Advanced real estate will meet obstacles due to decline in purchasing power

VCN – Specialist Huynh Anh Dung, Advanced lecturer of Council of Residential Specialists (USA) talked with the Customs News on issues relating to the real estate market in 2017
advanced real estate will meet obstacles due to decline in purchasing power 2017: Waiting for affordable housing
advanced real estate will meet obstacles due to decline in purchasing power Real estate capital still dependent on banks
advanced real estate will meet obstacles due to decline in purchasing power Cheap real estate still in low supply compared to middle and high-grade
advanced real estate will meet obstacles due to decline in purchasing power

With the results from attracting FDI into real estate in the first quarter, 2017, What do you think about the attractiveness of real estate in Vietnam to foreign investors? How will the real estate market be from now to the end of the year, sir?

In the view of a real estate specialist, I found that the real estate in Vietnam is really attractive to foreign investors, because Vietnam is a developing country with high population growth rate, especially in big cities, the demand for housing is almost poor for affordable housing segment, especially low income, and middle-income housing segments. When investing in real estate in Vietnam, investors often focus on favorable locations because Vietnam has more geographic advantages than Laos, Cambodia, and Thailand. The potential for real estate development in Vietnam is very big, for long-term business plans, real estate market in Vietnam is still attractive. Therefore, it doesn't surprise for the rapid increase in FDI in the first quarter of 2017, this is a good sign.

Regarding the market trend from now to the end of 2017, I think that the luxury housing and ultra-luxury housing segment may be constrained by the decline in purchasing power. However, the average price of affordable apartments is about 1-1.2 billion VND, which is the tendency to meet the high demand of the society and this segment has not enough to supply the market, so it will still be the hot segment in the future.

Besides positive signs, the real estate market in early 2017 has negatives signs, in which, the emergence is the phenomenon of disputes and lawsuits between investors and residents on issues such as charges for maintenance, apartment area, and other benefits. As for you, why is this phenomenon?

The disputes and lawsuits between investors and residents in the current time caused by three reasons:

Firstly, Permission to sell real estate products which will be constructed in the future. This is a strange thing which the world people have no idea. Normally, in the world, the investors are only entitled to sell apartments when the project is almost completed, the Government has strict sanctions to avoid the risk to customers. However, in Vietnam, the sale of houses which will be constructed in the future causes a lot of risk to the buyers and buyers feel almost being in passive position.

Secondly, the sale of the house is also supported by distributors and brokerage staff. The question arose that, if the investors “abandon the ship”, or the project fails while they were sold by distributors, so if the disputes occur, will the distributors and brokerage staff be liable for? There have been too many disputed projects from 2007 and 2008 and continued to into 2015 and 2016. In 2017, there will be many disputes between buyers and buyers.

Thirdly, about 70% of homebuyers are speculators, and these speculators are distorting the market and pushing the house price up, so that people who really need, they cannot afford to buy products. Therefore, in the fourth quarter of 2016 and the first quarter of 2017, the market has decreased and in 2017 the market may face many difficulties and risks because the large supply exceeds the demand, the structure and price of the product are not appropriate and not accessible to the home buyers.

advanced real estate will meet obstacles due to decline in purchasing power
The real-estate in Vietnam is still attractive. Photo: S.T

Relating to real estate credit in 2017, according to Circular 06/2016 / TT-NHNN, real estate credit begins to encounter difficulties. In order for the capital for real estate is not much dependent on bank credit, the Vietnam Real Estate Association has set a target that in the 2016-2020 term, they will try to set up a real estate investment fund. How do you think about the above movements?

The effect of this Circular is not clear at present, but in the long run, this circular will have a certain impact on the Vietnam’s financial market. Currently, some banks are raising deposit interest rates to attract idle funds from the people and of course, when the banks raise deposit rates, they must naturally raise the lending interest rates. This will greatly affect the real estate market, because the interest rates for real estate loans are high, and the investors do not have a solid financial plan and are not ready for a long-term plan, they will naturally meet difficulties.

The establishment of real estate fund in Vietnam is very encouraged. And questions raised that who is the owner of the fund; who are the fund’s supporters and will the fund’s operation be operated on the basis of market interest or fixed interest described by the fund’s founders.

Affordable housing and social housing do not actually meet the needs; how should this problem be solved in the future?

The Government and social managers have been concerned about social housing since 10 years ago, but the archived results were not much. If we find the causes and recovery measures, this problem will be solved.

First of all, we do not have appropriate support policies (eg real estate fund and social housing support funds). While all countries have a fund for social housing development, but Vietnam do not have it. Secondly, we do not have incentive policies and special programs for social housing like those in other countries, such as in Australia, the Australian Government issued a Resolution that each citizen has a house and the Government will do everything to do it.

advanced real estate will meet obstacles due to decline in purchasing power Obstacles in mechanisms and policies for social housing to be removed

VCN- One of the prerequisites for the development of social housing and housing for low-income people is ...

Accordingly, they have formed a fund for social housing by extracting from the State budget and provided special land funds and special incentives to influence as well as land funds for construction of social housing. Thirdly, the urban planning is very important that mean there must be prior connections to form future urban areas and there must be very specific planning and an allocation of certain land funds to develop the social housing. The Government must be the one who directly solves this problem rather than assigning real estate development companies to develop the projects. Social housing in Binh Duong is one of the very right models for this problem.

Thank you,

By Thu Hien/ Huyen Trang

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