Ongoing recovery of real estate market absent the factors that created a bubble during the last boom.
Since early this year Vietnam’s real estate market has clearly been on the road to recovery, with sales prices as well as transaction numbers increasing sharply. The good news is accompanied, however, by talk of a “real estate bubble” appearing once again.
In the first seven months there were nearly 20,000 transactions conducted in Hanoi and Ho Chi Minh City, or triple the figure in the same period last year. Most new projects and projects opening for sale are seeing higher prices.
According to Mr. Le Hoang Chau, Chairman of Ho Chi Minh City Real Estate Association (HoREA), a real estate bubble can only appear when the following factors are in place: overheated economic development, loose credit policies, an imbalance in the development of the real estate market, usually seen in the luxury segment, and the presence of speculators. Inappropriate intervention by the State can also be a factor.
HoREA believes there is no risk of a real estate bubble appearing this year or in 2016. The economy has only been recovering in recent times and the government is maintaining macro-economic stability, controlling inflation, and implementing monetary policy closely and flexibly. The high-end segment is developing strongly and while price increases are higher in some projects they remain under control.
Administrative reform and improvements in the legal framework relating to the real estate market, with overseas Vietnamese and foreigners being permitted to buy and own houses, have contributed to the recovery of the market. The increase in consumer confidence has also bolstered the number of successful transactions. The restructure of enterprises, investment restructuring, and the promotion of merger and acquisition (M&A) activities have also been positives.
According to Mr. Vu Cuong Quyet, General Director of the Dat Xanh Mien Bac Real Estate Company, in the first seven months of this year the price of some projects, especially high-end projects, has increased sharply. The economic crisis forced prices down sharply, especially in the high-end segment, by as much as 30 to 40 per cent. And now, as the economy is recovering, prices are rising again, he said.
While the property market is recovering, prices are not suddenly increasing. Only projects with a good location and owned by prestigious investors are seeing higher prices.
Market supply over the last five months of the year and in the next two years will be quite good. Many projects with great locations will be launched, and purchasers will have more choice at prices that match their financial capacity. A real estate bubble therefore seems quite unlikely.
Many experts also believe that the real estate market is still in a process of reestablishing consumer confidence. Moreover, buyers are wiser now, basing their purchasing decisions on actual value and the quality of products and the investor’s reputation. The game these days belongs to investors with strong financial capacity and long-term vision.