Vietnam Real estate bubble – the accessory to inflation

Last update 23/11/2010 03:43:17 PM (GMT+7)


Real estate bubble – the accessory to inflation
VietNamNet Bridge – The real estate bubble is the accessory to inflation, and it should be considered as the “dangerous germ” which must not be allowed to live together with a healthy economy.

Minh, a securities investor, who went bankrupt due to the continued drops in stock prices, has unexpectedly got rich again. Several days ago, he came to a friend’s party as a real estate billionaire. Minh related that after he lost big sums of money on the stock market, he decided to sell all the remaining stocks he had. With the sum of money from selling shares, he bought 200 square meters of land near the Bao Son Paradise area in Hanoi at 30 million dong per square meter. Now he can sell the land plot at 60 million dong per square meter. If he sells the land plot right now, he will get a huge profit of six billion dong – the dream of many businessmen.

Living on virtual values

In theory, Minh’s sum of money has increased by two times. Meanwhile, the 200 square meter of land will still be the same and it has not been enlarged. The increased value can be described as a pumped ball that will return to its initial shape when it goes flat.

However, in urban areas, hundreds of thousands of people are living on the “bubble”.

The real estate fever not only has attracted professional real estate traders, but also individuals, both Vietnamese and foreigners. Even regular employees in state agencies have also jumped on the bandwagon.

Wealthy people rush to purchase land and keep land as valuable assets. People with lower income rush to purchase land to resell land later for profit. As for many ordinary workers, the money from trading land, not daily wages, is now the main income for their families.

No official statistics have been released, but it is estimated that the volume of traded land has reached several millions hectares with the added value of 30-40 percent. The value of the land may reach tens of trillions dong which obviously accounts for a big proportion in GDP.

The real estate bubble is feeding millions people.

People have their pockets picked

While millions people are getting richer thanks to the real estate bubble, another millions people are losing their opportunities to have accommodations.

A civil servant related that he has nearly one billion dong now deposited at banks. He has been saving money for the last 20 years and he hopes he can buy a mid-class apartment in the suburb area. However, he could not imagine that the real estate price would increase so dramatically. At the beginning of the year, an apartment in the area was priced at 20 million dong per square meter. Meanwhile, the price has jumped to 30 million dong. As such, with his sum of money, he would only be able to buy 30 square meters instead of 50 square meters as he previously thought.

According to experts, a reasonable sale price of apartment in multi-storey buildings (25-30 stories) is about 20 million dong per square meter which is high enough for real estate developers to cover expenses and generate profit. However, in fact, apartments are selling at 30 million dong per square meter.

As the price of real estate keeps rising, regular employees are getting poorer. Previously, they could purchase an apartment after 10 years of working, but now, they need 15 years or 20 years to buy an apartment.

The real estate price increases have brought about the increases of all other kinds of goods. House tenants have to pay higher rents, while the prices of materials, equipments all increase. The service fees of education, healthcare and transport all increase accordingly. The “price storm” is attacking every corner of society. It is obvious that the real estate bubble is the accessory to inflation.

A dangerous germ

In 2008, the US witnessed the worst financial crisis in the last 80 years. The crisis originated from a swelling real estate bubble.

Experts have warned that recently the real estate market in Vietnam recently has shown characteristics similar to the US real estate market during the crisis.

People are still rushing to purchase real estate which in turn is leading to virtual growth (the actual value does not increase). If the situation does not improve the real estate bubble is due to burst in a matter of days.

In the world, every family spends 33 percent of their monthly income to pay debts for their house. Meanwhile, in large urban areas in Vietnam, the figure may reach 80 percent.

Experts have warned that a debt crisis is likely to occur in a economy where people have to spend most of their income on accommodation.

Phan The Hai

http://english.vietnamnet.vn/en/business/1854/real-estate-bubble---the-accessory-to-inflation.html

Vietnam: Oversupply in resort real estate market

Last update 23/11/2010 09:00:00 AM (GMT+7)

Oversupply in resort real estate market


VietNamNet Bridge – The Ministry of Planning and Investment has requested local authorities to check the resort real estate development projects in their localities and report back to the ministry. The move has been understood by the public as the warning about the possible excess of the resort real estate projects.

The wave of developing resorts

Market surveys all show that in the past five years, the resort real estate market has been developing rapidly and going beyond the expectations of the management agencies.

Five years ago, there were only several resorts, namely Mui Ne Domaine, The Nam Hai (in Binh Thuan province), or Olalani, Indochina Riverside Tower in Da Nang, and some in tourist cities of Nha Trang and Vung Tau. Most of them were foreign invested projects.

However, the market has welcomed a lot of new investors, both foreign and domestic, over the past five years. The investors hope for big profit.

According to CBRE Vietnam, a real estate service provider, by the end of 2010, Vietnam will have some 55 resort real estate projects which will provide 5318 villas and 6601 apartments.

The figures make people believe that the resort market has become too hot.

In the region, Thailand is considered to have developed resort marketvery early. However, in Phuket, a famous tourist site for the past 20 years, there are only 5624 resort villas and apartments. Meanwhile, in Vietnam there are already 3745 apartments and villas in the central region. In fact, the number of high grade apartments and villas there is even higher than that in Phuket, 253 vs 135.

General Director of CBRE Marc Townsend described the investment wave as the “tsunami” which has landed in Vietnam.

It seems that people now prefer injecting their money in real estate projects to other investment channels, such as gold or securities, because they believe that real estate development can bring larger profit.

More harm than good

An expert from CBRE said that it seems that Vietnamese real estate developers have been too busy to develop the number of villas or apartments, not paying much attention to the quality.

Once the supply far exceeds the demand and goes beyond the management capability, this will be a big trouble.

An official from the Ministry of Planning and Investment said currently Vietnam has nearly no more land left along the coast, especially the localities with good infrastructure such as Da Nang and Binh Thuan.

This seems to be the blunder made by local authorities in the past. They hurried to call for investment by allocating beautiful land plots. many investors were allocated the land, even when they were not capable of carrying out their projects.

Under the current regulations, investors have to obtain permission from the Government only if their resort projects cover more than two hectares. Therefore, investors only register the projects with less than two hectares. As the result, the beautiful seaside has been divided into small plots.

The excessive development of the resort real estate sector, according to experts, may do more harm than good. Investors should be informed that the number of foreign guests and secondary investors is not has high as expected, as only 15 percent of resort real estate projects have been sold to foreigners, according to CBRE.





http://english.vietnamnet.vn/en/business/1819/oversupply-in-resort-real-estate-market.html

Vietnam: High grade apartment prices going down on profuse supply

Last update 08/11/2010 04:29:23 PM (GMT+7)

High grade apartment prices going down on profuse supply

VietNamNet Bridge – The more profuse supply and the lack of investment capital both have forced real estate developers to ease sale prices to attract more buyers.

Real estate developers have to slash sale prices

FLC Company has announced the plan to put apartments at FLC Landmark Tower project on Le Duc Tho Road in Tu Liem District on sale for the second phase. The apartments are being offered at 28 million dong per square metre. The registrations to buy the apartments should be made from November 1, 2010 to November 15, 2010.

According to FLC, the price of 28 million dong per square metre has been kept unchanged if compared with the price set for the second phase of sale, even though the prices of construction materials, and the prices of gold and dollar have increased sharply. Meanwhile, buyers would get the credit support from the Bank for Investment and Development of Vietnam (BIDV) and Techcombank. The two banks promise to give the loans worth up to 85 percent of the values of the apartments.

The fact that the prices remain unchanged – though in fact, if set against the dollar and gold prices, they have even decreased – shows the difficulties currently faced by real estate developers.

Not only the developer of FLC Landmark Tower decides to keep the sale prices unchanged. Other developers have also been trying to attract customers by launching promotion campaigns and offering other discounts to buyers.

Capitaland Ha Thanh, for example, the developer of Mulberry Lane project in Mo Lao town in Ha Dong District, has decided to offer the price discount of 10 percent to  thouse who buy two apartments at the same time.

Besides, buyers will be able to borrow money from VIBank to purchase the apartments. The values of the loans could reach 65 percent of the values in the contracts, if borrowers mortgage the apartments. The values of loans could even reach 90 percent of the values of contracts, if borrowers mortgage other kinds of assets for the loans.

Most recently, Lam Vien Company also announced that the actual sale prices of the high grade apartments at Richland Southern will be five percent lower than the initially announced prices. Moreover, buyers will also have the right to delay the process of making payment and be exempted from the management fee for the first two years.

Last week, a transaction selling a 170 square metre apartment at TSQ project in Ha Dong District was successfully carried out. The apartment was sold for $1150 per square metre, what real estate brokers in Hanoi consider as the lowest price among all the projects in the last six months (the project is expected to be completed in June 2011).

The gap between the original prices (the prices at which real estate developers sell apartments to buyers in the primary market) and the prices in the secondary market (the prices at which the buyers sell to other buyers in the secondary market) has narrowed by more than 50 percent. For example, the original price of a 104-square metre apartment at Usilk project is $850 per square metre. Previously, the gap between the prices was just 350-500 million dong, while now the gap has reduced to 150-160 million dong ($80 per square metre)

In the golden age of the high grade apartments ( in 2007 and first half of 2008), real estate developers announced new sale prices once every three months, and the new prices were always higher than the previous ones. By doing so, analysts say, they made people think that the prices would increase further in the future, thus prompting them to rush to buy apartments.

However, they have to change their strategy now, when the market has cooled down due to the global economic recession.

According to CBRE, a real estate service provider, in the second half of 2010, 10,000 new apartments in Hanoi were put on sale, raising the total number of new apartments on the primary market to 20,000. CBRE believes that the profuse supply will keep the apartment sale prices stable from now to early 2011.

P.V

http://english.vietnamnet.vn/en/business/1223/high-grade-apartment-prices-going-down-on-profuse-supply.html

With high grade apartments unsalable investors’ money remains buried (Vietnam)

With high grade apartments unsalable investors’ money remains buried

Last updated: Tuesday, October 6, 2009 |
VnnNews – Though prices of luxury apartments have been decreasing sharply, the demand for expensive products remains low.

Speculators complain capital has been ‘buried’ in apartments as they still have not been able to sell them for the last several months.

Phan Ha, an investor in district 1 of HCM City, said that he has two unsold high grade apartments worth nearly 6 billion dong ($20,761) at Blooming Park building. When it was launched, Ha had purchased the two apartments at 30 million dong per square metre as an investment.

However, to date, Ha still cannot sell the apartments, and the apartments’ prices have not seen any increases.

However, the address and location would appear to still be fashionable. Blooming Park is located next to Thu Thiem new urban area and the Metro Supermarket. Besides, the land area is not far from the East-West Boulevard, Thu Thiem tunnel, the belt road of Phu My Bridge and Tan Cang Industrial Zone.

Ha still cannot find buyers even when he is offering to sell the apartments at the original prices. However the prices at 2.8 billion dong ($164,700) and 3.1 billion dong ($182,352), still remain unattractive to buyers.

Other projects have also left products unsalable. Director of Tran Nao Branch of Vinaland Nguyen Xuan Loc said that high grade apartments are not proving popular these days. Few appear interested in the apartments at The Vista, Riverside or Sunrise projects.

Explaining the lack of lack of attraction, Ngo Duong Hoang Thao, Chairman of Dai Dong Duong Consultancy Company, said the supply of high grade apartments has exceeded demand.

Nguyen Thi Thanh Huong, Director of Tin Nghia real estate trading floor, said there has been little interest in high grade apartments on her trading floor, however, land plots are selling very well.

According to Thao, the main buyers of high grade apartments are secondary investors, who hope that they can sell the apartments later for profit.

However, secondary investors are quiet after suffering losses on other deals and the economic downturn has made people poorer, thus unable to afford expensive houses.

Meanwhile, low cost apartments are selling well. Le Thanh Company has sold its 134 apartments in Binh Tan district easily. The company’s Director Le Huu Nghia said that the apartments have been selling well due to their reasonable price of 6.5 million dong ($382) per square metre which is much lower than $1,300-2,000 per square metre of high grade apartments.

Phuoc Ha

http://www.vnnnews.net/with-high-grade-apartments-unsalable-investors-money-remains-buried