Hanoi real estate market: inflated bubble unlikely to burst

Ahead of numerous difficulties, many investors are very pessimistic about the ‘bubble burst’ of the Hanoi real estate market. However, for many people, even investors, the real estate is just experiencing a tough test and the ‘bubble’ cannot burst ou

On the fall

The sinking liquidity of the Hanoi real estate market is revealing difficulties facing the market. Remarkably, a lot of upmarket apartments are being sold off while prices of foundation soil are going down after a period of resistance. This is sending many investors to a more terrible dilemma.

Given a current context, slow sales are forecast to stubbornly persist. Even people with real demand delayed purchase decisions, worsening the gloomy future.

Meanwhile, many retail investors have to sell off their investments because they cannot bear further loss while the market outlook is pessimistic. Explaining this broad slump, Mr Nguyen Dinh Toan, Deputy Director of AZ Real Estate Company, said the capital source for real estate has been squeezed. Besides, commercial banks are reducing loans for non-manufacturing sectors to 22 percent of their total loans, thus narrowing capital flows for the real estate market.

Without enough funds from banks, many project investors have to push up sales because of insufficient capital. As a result, they have to accept price cut.

Some experts thus recently recommended that the Vietnamese real estate market in general and Hanoi in particular are facing a threat of bubble. Totalling up hundreds of projects in the capital city, the demand is not that much.

Mr Nguyen Duc Thanh, a member of macroeconomic advisory group under the National Assembly Economic Commission, said: The property market held up at price levels in a long time is accumulating risks of bubble. It is dangerous that the property market, which has a small real capital but is driven by domestic and foreign finances, is accruing banking system risks, which will in turn harm the whole economy

Shocked but necessary

Although property price has plummeted, land price in Hanoi still remains high, said Professor Dang Hung Vo. In the long term, it will definitely fall and impossibly stay this high for ever. This is the opportunity for homebuyers to look for the true value of real estate.

The real estate market is lacklustre because cash flow is restricted because the State Bank of Vietnam (SBV) is adopting credit crunch policy stave off inflation. Meanwhile, buyers are now very hesitating and they tend to wait for lower prices. The market will be further dragged on because of credit factors in couple with psychological factors. Indeed, this is a testing period because the demand for land and housing is high.

Price cut is primarily applied to newly established projects, underway projects or far-lying projects. On contrary, dealings are relatively active in business districts where sold houses are already completed. This points out that the demand is actually high and customers are seeking for good houses to buy. Thus, the formation of real estate bubble is unlikely because most projects are offering relatively good prices, which are reportedly near to real values. As a result, the price fall will likely be little.

Although credits for real estate are squeezed, good projects are easily raising funds and selling houses. Price slumps are occurring in some segments, not the entire market. Hence, the ‘bubble’ is unlikely. Besides, the credit for real estate is crunched but it is not completely blocked. Investors can borrow at high interest rates, currently hovering at 26 percent per annum. If investors have good projects, they can still seek out credit sources. Moreover, some investors are buying in on hopes that the market will rebound as the demand remains high. Mr Nguyen Manh Ha, Director of the Housing and Real Estate Market Management Department under the Ministry of Construction, said the real estate market will face more difficulties because of the tightened credit policy adopted by the Government. “But I do believe that the market will still find a way out although the situation is difficult. Businesses and people still have accepted that situation,” he added.

Possibly, investors are unable to win in all real estate dealings as before. Now, they must prepare very carefully before involving in it, particularly financial issues. Production and business plans must be based on market demand and on fundraising outlook. – VCCI

Tags: Hanoi real estate market, Vietnam Property market, vietnam real estate market