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Real estate market decelerates, but optimism still exists

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Hanoi and HCMC each year between 2018 and 2020 will receive 110,000 new households, adding to the demand for houses and apartments. 

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The real estate demand is still very high

 

The weaker selling power of apartments, condotels and land plots, plus the ‘hibernation’ of speculators all have raised concern about a real estate bubble.

VnExpress cited a report as showing that the apartment demand in HCMC decreased sharply by 30 percent with only 7,000 apartments sold in the second quarter, while the inventory level of condotels was once up to 90 percent. 

As for land, the transactions in the eastern part of HCMC, in districts 2, 9 and Thu Duc in the second half of Q2, were equal to 40 percent of that in April.

VnDirect Securities, in its latest report, though admitting the slowdown of the real estate market, still shows optimism. It pointed out three ‘bright parts’ of the real estate market panorama.

First, the demand for houses is still strong in Vietnam. It is estimated that Hanoi and HCMC will receive thousands more households from migration, urbanization, and changes in population structure. 

Vietnamese youth now tend to live separately from their grandparents and parents and escape the multi-generational family model. As the average income of Vietnamese people in on the rise, houses and apartments have become affordable to many more users.

Second, the government maintains heavy investments in transport infrastructure.  Vietnam’s spending on infrastructure, according to ADB, was among the highest level in Southeast Asia, about 5.7 percent of GDP in 2010-2016.

The improved infrastructure system helps connect belt roads, suburbs and the central areas. Third, the lending interest rate is not high enough to put pressure on the demand in the short term. 

VnDirect cited a report of CBRE as saying that the interest rate of loans to fund houses had increased to 11-12 percent per annum by the end of Q1 and may reach 13 percent in 2019.

In theory, the interest rate hike would affect the real estate purchase in the medium and long term.

However, the increase in workers’ income, estimated at 13.2 percent each year in 2018-2020 by the World Bank, will allow house buyers to pay principal and interest of the loans at 45-50 percent of total income.

Meanwhile, some economists say they do not see reasons to be optimistic. 

Nguyen Tri Hieu, a banking expert, at a workshop held in late Q2, warned that the real estate bubble will take shape if loans continue flowing into the real estate market.

Hieu thinks that when the real estate price soars by 100 percent within one year, this means signs of a real estate bubble.

 

Source: VNN

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