Leaving Safe Haven

9:58:00 AM | 7/24/2014

Deposit rates go down; gold prices are volatile with downward prospects; and securities are exposed to hidden risks, particularly in the context of slow economic recovering and growing corporate bankruptcies. In the meantime, the warming real estate market is inducing many people to leave their safe havens - savings and gold - to jump into this market.
Right time to buy houses?
Last year, many specialists pointed out that the market had reached the bottom and the continued decline was impossible although property firms were struggling to high inventories and incomplete projects.
Currently, data from the Ministry of Construction showed that the real estate market is heating up and transactions are on the rise. Inventories are estimated at VND83,034 billion (US$4 billion). In Hanoi, as many as 4,150 deals were concluded in the first six months of 2014, doubling the number in the same period of 2013. Irrespective of prices, increasing liquidity is the greatest significance. And, given the statistics, the property market has revived.
In general, housing prices are very low from the peak driven by overheating fevers. This is the primary factor to stimulate investors. Many companies had rapidly reacted to the freezing market to stay alive by cutting prices, offering promotions, speeding up their projects, and splitting apartments.
And, more importantly, they seriously carried out market and customer researches to measure their demand and interests. In Ho Chi Minh City, more than 2,500 apartments were traded in the second quarter of 2014, up 60 percent over the past quarter and 115 percent over the same period of 2013. This is also the highest liquidity in the past three years in the country’s largest city. Savills Vietnam said housing was the brightest segment on the Hanoi real estate market in the second quarter of 2014, primary coming from affordable segment. In the quarter, about 1,900 apartments were sold, an increase of 54 percent from the previous quarter, because B-class projects were sold well. Absorption rate of the market was 14 percent, an increase of 5 percent against the first quarter. Meanwhile, villas and townhouses remained unsellable and prices tended to go down.
Another supporting factor for this market is other channels are becoming more difficult and volatile. Deposit rates have been brought to 7 percent per annum. Rates at big banks even are lower. Recently, Governor Nguyen Van Binh of the State Bank of Vietnam (SBV) affirmed that interests will be kept stable through this year to support businesses and the economy. There is no reason for hoping rate hikes in the near term. Another traditional investment channels that Vietnamese people are very keen on is hoarding gold. Investors suffered substantial losses because the precious metal price dropped and investment funds increased sales to stop loss. Growing global uncertainties on account of conflicts in the Middle East, Ukraine, and the East Sea are not enough to spur bullion prices. Gold keeps are losing patience because the bullion price is forecast to decline further. Many are seeking alternatives and real estate is an option. The stock market is quite risky because it is usually leveraged by very strong cash flows. Most investments are for short-term, aimed to make quick profits. Stocks are unlikely to increase steadily and bring solid profits for investors when companies are struggling to return to growth trajectory and the economy is revising firmly. All these factors support the recovery of the property market. Given improved liquidity and increased prices, the market will attract huge capital again.
Thus, no one wants to be a laggard in this money-spinning game. However, the investing time is very crucial. For the time being, it is too early to know for sure.
Signs of overpricing
When the market was lacklustre, speculators were absent. But, they will quickly return when they feel they can make money. They come even faster than they leave. Importantly, authorities must create regulatory corridor and policies to manage and regulate the market rather than measures to prevent speculative acts.
Currently, perhaps, the market has lived through the toughest time but it is too early to make a true recovery. But, speculators and brokers have started to jump to “blow” prices - the act they usually did previously. The return of speculators is a good sign for the market on the path to recovery and profitability.
Many people buy houses to live but others purchase to sublease and wait for higher values. Not only using only savings, many borrow soft loans to buy houses. In 2013, transactions were primarily made by end-users. In 2014, liquidity continued to improve and property companies and speculators want a much faster pace of recovery. To do this, they make some purchases and rumour supply scarcity to push up prices.
Developers and property exchanges also join hands to regulate supplies to worsen the so-called scarcity. Margins for companies and intermediaries start to increase.
Last year, customers could buy houses at original prices but now they have to accept a huge margin for brokers. End-buyers have to pay big extra money for brokers if they want to buy apartments in VP5, VP6 Linh Dam, Kim Van - Kim Lu (Dai Kim - Hoang Mai), 143 Tran Phu (Ha Dong), and Green Stars (Pham Van Dong).

Bubble burst and serious recession were resulted from overpricing and unreal fevers. As the property market produced huge profits for investors in a short time, every resource was pumped into this market to make quick money and speculators used their tricks to push up prices. Now, the market is showing signs of recovery and it needs regulatory policies to tame the madness of the market and ensure the healthy development. Investors may be wiser with the past lessons but greed may blind any investors.

Bao Chau