Property Market Remains Lacklustre

The Vietnamese real estate market is currently depending heavily on bank credit, and a tightened credit policy will immediately cause negative impacts on this market. According to many property experts, this market is not likely to improve in 2011. This is the overarching content of a recent conference entitled "Financial policy for real estate market” held by the Vietnam National Real Estate Association (VNREA) and the Korean Housing Association (KHA).

 

Mr Nguyen Manh Ha, Director of Housing Real Estate Administration Department under the Ministry of Construction, said: Capital thirst is one of major reasons for the gloominess of the real estate market. As tightened monetary policy is applied to stabilise the economy and curb inflation, the banking system has reduced credits for the real estate market, sending many property companies into a dilemma.  

Dr Tran Kim Chung, Head of Investment Policy Research Department under the Central Institute of Economic Management (CIEM), said: In addition to the tightened monetary policy, the market is also distressed by macroeconomic uncertainties. The first is inflation-avoiding factors. The property market is still called the valve of inflation. At present, signs of inflation are clear. Therefore, a significant amount of money will be channelled into the market to shelter from inflation.

 

The second is resource factors. After the Government decided to ban gold bar trading and foreign exchange on the free market, a large amount of money flowed into the property market to steer clear of financial risks. However, the current gloom of this market has become a restraint on this cash flow.

 

The third is planning factors. After the capital city of Hanoi was expanded, many changes in planning have been made. This is considered an opportunity to lure capital flows for the market.

 

The fourth is one-time payment factors. Not only the property market but the stock market, a cash-catching market, also faces difficulties in attracting investment capital. A prolonged slump of the equity market forced many investors to divest from equity assets to pour their money into the real estate market. However, tight monetary policy causes a capital shortage and illiquidity on this market. As a result, the real estate market tumbled and property prices repeatedly set new lows. Many investors have abandoned their deposits and accepted fines, an unprecedented movement, as they feared deeper losses.

 

Dr Chung said: Given the current interest rate of 20 percent per annum and 80 percent of investment capital relying on commercial loans, developers will have to pay a huge cost for loans in five years, leading very high realty prices. Besides, many investors have retreated from traditional markets. Hanoi and Ho Chi Minh City are among the most affected.

 

To solve financing difficulties for the real estate market, Dr Chung put forth four solutions. First, the government needs to review financial and monetary policies. When it squeezes credit for the real estate market, it should consider alternative financing channel for this market. It should allow mutual saving funds to shore up the property market. When there is no legal corridor for this type of business, the Government and relevant authorities should act to allow a piloting scheme.

 

Second, Vietnam should step up the implementation of the Housing Saving Fund the Ministry of Construction is building. This not only creates an affordable housing channel for homebuyers, but also a channel to attract investment capital for the real estate market.

 

Third, it should mobilize free capital. The public reportedly holds a large amount of money for gold bullion investments and the government should have policies to channel this source of capital into the property market. If this is the case, the realty market will have a significant amount of capital.

 

Fourth, it is necessary to strengthen stimulus tools to attract foreign finance by selling Vietnamese enterprises. It should not rule out an undervalued offering of an equitised company to foreign strategic investors. At the same time, Vietnam should also prop up measures to lure foreign capital and overseas remittances into this market.