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Is real estate a safe haven during inflation?

08:09 | 03/05/2022

VCN - According to experts, investing in real estate during inflation has two sides and investors must be very careful.

Real estate bonds to be controlled Real estate bonds to be controlled
Foreign capital poured into industrial real estate Foreign capital poured into industrial real estate
Is real estate a safe haven during inflation?
Demand for real estate investment increases amid inflationary pressure. Photo: H.A

Worried about the asset bubble, banks "squeeze" investment capital in real estate

In early 2022, after unexpected fluctuations in the world's economic and political situation, the goal of controlling inflation below 4% became a big challenge.

When the inflation rate tends to increase due to uncertainties about wars, the world economy - politics, many people think that, from a positive perspective, financial resources in real estate are considered a plan to help preserve capital flows against risks and avoid instability in other investment channels such as stocks and gold.

According to Dr. Su Ngoc Khuong, Senior Director of Savills Vietnam, if inflation occurs due to economic growth, real estate demand will be pushed up and help increase the value of real estate. However, if inflation is caused by costs such as raw materials and rising labor costs will lead to a limited supply of real estate.

However, from another perspective, investing in real estate during inflation has many potential risks. In fact, along with the context that inflation is under increasing pressure, affecting investor sentiment in the real estate market, the real estate market is also facing high housing prices due to the lack of supply and scarce housing as well as taking advantage of the scarcity, some have embarked on creating virtual "fever" in the housing market to push up real estate prices in many localities.

One of the biggest concerns right now is that the rush of investors to real estate will create a situation of an asset bubble. In fact, as credit to real estate increased, fearing that the risks in this market would affect the banking system as well as the economy in general.

Recently, under the direction of the State Bank, commercial banks had "locked the valve" of credit for real estate in order to control risks in this field.

For example, Sacombank has written requests to the regional director, branch director and head of the transaction office not to grant credit to the real estate sector, except for lending to officials, employees and buyers, construction and repair of real estate, and at the same time requesting its units to focus on providing credit to production areas, not mobilizing or pledging the Land Ownership Certification.

Worried that social resources will be "buried" in the real estate

Although acknowledging that real estate is basically an asset that can shelter a relatively large cash flow, economic expert Dinh Trong Thinh also said that the statement that real estate is a safe haven during inflation is not entirely correct.

Accordingly, if you can buy real estate at the right price, the capital can be guaranteed, it will be profitable in the future, even highly profitable.

But in the context of many people rushing to invest in real estate, high demand but limited supply will cause a virtual fever, because this is not a real investment demand to keep assets, it is precisely speculation that causes real estate prices to skyrocket.

“If investors buy at the right time when the price is at the peak, it can lead to the risk of losing assets when the asset returns to its true value, while selling is difficult. Thus, sheltering in real estate during inflation has two sides and investors must be very careful. Investors should divide assets to both ensure a reasonable investment, bring satisfactory profits, and at the same time ensure the safety of assets in the best way,” said Dinh Trong Thinh.

Essentially, inflation and real estate prices move in the same direction. When inflation is high, real estate prices will go up. But if the price is too high, the liquidity will be poor, then investors’ capital will be "buried" and there will be many risks if the investment capital flow comes from financial leverage.

Expert Su Ngoc Khuong noted that when inflation occurs, although real estate prices increase, the market cannot afford to buy, and there is no liquidity. At the same time, many investors also use financial leverage to invest in real estate, making low-liquid assets a great burden for them as well as putting pressure on the banking system.

This expert said that in the current context, it is especially important to consider carefully when using financial leverage to invest in real estate.

“In the next 9-12 months, it is possible for some investors to be forced to sell off assets because they cannot bear the pressure from financial support tools. However, the speculative nature of this group is not large, it is difficult to manipulate the market, affecting the price level," said Dr. Su Ngoc Khuong.

Dr. Vo Dinh Tri, Lecturer at the University of Economics Ho Chi Minh City and IPAG Business School Paris also said real estate investment is a form of long-term investment, depending on the long-term development potential of the area where real estate is located.

Investors also need to be very careful with the pressure of increasing interest rates, investing in advance when interest rates are still low will create fear of missing opportunities and making hasty decisions without fully examining the necessary criteria. The risk will also be greater in areas with a large wave of real estate but the development potential is not clear, the demand for rent or purchase is only a forecast, not as stable as the big cities that have been formed over many years.

Many believe that, in the context of rising inflation, to be safe, it is only advisable to invest when there is idle money, not to use financial leverage.

Because if investing with capital from credit or mainly from credit, investors will have to face the problem of balancing the profitability of the product with the interest rate payable to the bank every month, not to mention the pressure also comes from the liquidity of products in the housing market, which is very risky and volatile.

Nguyen Van Dinh, Chairman of the Vietnam Real Estate Brokers Association:

It should be noted that real estate is not a short-term investment commodity, bought and sold within a few weeks or months. This is a suitable product for long-term investment. In addition to retail investors looking to official projects with full legal assurance to invest, in the market there has been a situation that capital flows into real estate are still mainly short-term financial investments for profit, "surfing" investments, not excluding spontaneous projects that do not guarantee a legal basis. Therefore, whether it is safe and profitable or not depends on the choice of specific investment products of the investor.

Economist Nguyen Minh Phong:

For investors who intend to sell real estate at a time of high inflation, it is necessary to carefully consider the purpose of using the money after selling that property to invest in more effective investment channels, avoiding losses due to idle cash reserves. It should be noted that although the trend of increasing prices and investing in real estate during the inflation is high in 2022, investment capital flows into the real estate market in 2022 will have a downward adjustment from commercial bank capital, both loans and capital to buy corporate bonds.

Nguyen Quoc Anh, Deputy General Director of Batdongsan.com.vn:

Although real estate prices increase, liquidity is not necessarily proportional because it depends on many factors. Therefore, individual investors, especially investors using financial leverage, need to pay attention to two aspects. Firstly, it should be noted to survey the price level because real estate prices in the North in many places have increased 3-5 times. The high prices may cause difficulties in liquidity. Secondly, it is necessary to pay attention to the movement of investment cash flows. As we noted, the cash flow is diverting from the North to the Central region.

By Thu Hien/ Kieu Oanh