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Expat home market changes approach   2009-05-02 - VIR

The heady rents of 2007-2008 are but a distant memory.

There has been a shift in demand for housing as foreign workers adjust to the insecurities of the global economy, and suppliers strive to adjust their strategies to keep occupancy levels high.

As foreign businesses start tightening their belts, many employees are being asked to renegotiate housing contracts or move to cheaper accommodation. The Elegant 5 Hotel on Nam Ngu Street, Hanoi, despite its title, has been more of a small serviced apartment building for over 10 years, with most guests taking long term contracts, but changes in demand recently have meant that the hotel has been checking in a greater number of short term guests.

“We have been accepting more daily and short stay guests in the last few months,” said Le Huong Ly, Elegant 5’s operations manager. “To attract more long term guests, we have had to adjust our rates a little bit, but the price of around $1,000 per month for a serviced apartment has become a little bit too high for some foreigners.”

This seems to be a common problem with the housing market for foreigners. According to property service provider CBRE Vietnam, the serviced apartment market’s vacancy shot to a staggering 23 per cent in the last three quarters of 2008, up from 4 per cent. The reason is partly due to an expansion of the supply base, but also because demand has dropped.

“Multinational companies that come to Vietnam have started to slow down, and those that are already here have started to reduce their costs,” said CBRE’s executive director Richard Leech. “Companies that have people in expensive serviced apartments have been asking them to cut their costs, either by reducing the monthly fee or trying to move to cheaper accommodations,” he said.

“Foreigners now find Hanoi an easier place to understand, live and get around than they did 10 years ago. Therefore, moving out of a secure, serviced apartment into a private villa is no longer such a big deal,” he added. Serviced apartment owners have managed to pull down their average vacancy to 11 per cent in the first quarter of 2009 by offering promotions, reducing their rates and offering more flexible short-term rates.

“Average asking rents have been reduced with greater flexibility in price negotiation that can lead to a further reduction of 3 to 20 per cent, especially in internationally managed buildings,” said Leech.

“It is true that we are affected by this crisis, as there has been some shifting to more affordable accommodations like privately owned houses or self-service apartments,” said Fraser Suites Hanoi’s general manager Colin Tan. “But for those who want to stay in an internationally managed residence, now they are able to stay at a luxury residence at a very affordable rate. With special promotions tailored for 2009, so far we have seen a positive response from customers.”

However, the common sentiment is that this might be just a temporary struggle, and the long term forecast is still positive. Many large projects are still undergoing the promise to expand the supply base substantially in the next few years. Property service provider Savills Vietnam have forecast that by the end of 2011 the serviced apartment market would increase by 35 per cent.

“Foreign investors are still confident in the Vietnamese market, so we are still seeing many development projects being carried out in Vietnam and therefore the demand for quality accommodations for foreigners is still high,” said Tan. “Frasers Hospitality itself is looking to add 5,000 rooms in the next two years and Vietnam is in one of the three markets that we will focus on expanding.”

For the Elegant 5 Hotel, this market always offers a certain amount of stability and any current turbulence can be sorted out in the long term. “We have a steady source of customers who are workers at embassies and non-government organisations and their budgets have not been cut as much this during crisis period,” said Ly.

“Although some of our customers have moved to more affordable accommodations, others have moved from more luxurious apartments down to us, so we will be okay,” she added.

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