Real Estate Market: How to Determine the Real Value?

The research of Vietnam Savills Real Estate of Hanoi real estate of the first quarter of 2013 shows that among 125 projects, three projects of Dream Tower Urban Area, Southwestern Linh Dam Lake (TT1/TT4/TT6) and Dang Xa (BT1) provide 245 apartments for the real estate market and increase the number of apartments by 42,000 units for the segment of villas and townhouses.

 

In the first quarter of 2013, the market liquidity is still low. The average offer price of the whole market down from the previous quarter is at 13 percent for villas and 9 percent for townhouses. There are none of customers asking for apartments under the projects of the secondary areas, particularly Me Linh and My Duc. The average price of the first areas are offered from VND41.7 million to VND158 million per sq. metre while of the secondary areas, the price ranges from VND9.4 million to VND54 million sq. metre. The districts of Cau Giay, Tay Ho and Tu Liem offer highest average price ranging from 108 million per sq. metre for villas and townhouses. Most of the projects in secondary areas have the offer price less than 20 million per m2. The market demand for villa and townhouse is now lower than the supply because buyers are waiting for lower price.

 

The future market supplies of villas and townhouses come from 76 projects, scattered in 14 districts with total area of ​​10,200 hectares. The number of future projects is unchanged from the previous quarter and is likely to remain at this level because the Hanoi People's Committee is planning to stop the licensing of commercial housing projects located in Hanoi now until the end of 2014.

 

The property price was pushed up slightly before 2010, which makes most of the properties exceed its actual value. However, after falling down for a long time, the property price is expected to be back to its real value.

 

Dr. Ngo Tri Long, a market price expert, analyzed that based on the average income of people, the property value now is virtual. To avoid the virtual property value, the real estate market and buyers should be authorized to decide the price themselves. When buyers recognize that the housing price is consistent with their payment ability, the financial, the real estate market will come back to the real value.

 

However, many said that the regulators cannot leave the real estate market self- regulate because this will affect many areas. Nonperforming loans of real estate has been up to VND200,000 billion, accounting for 3.2 percent of GDP and this causes the stagnation of two key sectors: building and construction materials and affects the living and works of 4 million workers. Therefore, the real estate prices will have to bear all official and unofficial costs such as administrative procedures and banking interest rates.

 

The difference between market supply and demand has put high pressure on investors. While most people's incomes are on average, the majority of investors focus on housing for high-income people instead of social housing, which attracts high public demands. In other words, the failure of real estate market is mainly caused by the speculation and price skimming strategies of some of secondary investors. Therefore, the solution the government introduced measures to use VND30,000 billion credit package to save the real estate market raises controversial discussion. Many experts said that the government should consider goals of the credit package because they could bring benefits for certain interest groups, leading inflation and bad impacts on economy.

 

It is difficult to determine what the true value of real estate, because the real estate prices has been blowing up and in the long run, will not base on any economic principle. How much the real estate value costs? What is actual construction cost? The government authorities and real estate experts find no difficulties to figure out the actual values of real estate; however, how it could be announced by the real estate firms and whether the authorities could determine to require the businesses publish this information. According to Dr. Nguyen Tien Thoa, Vice President and General Secretary of Vietnamese Valuers Association, there should be an overall inspection of the real estate in Vietnam. Accordingly, a research should be conducted to determine the market property value in general, and then estimate a specific property by an appropriate method. Once determining the real value of real estate, we could come up with new strategies and action plans to determine property tax, transfer ownership fees, banking mortgage and compensation. Thus, it will result in bad economic consequences.

 

Transparency in property value as well as clarification of construction costs will help increase the market liquidity and make the market more dynamic. If the government cannot create a road map for housing market, the bailout of VND30,000 billion will not achieve expected goals.