Struggle to wake dormant market

Property experts warn the state not to interfere in the stagnant property market without more research.

Land and house transactions have been dormant for nearly a year, when the government issued five decrees on implementing the Land Law, and cadastral authorities feared stagnation would put many developers into bankruptcy.
The ministry recently proposed the Prime Minister reduce the supply of new land and residential projects, promote payable demand and back up finance for property developers to reignite the market.
Vu Duy Thai, vice chairman of Hanoi Industry and Commerce Association and a property trader, said these measures were not feasible, as banks were already cautious about lending to property developers.
“It’s also difficult for normal people to borrow for house purchases,” said Thai.
Property experts said the government should be cautious about interfering with the market, saying rather than adopting vague rescue measures, the reasons for the inert market should be clarified.
“The Ministry of Natural Resources and Environment should carefully study the situation because their three guidelines aren’t presently feasible,” said Nguyen Thanh Luu, director of Markcom Research and Consulting Company.
A property expert, who preferred anonymity, said real estate transactions were on thin ice, and not because demand for housing accommodation was low, but because many people were being out-priced.
“Land and house prices in Vietnam’s big cities are too high, so most of the population cannot afford it,” he said.
The expert said most developers were building luxury properties for middle and upper class clients, and supply in this faction nearly balanced demand.
“As a result, fewer transactions happen among high-priced properties, leading to the inactivity,” he said.
Markcom director Luu said the property market dealt with only 5 per cent of the total population, the remainder of whom were squeezed out because property prices were too high in Vietnam.
“Lack of transparency and appropriate rules from the state has led to transactions based on rumours, feelings and psychology, resulting in rampant speculations that push property prices far beyond their actual values,” said Luu.
As a result, the market had halted, as many people weren’t financially secure enough to participate, he said. If the state took steps, he added, to pull prices down, which would hurt developers and speculators in the short term, it would make the market in the long run fundamentally more sustainable.
Luu said four types participated in the market, namely the actual developers, professional speculators, ensuing speculators and those demand accommodation.
He said if the property prices dropped, the first two participants would only have to accept less profit, while the most impacted would be the third participant, who could fashion survival measure for the first two to three years until the market normalised.
Luu said the government could drop prices by increasing the supply of hi-rise apartments, while leaving luxury apartments and villas alone.
“The increased supply of apartments would force other kinds of property to reduce prices because those demanding accommodations would purchase apartments instead of buying expensive land or villas,” said Luu.
Luu pointed out that the Vietnamese property market was highly influenced by psychological effects, thus any feasible government policy would affect property prices.
As such, Luu suggested, the government should establish a housing development fund for construction of hi-rise apartments and establish a national information centre to provide details of housing projects and prices.
He said the government should assist developers through more transparent policies in land clearance and acquisition.
In addition, Luu called for the abrogation of a decision in Hanoi that requests property developers to return 20 per cent of their land, including infrastructure, to local authorities.
MoNRE deputy minister Dang Hung Vo recently censured the decision, claiming that it would raise apartment prices, as developers would increase prices for their remaining land to make up for the loss.