For the last 10 years:After several years of falling house prices, Vietnams housing market seems to be gradually improving. House price declines significantly decelerated in Q1 2014. Residential construction activity is recovering. Demand is picking up.However Vietnam's situation is fragile. The economy is slowing, and its banks are riddled with bad debt. Foreign investors were worried even before the recent riots. Foreign direct investment (FDI) fell 22% y-o-y to January 2014, to US$397 million.To aggravate the situation, the recent anti-Chinese riots further threaten foreign investment. The violent protests, which initially targeted Chinese factories, then spilled over to facilities of other global manufacturers. More than 400 factories were reportedly damaged and there were about 21 people killed in the riots.Nevertheless, after 4 years of house price falls, there have been signs that the downward trend may be stabilizing, especially in Ho Chi Minh City. During the year to end-Q1 2014: In Ho Chi Minh City, the countrys largest city, residential property prices dropped only 0.11% (-0.38% inflation-adjusted), the 16th quarter of annual price declines.Clearly, recovery has not yet arrived. Signs of an economic slowdown emerged in 2013 when GDP growth fell to 5.4%, down 6.7% between 2000 and 2012, according to the International Monetary Fund (IMF). During the first quarter of 2014, the countrys economic growth again slowed to 4.96% y-o-y, according to the General Statistics Office (GSO).Vietnam has the highest bad debt burden among Southeast Asias bigger economies. Much money lent during the credit boom (2009-2010) went bad, much owed by big state enterprises. Moodys Investors Service estimates bad debts at about 15% of total loans. However, this is disputed by the State Bank of Vietnam, the countrys central bank, claiming that bad debt accounts for just 9% of total loans.The good news is that the government is actively bolstering demand: The State Bank of Vietnam (SBV) discount rate was cut to 4.5% from 5%, the refinancing rate to 6.5% from 7%, and the repurchase rate to 5% from 5.5%. The Ho Chi Minh City government has proposed opening the property market to overseas Vietnamese. An exemption of about 10% of the value added tax (VAT) for home buyers is being proposed by the Housing and Real Estate Market Department. Homebuyers were given a VND 5 trillion (US$240 million) credit package by the Vietnam Bank for Industry and Trade (Vietinbank). Effective January 5, 2014, Decree 11/2013/ND-CP and Joint Circular No.20/2013/TTLT-BXD-BNV allows property investors to sell land plots with fully completed infrastructure and without a raw building.Residential construction has been gradually improving. In Ho Chi Minh City, there were about 15,500 apartment units in the primary market in Q1 2014, up 1.5% q-o-q, but down by 1.8% from a year earlier, according to Savills. In the first quarter of 2014, the total number of newly launched apartments in HCMC was about 2,800 units, the highest level since Q2 2011. On the other hand, in Hanoi, the total number of newly launched apartments increased 5% q-o-q in Q1 2014, putting the total supply of apartments to 95,400 units.In Ho Chi Minh City, the total number of apartments sold fell by 4% q-o-q to 1,600 units in the first quarter of 2014, but was significantly up by 39% from a year earlier. Grade C projects accounted for about 70% of the volume of transactions. On the other hand, apartment sales in Hanoi dropped by 6% q-o-q over the same period.Vietnam house pricesIn an attempt to promote sales, developers are now applying unprecedented payment terms," , according to CBRE Vietnam. "For instance, buyers in the first phase of Gamuda Gardens (part of Gamuda City) can now move in upon the first 20% payment; the remaining 80% can be made over four years at 0% interest. In the context of abundant supply and increasing competition from mid-to-low-priced condominiums, such flexible payment terms is one of smarter ways that developers can use to stimulate sales."So while a turnaround is unlikely in 2014, house price falls are projected to continue to decelerate, according to local real estate experts.Current 2015 situation:The Vietnamese economy started 2015 on a strong note. The real GDP growth rate expanded by 6.0% y-o-y in 1Q 2015, the highest ever seen during the last six years. This positive result was largely contributed by the expanding manufacturing and construction (8.4% y-o-y, double the pace in 1Q 2014). The forecast of Vietnams GDP growth rate was revised upwards, reaching 6.5% in 2015. In line with the countrys improving economy, HCMC recorded a y-o-y growth of 8.0%, 0.3 percentage points higher than the same period last year. Inflation rate (CPI) has been reined back. Marchs CPI increased by 0.2% m-o-m, sending the CPI in the review quarter of 0.7% y-o-y, the lowest pace during the last ten years. The slow increase CPI will allow the SBV room to further cut the interest rates. This is expected to support the real estate market.Despite improving domestic demand, external conditions were relatively weak. Exports in 1Q 2015 increased at a slower rate than the same period last year. This will possibly put pressure on the foreign exchange. The slower rise of Purchasing Manager Index (PMI) published by HSBC in March has raised concerns about the sustainability of the manufacturing momentum. Recent decline in international arrivals is another issue, which would negatively impact the retail and services turnover.The retail podium in Q1 2015 proved positive performance in terms of both occupancy rate and rental rate as this retail type is located in mix-used developments. Consequently, it gets benefit from to high consumption from residents and employees of in those buildings. The occupancy rate of the retail podium increased from 86.4% in Q4 2014 to 90.7% in Q1 2015 while the asking rent slightly rose to US$54.5/sqm/month. The shopping centre reviewed a different story. Both occupancy and rents slightly declined compared to the same period last year. The new open of Vincom Thu Duc partly contributed to the reducing rents as the project is located in the outlying district. This translated into the average rent of US$39.4/sqm/month and the occupancy of 91.3%. Department store maintained its asking rent of US$52/sqm/month but showed a rising vacant space in nonCBDs retail development in the review quarter. The market has recently observed some retail operators utilized spaces along the entrance, elevators to lease to tenants with low rents. This helped increase revenue but contributed to the falling average rents.In general, the office market did not show significant changes in both CBD and non-CBD districts in the review quarter due to the lack of leasing activities caused by the end of the fiscal year. However, slight increase in asking rents were recorded at Grade B office building thanks to the rising newly established companies. Most of these companies are local small-medium enterprises who cannot afford rents of Grade A buildings but require good locations in the city centre. Rents of some Grade B buildings which have good locations in the city centre and have the rent of US$20-25/sqm/month were full occupied. Meanwhile Grade A office buildings remained fragile. Some Grade A buildings are facing fierce competition from lately quality buildings. Although the project has not been officially opened yet, Le Meridien was fully occupied. Similarly, thanks to a reasonable rent, Vietcombank Tower which will come online in Q2 2015, has attracted many new international companies, over 60% of the office space was leased.New launches in Q1 2015 declined by 36.3% q-o-q to 4,545 units in light of the long traditional year-end lull. However, the figure showed a y-o-y growth of 98.6%. Many of these projects were cleared years ago without launch until January 2015. These signals obviously indicated developers strong confidence in the recovering market. The high-end segment remained the largest proportion (61.1%) and was followed by the affordable segment. On the back of the improving market confidence and acceptable prices, Q1 2015 recorded approximately 4,360 transactions, increasing by 82.2% y-o-y. Most of transactions recorded at newly launched projects. Compared to Q4 2014, sales volume witnessed subdued activities as the lack of new launches driven by holiday season which almost kicked off the second half of February. Despite the overall sales volume decrease on a q-o-q basis, the high-end segment continued to increase in sold units thanks to the strong return of investors