» » Seeking Development Model for Vietnam Real Estate Market

VNRE - The international workshop, “Housing development and real estate market – international experience and options for Vietnam” recently held by Ministry of Construction in Hanoi, is designed to identify the most appropriate development model for Vietnam real estate based on experiences of other countries. This is especially important in the context of Vietnam’s real estate market being regarded as the thermometer of the economy.

Lessons from foreign markets

As Vietnam’s economy is further integrated, its internal economic activities are more influenced by fluctuations of the world economy. The real estate market is particularly sensitive to economic policies. The global financial crisis arising in America was rooted in the real estate market’s breakdown. According to Doctor Halibu Khan – Chief of Economic Doctoral Training Programme of Singaporean Educational Complex, World Bank’s Supervisor, America’s failure controlling growth of the real estate market caused the “bubble,” prices were pushed up immoderately – in only 16 years housing prices in America increased fivefold – which resulted in the American financial market’s breakdown and then the world economic crisis.
Since joining the WTO, Vietnam’s economy has made great progress in attracting foreign direct investment and fostering export activities. However, Vietnam is not out of reach of the world’s economic crisis.

Although economic stimulating aid had great positive impacts on the economy, it also worsened the financial balance sheet due to the rapid spreading of domestic credit. The active participation of giant domestic corporations in the real estate market significantly increased the risk of a “bubble.”

“Singapore is a developed industrialized country but it does not depend on outside capital. Singapore says no to ODA capital, but concentrates on FDI attraction. As for the real estate market, the Government pays special attention to settling housing for residents. At the moment, 82 percent of households live in public apartments and 90 percent of the population own houses,” added Mr Khan.

Similar to Singapore, Hong Kong Authority aimed to provide long term housing for residents, despite limited land area in Hong Kong (China). According to statistics in 2009, 47.1 percent of the population lived in public apartments, in which 29 percent rented and only 18.1 percent lived in private houses subsidized by the government. Balancing supply and demand helped the Hong Kong real estate market avoid a bubble.

Diversifying capital channels

The issue of capital for the real estate market drew a lot of attention from representatives. As of July 2010, commercial bank loans for investment in real estate were VND210,770 billion (US$10 billion), with a bad debt rate of less than two percent. Considering the market demand, this is not a large number.

In the developed and saturated market of Japan, the government always encourages private capital in urban development to stimulate market development. The government will assist with soft loans at zero or low interest rate, by directly joining projects, as well as lend long term capital at low interest rate through the Japanese Development Bank.

Besides, the real estate market receives huge financial assistance from other channels such as real estate valorisation and real estate investment trusts, which are effective capital attraction channels for private real estate developers and construction companies. As for public works, especially infrastructure construction, national and local budget will make investment by issuing bonds.

Considering the Hong Kong real estate market, despite many difficulties after the crisis, banks still lent with securities to stimulate investment. Therefore, in 2009, while economies around the world worried about dealing with the crisis, the number of Hong Kong real estate contracts signed soared by up to 20 percent.

The governor formed a control and oversight office for the market and built a real estate price index on the basis of repeated transactions, not allowing a bubble to happen.

According to Mr Nguyen Tran Nam, Deputy Minister of Construction, the ultimate model to stabilize and develop the Vietnam land and housing market is to create a housing savings budget. Accordingly, each wage-earner, whether a homeowner or not, will pay about one percent of monthly salary for a housing fund, which will be returned to them when they retire. The government will use this fund to provide housing for low income earners.

Reported by Luong Tuan | VCCI

Post a Comment