Investment in rental apartments declines

Mr. Son, an investor for many years, said that at the end of 2019 he bought 2 apartments with a total investment of 5 billion dong in Phuoc Long B ward, old district 9, now Thu Duc city. These two apartments are offered by brokers with complete legality, pink book, the project has many trees, near markets and schools, convenient transportation. With the rental price 3 years ago reaching 9 million VND per month, house prices will continue to increase in the long term. At that time, Mr. Son was confident that this investment rate was safe, had a steady monthly cash flow, and had the opportunity to earn profits in the future.

However, Covid-19 hit, the apartment rental market in the project gradually slowed down in 2020. By 2021, the situation is worse, the house is vacant for a whole quarter to find customers, the rental price drops to 6.5 -7 million dong a month but tenants still ask for a reduction in the first few months. After a few times of being returned home earlier than the contract, Mr. Son considered selling the apartment and transferring money to another investment channel.

In October 2021, he sent a broker to sell his house, and only had customers to buy it until the end of the first quarter of 2022. “In the past few years, the income from rental has been trickling, the brokerage fee is not much. After selling the house, minus taxes and fees, only a profit of 250 million VND for both apartments, far from the hot land during the epidemic season. “, he calculated.

Mr. Son is not an isolated case of removing the problem of buying rental apartments from the investment portfolio. Ms. Thy, who lives in Saigon South and has had 7 years of apartment sales, said that from 2021 to the end of the first quarter of 2022, she had sold out 4 rental apartments in District 7 and Nha Be district because of the high profit margin. capital of this channel is getting less and less.

According to Ms. Thy, apartment rental prices have shown a downward trend since 2019 and plummeted in the 2020-2021 period. This market has recovered slowly in the first months of 2022 until now. If tenants are not stable or leave early, the return on prime cost is only about 4% a year.

Ms. Thy said, investing in apartments cost about 3 billion dong on Nguyen Huu Tho street, district 7 from 2018 until now, the peak rent is only about 12 million dong a month. However, in the period of 2020-2021, the rental price decreased by 20-30%, so the profit was even lower than 4%.

“The profit margin of rental apartments is approximately the same as the inflation estimate in 2022. The selling price of apartments on the secondary market also increases by only about 10% a year while townhouses and land plots increase by 30-40%. a year, even higher. Because of many disadvantages, I decided to withdraw from this market,” said Ms. Thy.

Having experienced the fluctuations of the apartment rental market for 5 years, Mr. Vinh, who lives in Thu Duc City, shared that he once struggled to buy an apartment in a mega-urban project in District 9 bordering Dong Nai because of its beautiful planning. Singapore. However, the house bought 2 billion dong, the rent of a new house, basic furniture is 6.5-7 million dong a month, still being criticized by customers for being expensive, so it is long. Moreover, buying and holding for nearly 3 years, reselling only makes a profit of 130 million dong after deducting taxes and fees.

“With this capital flow of about 2 billion dong, if I buy land, after 3 years, at least double the profit. I will remove the investment channel for rental apartments from the list from 2022”, Mr. Vinh said.

The general director of a real estate company based in District 1, Ho Chi Minh City confirmed that investing in apartments for rent 10 years ago was still easy to make money, with high rental prices (profit margin estimated at 5-6% on average). a year) while the capital outflow is not too large. If you hold long-term assets, you can also expect compounding interest to increase the price of the apartment.

However, from 2020 to now, due to the impact of Covid-19, apartment rental prices have decreased. In 2022, investment in rental apartments is no longer attractive when the purchase price is too high.

This CEO commented, the rate of price increase of new apartments is increasing, leading to increasing capital costs. Input prices are high, but rental prices have not increased and in many places, rents have decreased. “Now investing in waiting for prices to rise is the main thing, but for the apartment market, the rate of price increase of second-hand goods is slower than that of the land plots, townhouses and villas. In addition, the waiting time for tenants is quite good. For a long time, the labor cost to redecorate after the customer returns the house is higher than before,” he assessed.

Having more than a decade of real estate consulting, expert Le Quoc Kien said, the investment model of apartments for rent started from 2010-2012 with high-end housing projects. This market flourished in the 2014-2016 period (with handover projects in districts 2 and 7) and peaked in the 2017-2018 period, when the apartment supply exploded.

Mr. Kien analyzed, it is easy to see that, in the period 2010-2015, the capital profit (the difference between the selling price and the buying price) of the real estate market in most segments was almost flat or only increased slightly. . Therefore, the investment model with additional rental income has attracted the attention of many investors.

Thanks to the above advantages, plus the supply in the market is not much, the purchase price of apartments is not high, so the rental profit ratio on the property value reaches 6% a year, approximately the interest rate of bank deposits, while still owning real estate, investors don’t have to keep cash, don’t worry about price slippage. Even many investors have launched the problem of maximum income from renting apartments that can reach the threshold of 6.2-7% a year, causing the apartment rental market to heat up.

However, according to Mr. Kien, 2016 – 2018 was the period when the real estate market skyrocketed in all segments. Land plots in the periphery and remote provinces increased 2-3 times, townhouses – the segment with the most stable prices also increased by 2-2.5 times on average. Meanwhile, after the apartments have been handed over, the price increase is insignificant compared to the annual price slide, making investors gradually “cold” to the investment apartment rental market.

When the cash flow from rental income over the years still cannot make up for the low level of price increase compared to other real estate segments (for example, apartments have 6% rental income a year, in 5 years). year, with a price increase of 30%, still far behind other segments of townhouses with an increase of at least 200% or more). Therefore, investors will tend to gradually move to the segments with higher profits.

Mr. Kien confirmed, in 2012-2014, mid-high-end apartments cost only 35-40 million VND per m2, but from 2018 it costs 50-60 million VND per m2 and now has a higher threshold, while the price for Rents have not kept pace. That is not to mention the increasing supply of apartments handed over over the years, which has also contributed to pushing down rental prices. From 2019 onwards, the profit rate from investing in rental apartments will decrease to 3.5-4.5% a year depending on location and segment…

Most apartment tenants require the availability of interior equipment, so the rental apartment owners also have to compete fiercely in equipping this equipment. Unlike the items used by the owner, both carefully and by themselves, if they are used by the tenants, they will quickly deteriorate and degrade. And after 5 years in the rental business, investors began to face the problem of “degraded furniture and equipment that must be replaced”, which they did not think about when calculating the profit margin.

Mr. Kien acknowledged that, before the Covid-19 pandemic hit, investors who preferred rental cash flow were gradually disappointed when the actual rental price was far below the heyday of 5-10 years ago. The outbreak of the disease since the beginning of 2020 is only the last drop of water, revealing more weaknesses and contributing to promoting this model to soon decline.

Vu Le