» » » Real Estate Market and the Challenge of Extravagant Prices

VNRE - One factor leading to the instability of Vietnam real estate in the past years extravagant prices. Meanwhile, policies to curb the heated growth of the realty market fail to catch up with the development. This is a big challenge for market managers in a bid to meet the real demand of people.

Questioned about the effects of extravagant prices over realty demand of the people, Deputy Minister of Construction Nguyen Tran Nam said that currently the realty price has exceeded the payment capacity of people, expressing that this is a shortcoming of the market.

Not yet in control of the market

Although authorities have offered a lot of measures to curb the heated growth of the market, the real estate market has characteristics unlike other goods markets. Property is a long-term product. Realty traders also pay attention to nothing more than profit. In terms of managers, it is not easy to harmonize the enterprises’ profits and the people’s demand and benefits.

In fact, the property price in general and the housing price in particular in big urban areas is much higher than average incomes, and also extravagant compared to its real value. The extravagant price of real estate allows the market to become a playground for speculators.

The extravagant realty price also pushes up risks for buyers. Under the rule, the criteria to assess the risk of housing investment are the rate between the loan interest a family pays and their monthly income. Accordingly, the rate of families with medium income is one third, meaning they must spend 30 per cent of month income for paying loan interest. However in Vietnam, the rate is currently one eighth and right for families with good income. The figure shows the risk of housing investment is very big, possibly leading to a large scale debt crisis.

The extravagant realty prices are attributed to many causes; mainly increased input prices. Investors trend to decide the prices of their products by themselves, depending on different periods and market demand. Some investors, in a bid to maximize profits, use tricks to pump the prices, contributing to the fact that the realty prices are farther and farther beyond the capacity of buyers who have real demand.

The situation has existed for a long time. Explaining this, some investors said they had spent hundreds of billions of dong for each realty project while it takes from three to four years, even five years, to reclaim investment capital, excluding other huge expenses for site clearance, license and design. All expenses are added to the selling price and the real buyers will be the disadvantaged.

Deputy Minister Nguyen Tran Nam said that amid the devalued money, plus with the instability of gold and foreign currency markets and the stock market failing to attract more investors, the realty market is currently a secure choice. Apart from the above-mentioned causes, speculation, rumours and mob mentality also drive the extravagant realty prices.

Need to raise market management capacity

Present challenges in the realty market are mainly due to weakness in planning. The tax is not enough heavy to curb land speculation. The lack of transparency in providing information relating to land leads to many negative influences. In fact, many experts are unable to predict the real demand for realty in the Hanoi market.

Realty experts also said that Vietnam has not yet had a policy to adjust the housing market in order for balanced development, particularly the adjustment of price and segmentation. The buyers with real demand meet financial difficulties while the able buyers speculate properties, contributing to pushing up prices.

The lack of orientation in the realty market has social corollaries, as millions of households with real demand for housing are unable to buy their own apartment, creating difficulties in meeting people’s housing demand.

To settle with the situation, experts recommend Vietnam should raise the capacity and effectiveness of state management over the realty market; focus sources to build more housing segmentation and social housing programs; provide information relating to land and housing market, as well as inspect and timely punish violations in investing and trading properties.

Reported by Luong Tuan | VCCI

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