In this paper, we will focus in four main factors which had the most impacts on the 2010 residential market in Ho Chi Minh City.

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HO CHI MINH RESIDENTIAL   MARKET IN 2010

(MBA Intake 19)

Lecturers: Prof. Dr. BRUNO PONSON

        

Group 11:

LE NGOC HA

TON THE VINH LOC

NGUYEN HONG TRANG

TRUONG THI NGOC THUY

        

Ho Chi Minh City, 19th February, 2011


CONTENTS

  1.    Overall Ho Chi Minh Residential Market in 2010:

Since Vietnam economic enters the innovation revolution, many markets have been established and developed. These markets contribute to impulse the economic and society of the country. The real estate market is one of the above mentioned ones.  Despite being established for just a short period of time, the real estate market is eventually having a part in improving the usage and business investment in real estate’s effects. There are many sub sessions in this market such as residential session, office session, retail session, etc.  

Although being concentrated in high demand parts, residential session in Ho Chi Minh City last year still was not really recovered. It even, according to the forecast of some specialists, will be quieter in 2011, especially in the first half. In an economy that is just recovering from the financial crisis, there were many factors which helped delay any possible demand recovery. One of the reasons is that there were too many supplies. Residential supply in 2010 has continually increased. Total supply has reached approximately 16,000 units, representing an increase of  74% compared with the entire  year of 2009, of which  78% is categorized as Grade C, which has an average price of  around $780-$810/ sq m.  Expectations are that the supply will keep growing over the next three years , which will put more pressure on project pricing strategies.

Another reason lies in the high price. While there were many factors affecting the price, the buyers wanted to wait to have the possible best price. Besides, most of the secondary investors currently are individual ones, not big organizations. Therefore, when there was fund difficulty, they had to rely on bank loans which led the market to another difficulty. In 2010, there were also some new policies released by the state that affected the market.

In this paper, we will focus in four main factors which had the most impacts on the 2010 residential market in Ho Chi Minh City.

  1. Factors Affected The Residential  Market :

  1.  Gold:

Highly-increasing gold price affected the real estate market in general and the residential session in particular because of the habit of purchasing land and houses by gold. Gold price increasing continuously makes the common market full of mixed information and difficult to orient. People had to halt real estate transaction and wait. Sudden change of gold and dollar exchange rate influenced credit banks, especially the process of loan - debt. In countries over the world where real estate market has a close relationship to currency market and capital market, this influence is very strong and direct. The residential session of Vietnam was not an exception although relationship of this market to other markets was still separate and is not systemized. “Storm” of gold price made a shock which upsets purchase, investment and speculation. This was also the reason why people did not think of their long-term investment in residential session because it was impossible to invest in real estate hastily in this time. Regulations of tightening borrowed funds of banks, problems of regression and inflation caused the investors to become more careful, thus, it made the residential session dull right before the time when “storm” of gold price happens. It was common sense that investors get worried about sudden increase of gold price. Each square meter of land in “gold” land area or “sensitive” land area in Ho Chi Minh City with price of tens of gold tales shall be a very great amount of cash converted to pay for house and land transactions. When gold price increases suddenly, especially when Vietnam dong is not reliable and safe enough, individuals or investors must use method of purchasing real estate in gold or dollar. This is obvious. According to an estimate, real estate transactions in gold still make up 60 -70%. While we still must import 60 tons of gold per year, use of gold for real estate transactions is a waste of investment resource for developing the country. In the situation that gold price increases quickly and becomes unstable as nowadays, there are few transactions of house and land. Many house purchase agreements which have been deposited in gold are broken or canceled because of gold price fluctuation. House buyers and investors who are looking for opportunities to make real estate transactions are very worried when partners offer to sell and request for paying in gold because they worry that gold price continues to increase. While sellers or small real estate trading floors want payment in gold to have benefit of value difference when gold price changes, increases highly… It is difficult to assess exactly this problem because there is no legal document to change the method of transaction which becomes a “habit” in real estate transactions as mentioned above.

  1.  Credit Policies

Viet Nam faced challenges that the recession is direct impacting on VN, the transactions on residential session tent to reduce and go down. This caused a confusion and distraction for everyone to participate, especially in developing markets such as Vietnam. However, the volatility of the economic and turbulent financial markets are factors that the property market can’t bystander. Many loan contracts on the peak, high adjusting interest, real estate prices plummeted, can create a wave of concern that the prolonged downturn. VN real estate market, especially residential session, is a nascent market; therefore, most of transactions are in cash. Installments market is still underdeveloped. People who have residential needs usually pay by cash in once or several times. This is one of basic difference compared to the real estate market in developed countries. Although it is a cash market but as the economy changes, especially the credit policy, the property market is still implicitly at risk. Risk on the property market will impact to the lending activities of commercial banks. In 2010, the government tightened both fiscal and monetary policy in order to curb inflationary pressures. Besides, Central bank also requires credit institutions not to lower loan conditions and strictly in control of loan capital for non-manufacturing sector. Capital requirements for trading in real estate market and stock market or consumption loan and business were more tightly than before. This is why the interest rates for loan raised up to 18% -20%. Investors were “short of breath” and turned away from the residential session when interest rates were too high. Some real estate specialists said that there were only 10% buyers who bought their apartments used them for mortgage because the lending rates of banks were too high. If the short-terms loans from banks to invest a few apartment was easy to earn profit from 40 – 50% after 2 or 3 months and investors needed only pay 10-20% of the apartment several years before, the liquidity in apartment market is very slow while interest rates is higher now. This was reason why investors did not dare to take a risk for real estate investment by loan. One of the basic dynamics of residential session was financing from the banks but the buyer couldn’t suffer high interest of 18% per year. Consequently, real estate lending came to a deadlock and only few transactions performed.

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  1.  State Policies

Another feature affected the residential session this year was the strong increase in State management measures. Three new regulations were issued in the second half of the year: Circular 13 and Decrees 69 and 71. 

Decree 71

Real estate investment sector requires strong and long-term capital. However, the lack of capital is a constant that business activities in this area have concerns.

On 23 June 2010, the Government of Vietnam promulgated Decree No. 71/2010/ND-CP ("Decree 71") guiding the implementation of the Law on Residential Housing dated 29 November 2005. On 08/08/2010, ...

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