Real Estate Market: Steady Development from Q2, 2015

In fact, the real estate market is relatively good in 2014, expressed in many aspects. Specifically, prices have not decreased, even slightly increased; some projects have received funds for continued development; and midmarket apartment segment has had relatively good liquidity.

 

In 2015, I believe that liquidity will be still good in finished products, especially low-end segments. Low price is still the bright spot when the supply in this segment is increasing. The property market is being actively supported by macro information like amended Law on Enterprises, Law on Investment, Law on Housing, and Law on Real Estate Business. Catalysts for the good liquidity are the eradication of regulations on the minimum area of an apartment and investors are allowed to sell housing land plots even when the construction is not started. These help diversify supply and narrow supply and demand gap.

 

When the law annuls the regulation on minimum apartment area, investors will be able to change housing areas to buyer-desired ones. Currently, the demand for houses with selling price of VND1 billion is very high and likely to surge in the future. Therefore, this will be a great opportunity for investors to revise their development plans to sell products of high demand.

 

The real estate market is expected to receive a boost when foreigners are allowed to own houses in Vietnam. Besides, trade agreements like Trans-Pacific Partnership Agreement (TPP) and Regional Comprehensive Economic Partnership Agreement (RCEP) will be the leverages for the economy and will be the great opportunities for the real estate market.

 

Given developments in the second half of 2014, I envisage three major scenarios for the real estate market in 2015. First, the market continues to recover and transactions are active. This is what most people expect but hardest to happen. Second, with good sales of completed projects, investors continue to develop other good projects. Only a few projects revive and transactions are slow. New investors will come to the market. This is the most likely scenario, given that policies are unchanged and domestic and international economies do not experience sudden changes. Third, the market will shrink. A series of divestments will happen and investors will withdraw from the real estate market. Many projects will fall short of capital. This will provide an opportunity for M&A business to grow. This scenario is considered the least desirable but likely to happen.

 

But, in the medium and long terms, the real estate market may develop steadily since the second quarter of 2015 because the availability of funds is high, particularly overseas remittances. A new cycle may be formed. However, the degree will depend on many factors.

 

Policy modification to meet actual requirements is necessary. There are at least three positive points for the real estate market from this monetary policy. First, so far, the development of real estate market largely depends on commercial bank loans and the access to capital sources will be easier. Second, lending interest rates are quite attractive. If inflation growth is only 5 percent or so in 2015, interest rates will be likely to hover at 8 percent per annum. Let alone, Vietnam may have more support policies like the soft home loan package of VND30 trillion bearing an interest of 5 percent per annum. Third, banks are ready to lend and increase loans for real estate. So, good projects will receive a lot of supports from banks.

 

I think the bubble will be very unlikely to happen in the short term when the supply in the market is still very huge. In the near term, cash flow will roll on good projects.

 

In the medium and long terms, the market depends on many factors like the reaction of development investors, potential investors and intermediary institutions. In this context when credit is only enough to meet the demand, speculation is unlikely to happen. But, in the medium and long terms, if we cannot control well enough, it can still happen.