators for certain housing segments with overcapacity.

Specific Assumptions to Change:

Reduce sales growth assumptions for residential properties, especially in oversupplied mass market segments.

Increase inventory turnover time assumptions as units take longer to sell.

Raise risk premiums and discount rates to reflect policy uncertainty and investment risks.

Lower margins and cash flow assumptions for developers as incentives like tax breaks weigh on profits.

Long/Short Recommendation:

Go short on mass-market residential developers oversupplying struggling segments like Hanoi’s suburbs.

Long developers focusing on urban luxury properties with less downside risk from oversupply issues.

In summary, the property market difficulties and policy uncertainties in Vietnam warrant a more conservative valuation approach, with lowered growth assumptions and higher risk premiums. Firms overexposed to overbuilt market segments should be avoided.