Glimmer of light at the end of a dark tunnel

January 17, 2009

Prof Dang Hung Vo, former deputy natural resources and environment minister, looks back at land and house price fluctuations across last year.

One positive outcome out of the bottom falling out of the market is low income people being able to afford accommodation

One positive outcome out of the bottom falling out of the market is low income people being able to afford accommodation 


The price graph of Vietnam’s property in 2008 could be imagined as a face-down parabolic model in which property prices soared sharply in the first quarter, slightly increased in the second quarter, slightly fell in the third quarter and sharply plunged in the fourth quarter.


From late December 2007 to February 2008, property investors earned huge profits from the market. At this period, the property market prices turned high and investors earned money from the bullish market sentiments without doing anything. Market statistics of Hanoi and Ho Chi Minh City, the country’s two biggest cities, have shown that the property prices in early 2008 doubled or even tripled late 2007’s levels.


At this period, many said that property investors were benefiting from sudden money falling from the sky. Additional profits from accelerating property prices were three to four times higher than property project developers’ initial calculations. “Economic bubbles” in the property market have brought un-explanable or un-reasonable sums for property investors, traders and investors.


Land prices in several areas in Hanoi and Ho Chi Minh City sometimes reached the unexpected level of VND1 billion ($59,000) a square metre. Some newspapers said the land prices in Vietnam had reached the world’s highest.


Apart from that, the rate of buyers registering to buy project apartments exceeded by 10 times of the apartments the project developers wished to sell. It is said that the untrue demands exceeded real supply. The situation of thousands of people standing in lines to register to buy apartments of The Vista, Sky Garden 3, River View, Phu Hoang Anh in Ho Chi Minh City was clear evidence for this unusual supply and demand relation.


The irrational soaring prices of the country’s property market was blamed for the untrue expectations of high rewards when successfully registering to buy in and later selling their buying rights back to latecomers. The sudden rise in high-end or luxury property asset prices has stimulated the low-end and made the agricultural land to go higher. The land prices at normal property projects also soared to VND8-10 million a square metre, up from just around VND2-3 million as before.


Late 2007 to early 2008 period was the land price fever peak in Vietnam. The increasing property prices during this period have lured many corporations and groups to establish property investment affiliates. Overseas investors also registered to pour a lot of capital to Vietnam’s property market. In 2007, around 40 per cent, or $8 billion out of $20 billion of the total foreign direct investment (FDI), registered to invest in the property sector. Many optimistic investors said that Vietnam was on the way to new urbanisation process and the investment potentials here are very huge and 2008 would be a key time for the development of the country’s property market.


In late 2007, the State Bank reported that the total bank loans for property investments reached 10 per cent of total outstanding loans. In late February, 2008 inflation was soaring on higher commodity prices and authorities started thinking of regulating the monetary policy.


The State Bank on February 15, 2008 issued regulations to force commercials banks to buy compulsory bills and many banks began to stop new lending to property investment for the fears that the property market was a bubble that could make the monetary market more volatile. Since then, property investors as well as traders or speculators have lacked capital.


Some prepared property projects had to delay construction while some other developers implemented slowly, some transferred to other developers, some nearly finished projects have quickly completed construction to sell to buyers to grab capital back.


Since February 2008, the government has focused on seeking measures to control soaring inflation. On February 27, 2008 the government held a meeting with relevant agencies and ministries to discuss measures to manage key commodities. Resolution No 10/2008/NQ-CP was then issued containing eight measures to control inflation, stabilise the macroeconomy, ensure social welfare and security and sustainable growth, in which the first task will be implementing the tightening monetary policy.


On May 19, 2008 the State Bank governor issued Decision No 6/2008/QD-NHNN regulated the interest rates with the annual 12 per cent ceiling lending rate abolished and commercial banks and credit institutions then ran to hike rates.


At this time, the property market was completely failing to access bank loans. With insufficient capital, usually the supply is limited and prices higher. But in fact, property prices started to fall. Therefore, it could be explained that majority of the previous investment capital in the property market was coming to property or land and apartments speculators. The limit on property market bank loans had reduced property speculation.


When failing to access to bank loans, the property market was in stagnation. House and land prices were at standstill and market liquidity remained low. In late June 2008, houses and land failed to find buyers and the prices plunged dramatically, especially at the less interested property projects. Few people came to property trading centres in Hanoi and Ho Chi Minh City to seek information.


During July-September, property prices in the outskirts of the big cities had fallen by 20-30 per cent and ordinary people can by houses, apartments and land lots at between VND500-700 million each if they had assistance. Market analysts said the property market had bottomed out, some voiced it would go lower. In fact, the market bottom was not important as the price was decided by market. The most important thing was that the government should have policies to regulate the property market to a reasonable level, which is better for the country’s sustainable development.


In August and September, 2008, the consumer price index had shown signs of continuously falling. The State Bank had officially lowered interest rates and commercial banks began to lower lending rates also. However, the lower lending rates were still high for investors and home buyers. Optimists said the property market would recover in the last two months of 2008 but theoretically, the annual 14-15 per cent lending rate was not a momentum for the property market development, in advanced countries, the rate is around 5 per cent.


In October and November, 2008, property prices had fallen in many cities in Vietnam. Many property speculators had left the market which was frozen, less liquidity and bank loan paying pressures. Pressures to pay bank loans had caused the property prices to fall sharply.


Currently, the total outstanding loans to property investment reached VND115,000 billion ($6.7 billion), accounting for 9.5 per cent of the total banking system’s outstanding loans, in which around 75 per cent of total property outstanding loans was poured into Hanoi and Ho Chi Minh City. Many analysts estimated the total property bad debts would be at around 5 per cent of the total property outstanding loans, the rate would be at a dangerous level for banks.


Late 2008 and early 2009 will be maturity for many property investors to pay bank loans. In the meantime, the property prices have plunged by 30-40, even 50-60 per cent from the peaks earlier last year.


Vietnam’s property market in late 2008 had both negative and positive sides. The market downtrend will make investors reduce business scales, a disadvantage for the industrialisation process and partly affect other related markets. The downtrend, however, had its positive signals. Firstly, enterprises who had been preparing to heavily invest in the property sector to earn huge profits would be forced to come back to their core business.


Secondly, the property market is seeing less speculating and low income earners can buy houses. Thirdly, the government will have time to complete all market regulation and management tools to create a healthy and efficient property market.


(Source: VIR)

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