Real Estate Market: Challenging Investor Confidence

VNRE - The freezing market has sent down real estate prices in Vietnam but investors do not feel the right time to invest in. According to Mr Stephen Wyatt, General Director of Knight Frank Vietnam, a property consulting company, investors never buy a product when the market is on the peak of a cycle. So, will real estate prices continue to fall more?

Heavy financial pressures

It is obvious that development potentials of the Vietnamese real estate market remain huge. Oddly enough, although the demand is very high, dozens of thousands of apartments are unsellable. This is because owners do not want to sell on expectation of higher prices while buyers want to wait for lower prices.

Indeed, this is possibly the best opportunity for long-waiting foreign investors to invest in. Currently, many foreign investors are ready to take over property projects invested by Vietnamese companies. At present, pressures are placed on the shoulder of domestic investors as they have to seek capital to ease financial strains.

Although prices have fallen to the lowest level in the past two years, it is hard to find a meeting point of buyers and sellers. The supply of well-located and affordable projects is thin, and vice versa.

Under this circumstance, both domestic and foreign investors prefer standing on the sideline and waiting for better policies. And, patience is seemingly rewarding when the State Bank of Vietnam (SBV) announced to cut ceiling deposit rates by 100 percentage points, laying the ground for the cut in lending rates. This is also the basis for many property experts to believe that the real estate market will recover towards the end of this year.

Medium and long-term opportunities

Remarking on the medium and long-term real estate market, Mr Stephen Wyatt said opportunities for investors are optimistically open. “We are seeing strong demand for many of the investments, land and developments sites that we are currently selling. With renewed optimism and a return of confidence, 2012 is the time to start looking at investing in Vietnam”.

The Vietnamese real estate market essentially enhances transparency and market laws to mitigate risks for domestic investors. The lack of transparency will lead to hearsay-based investment decisions.

Real estate companies, particularly small and medium ones, lack administrative systems, especially risk management. The lack of operating professionalism is a reason why they difficultly access capital sources and do not have the trust of customers. Thus, according to experts, real estate companies necessarily restructure to have healthy market development.

Mr Nguyen Huu Cuong, Chairman of Hanoi Real Estate Club, said: The property market will soon recover if the stock market gains stable growth and investor confidence as it is now.

He said the stock market and the property market always have close interactive relations. Positive development of the stock market will be clearly translated into the revitalisation of the real estate market. Thus, if the current growth of the stock market is maintained and continued, capital flows from this market will surely run into the property market.

However, it is extremely hard to identify what factors will determine the recovery of the real estate market. Real estate investing is typically driven by herd sentiment in Vietnam. Investors will jump into the market if they feel it is good enough but they will rush to exit if they lack confident. Hence, according to experts, the instability of the market is not over.

Reported by Luong Tuan | VCCI News