Aiming for a realty market with real supply & demand

To understand more clearly the realty market in 2010 and trends for 2011, Vietnam Business Forum reporter Luong Tuan interviewed Professor Ph.D Dang Hung Vo, former Deputy Minister of Natural Resources and Environment.

Hanoi’s real estate market made big changes in 2010 with wide fluctuation in price causing unstable outlook. In your opinion, which is the major cause behind it?

During 2009 and 2010, the realty market lacked capital and met difficulties making profit. As a result, the market was sensitive to policies or planning, particularly the capital city’s planning. A new policy often attracts attention of investors and customers in order to study what benefits and advantages the new policy can bring for them. Decree No. 71/2010/ND-CP detailing and guiding the implementation of the housing Law, and Circular No. 16/2010/TT-BXD guiding the implementation of the Decree have received both praise and blame from realty investors and customers. Similarly, investors also pay special attention to planning and planning adjustment because they are all opportunities to get more profits in the realty business. In fact, planning plays an important role in raising property prices, because the property value depends on mainly the value of invested infrastructure in each region.

In 2010, the master planning of expanded Hanoi entered into the final stage with collecting opinions of the public and meetings of experts and managers on adjustment of a number of works. Despite being at the discussion stage, the capital city’s planning caused a partial fever of land in some places. On a large scale, most areas which are in the planning scheme as future urban areas have seen land fevers, for example the west of Hanoi, outlying regions of Dong Anh, Gia Lam. The western region of Hanoi became particularly “hot” because of the rumour that the capital city’s administration zone would be moved to Ba Vi and the construction of a route linking West Lake and Ba Vi along with four different urban areas. For that reason, land prices in Ba Vi region increased promptly, including cultivation and forest land. Land prices along the axis of West Lake-Ba Vi were also pushed up following predictive opinions on the route linking the two places.

As analyzed above, the fluctuation of Hanoi realty market can be attributed to the following causes:

1. A lack of capital leaves the real estate market sensitive to any policy or planning. Investors as well as small individuals all pay attention to planning with wishes to get more profits than current benefits. Thus, they take advantage of any information to claim valuable slots.

2. Planning information was not clearly and openly transmitted to people, opening the way for misinformation. So far, the master planning of Hanoi capital city has not yet been approved by the Prime Minister, although most people assume that anything submitted to the government will be ratified.

3. Vietnam’s realty market has not yet operated professionally. Local investors tend to use tricks in order to get profits instead of outlining long-term solutions for development. In addition, customers have limited knowledge of law and policies. The crowd effect is still a prime mover of customers, with land fevers in Ba Vi and the west of Hanoi as examples.

In 2010, investors attended different segments of the market. Do you think that this was a positive signal of the market?

The realty market is a large concept, including property on land regardless of countryside or urban region. Property on land can be agricultural products, industrial and service zones, technical and social infrastructures, accommodations and so on. But in Vietnam for a long time, the realty market is primarily the housing market because it is the most profitable segment for investors. In the segment, investors mainly focus on luxurious housing due to super profits coming from speculation activities.

In 2009-2010, the realty market faced a lack of capital. The government’s stimulus package contributed to boosting the demand of social housing segment and that for low-income people in urban areas. Besides, investors also cooperated with commercial banks to provide credits for buyers. Last year, a number of small investors built private apartment blocks with cheap prices, contributing to raise the supply of this realty market segment. Moreover, as the market lacked capital for development, speculators curbed their operations. As a result, both the market’s supply and demand will become more accurate. The segment of apartment started to drop in price. This is good chance for the mass housing segment to develop. Decree No. 71/2010/ND-CP detailing and guiding the implementation of the housing Law and Circular No. 16/2010/TT-BXD have created legal foundation for this segment’s development. Many investors have poured capital into the segment.

In my opinion, 2010 was a positive year for the development of Vietnam’s housing market with the appearance of sound signals towards a realty market with real supply and demand. The strong growth of the luxury housing segment has started to gradually move to the segment of mass housing.

Transparency in the realty market last year still failed to meet investors’ expectations. Information was still suppressed. What should be done to solve this issue?

The requirement of disclosure and transparency in land and property management in Vietnam has been appreciated in the law-making process. It has been specified in the law on land relating to procedures on land registration and use, as well as on land transaction, and conversion of land use purpose. The requirement is also defined in the law on construction and the law on housing. For the legal aspect, Vietnam still lacks rules on disclosure and transparency in investment projects (from setting up project, finding a site and implementation), information on realty. Importantly, the legal rules have been strictly obeyed. Enterprises in fact suppressed information involved in planning as well as investment sites. Investors often found it difficult to locate investment sites and, in spite of spending generously to work with all levels of local government, sometimes they are still not able to find a suitable investment site. Residents also meet many difficulties with registration procedures of land.

In contrary, investors do not want to make public all information of their project. The reason is attributed to priorities of managers and possible implicit deals with speculators.

Vietnam’s transparency index 2010 was ranked in the 4th group out of total five groups. In ASEAN, Singapore and Malaysia were ranked in the group of transparency (the 2nd group), Thailand, the Philippines and Indonesia were named in the third group (half-transparency). To improve the situation, Vietnam needs to recheck and adjust the legal framework on disclosure and transparency in the realty market in line with international rules; offer policies on enforcing such laws and policies through check and supervision of administrative organizations, non-state agencies and individuals. There is the mechanism of punishments on over violators and the need to push up the computerization of realty market management via building the system of e-management.

How do you assess the realty market for 2011?

The realty market in 2011 will not immediately escape from lack of capital. Long-term solutions to capital shortage, such as increasing the use efficiency of FDI capital or allowing property mortgage at foreign banks are not possible to carry out. The solution to purchasing houses on paper is also not effective. Some people tend to reserve idle money in gold or foreign currency but others still continue their habit of using savings to invest in realty. Thus, in my opinion, the realty market in 2011 will continue some scenarios of 2009 and 2010, but with a quieter atmosphere. The lack of capital will more strongly influence the market. Transactions in the segment of cheap-price housing will increase, while those of luxury apartments will decrease. Hanoi’s realty market in 2011 will be similar to that of Ho Chi Minh City last year.

However, in years to come, it will be difficult to have more policies or planning which will strongly impact the realty market, because of the simple reason that strong measures are not yet suitable for the situation.

Vietnam Business Forum would like to introduce ideas of experts about this issue:

”Self-improvement and in-depth investment,” Chau Thi Thu Nga, Chairwoman of Housing Group 2010 was a hard year for Housing Group. To recover and develop, we defined the necessity to rearrange the whole group and prepare for production measures which were the most suitable for the market’s development. Housing Group focused sources on the major business field, as well as strengthened the structure in order to turn challenges into opportunities.

Almost all enterprises met with difficulties in capital and business market. The influences and responses of each enterprise were different. For itself, Housing Group concentrated on improving internal force and deep investment via market studies. In parallel, we still offered suitable business measures in order to assert status on the market. Thus, although last year was considered a difficult year for the business community in general, it was a successful year for Housing Group. 2010 was also an important transitional year for Housing Group to develop a strong foundation for 2011. So far, we have transitioned to the model of group.

“Aiming at Hanoi market,” Hoang Quang Huy, Director of Planning and Investment – Binh Chanh Construction and Investment JSC (BCCI)

The realty market of 2010 marked many great turning points on cost planning and with projects booming. The northern realty market was still attractive to investors at home and abroad.

The realty market in Ho Chi Minh City passed the hot period and gradually became slower. Certain segments of apartment were saturated. Meanwhile, the market in Hanoi continued to increase day by day, particularly after the fluctuation of gold price and interest rate.

Our company is expanding business scale toward Hanoi’s market in order to help investors and customers access products and services in the best manner. Currently, the BCCI is offering apartments in urban areas of Phong Phu 4, Binh Hung, Nam Saigon. With the advantage of comprehensive infrastructure, wide roads and connections with many surrounding urban areas, the realty market in Hanoi promises great potential. Investors expect good signals from the market in 2011. – VCCI

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