Real Estate Market Remains Risky

However, according to real estate experts, the market is still full of risks against investors, thus the sustained development is unlikely.

 

Global and Vietnamese economies have made remarkable recoveries thanks to economic recession-prevented and growth-driven stimulus measures adopted by the Government. All economic sectors have strong backings for development. According to the Ministry of Construction, the property market is significantly benefiting from policies issued by the Government. For example, the Resolution 18/NQ-CP and other decisions on several mechanisms and policies to build houses for students, low-paid workers in industrial zones, low-income earners in urban zones

 

In the second half of 2010, the property market has a clearer division of commodities. Middle-class small apartments catch much interest of investors and people. Indeed, this new segment is affordable to the largest proportion of buyers. Knowing this very clear trend, many investors have shifted their investments into this segment.

 

To meet the majority demand in the context of the gloomy market outlook, many businesses are very quick to investing and developing low-end apartments (costing about VND1 billion each) and they have attained great successes. Currently, the demand for apartments in major cities, especially low-end segments for industrial workers and students, continues to increase. According to the Ministry of Construction, about 7 million people still have to rent houses in urban areas. To meet this demand, Vietnam needs to create 150 million square metres of residence, which is estimated to cost VND300 - 400 trillion (US$15-20 billion).

 

Hanoi and Ho Chi Minh City, the two biggest cities in the country, pressures on how-end homes are very high because of short supply. Hanoi is lack of 110,000 flats, covering some 5.5 million square metres, for some 11,000 industrial workers while HCM City needs around 5 million square metres of houses for 50,000 workers.

Shelters for students in the two largest commercial centres in Vietnam are also of great concerns. The country has roughly 400 universities and colleges, about 370 vocational high schools and over 280 professional training schools, which are training close to 3 million students. By 2015, the number of students is estimated to reach 4.3 million more or less, of which 3 million will need new shelters.

 

To meet the above demand, the development of new urban zones is essential. However, previous urban planning was mainly aimed at middle and high-class apartments or offices for lease. According to statistics, Vietnam now has some 2,500 new urban projects, including over 800 projects covering a total land area of approximately 75,100 hectares in the capital city of Hanoi, including 39,000 ha for mixed housing, and 1,400 projects, mostly small scaled, covering 4,490 ha in HCM City.

 

Although the property market shrank in the recent time, with prices dropping in some regions, house prices are still quite high, complicated and difficult to control. Particularly, house prices in big cities are too high for most people and goes far beyond real value. This is also significant challenges for efforts to solve burning housing issues for low-income earners.

 

The difference of real estate prices in big cities like Hanoi and HCM City and the rest of the country is quite large. While prices in big cities are strongly driven by high demand, smaller ones do not see much changes.

 

Even, price movements are different in biggest cities like Hanoi and HCM City. For instance, in the second quarter, prices of apartments did not climb but still stood high and residential land prices soared 30 percent from the end of 2009 with peak in Ha Dong and Hoai Duc districts. Nonetheless, HCM City did not see many changes in prices.

 

Unpredictable developments in the property market have led to many adverse implications on the economy, especially monetary policies. In the first two quarter of 2009, the economic stimulus programme caused a short-time price hike due to growing disbursements of cheap borrowing costs. During the last two quarters, the market waited for new decisions on stimulus package, thus no major fluctuations in dealings and prices. But, in the third quarter of 2010, the credit crunch caused the real estate market to slump.

 

When macroeconomic factors are not sustained and inflation is always high, the development of the property market will not more volatile. As of July 31, 2010, outstanding loans for urban zone construction declined 2.35 percent, compared with the 10.2 percent growth in 2009, and lending for home construction, repairing and purchasing also rose 5.47 percent, compared with 27.2 percent in 2009. On the other hand, most banks are applying high interest rates, hovering at 13 percent per annum or higher. In addition, there are many other factors that may cause adverse impacts on the property market, including frauds, slow construction progress, price escalation and unclear information.