Real Estate Market: Positive Signals

Liquidity of the property market in recent months has been significantly improved. Both of the markets of Hanoi and Ho Chi Minh City continue to grow. In particular, in Ho Chi Minh City, the number of successful transactions in May increased by nearly 6 percent over the previous month. It is calculated that if the growth is maintained in the upcoming 6 months, Ho Chi Minh City will have more than 7,000 successful transactions, increasing 3 times compared to the same period last year.

 

In Hanoi, in the first 5 months, the volume of successful transactions also increased by nearly 5 percent with 7,500 successful transactions up 2.5 times over the same period last year. Liquidity of the market has increased strongly, leading a decrease of inventory of real estates of the businesses and increasing a sale opportunity of new properties in the near future.

 

According to the Ministry of Construction, the real estate inventories have fallen sharply in recent times. By the end of May, the total value of real estate inventories is more than VND67 trillion, down VND1,338 billion compared with April and VND61 trillion compared with the first quarter of 2013.

 

The real estate market prospers and this helps many real estate companies earn high revenue and profits for fiscal year 2015. Besides, the number of newly established enterprises operating in the real estate sector has also increased sharply in recent years. In the first quarter of 2015, the newly established real estate businesses increased by 50 percent over the same period last year.

 

Thus, after a frozen time, the investors confidence has returned, leading to an increasing number of transactions and newly start-ups in the real estate sector. This is not only a good sign for the property market but also a positive momentum for the economy.

 

One of many reasons for a number of newly established enterprises comes from new regulations valid from July 1st. But this will create more aggressive competition on the property market and this is exactly what the buyer wants.

 

In fact, the majority of the Vietnam real estate firms lack capital while this sector requires larger capital in the medium and long term. There are a few credit channels for real estate firms. The real estate enterprises still rely on three main sources of equity, contributions from citizens and banking loans.

 

And most buyers with the average income make banking loans to buy house. Therefore, banking credit is key to the development of the property market.

 

This explains why the growth of the real estate market will lead to growing credits of the banks. The real estate market recovers and the credit growth in the real estate sector is higher than the credit growth of the whole system.

 

Of the total outstanding loans, the share of the real estate loans accounts for 20 percent and many banks are still expanding real estate lending programmes. Currently, most of the real estate projects are having supports from banks through incentives programmes for homebuyers and investors.

 

In recent years, in order to remove difficulties of the property market, the agencies have issued many policies which focus primarily on solving capital difficulties for real estate firms. First, the government has launched credit support package of VND30 trillion for targeted groups to buy social houses or cheap housing segmentation. In the future, a credit package is proposed with new support of VND20,000- 30,000 billion designed for those who want to buy commercial housing.

 

Given the difficulties, many mechanisms and policies for lending in the real estate sector are still not very strong. However, according to many economists, the capital flows into the real estate market will be stronger. Along with the credit package of VND30,000 billion, most of the banks have the incentive programmes for commercial mortgages.

 

Currently many banks have funded new projects and given business loans and mortgages for buyers.

 

The health of the real estate has strong connection with the health of the economy. If the economy maintains its steady growth, the income of the people will also increase, leading to high capacity of repaying loans and keeping the real estate grow. However, to avoid potential risks, it still needs a strict control of credit growth as well as more real estate credit channels other than bank financing because when people cannot afford to pay loans, the banks' bad debts will increase and cause crisis.