The Fundamental of Real Estate Price

 

In only one month, the property price in Ho Chi Minh City has increased by at least 30 per cent, 50 per cent in some in some sites and even 100 per cent. In Hanoi, the price of villas in beautiful sites such as near lake, on big street has doubled to VND6 billion (US$375,000). Apartment price in new urban areas also fluctuates by around VND300 million (US$18,750). Street-front houses are sold at VND3-4 billion, doubling 2- 2.5 times over the base price. Danang City is seriously lacking luxury offices, which pushes the price of offices for rent to US$30-40 per metre.

 

Despite soaring property price, customers still rush to buy land. Mr Lam Van Chuc, director of Phuc Duc Company - one of the biggest property brokerage companies in Ho Chi Minh City- said that the land quantity has increased by five times compared with that of end-2006. In ACB property supermarket, the number of successful real estate transactions has more than doubled.

 

According to some experts in real estate sector, although capital from securities market has flew to property sector, this capital source is unable to heat the property price over the past time. So what is the reason for real estate fever in the short term on the property market in some big cities in Vietnam?

 

With the annual growth of 2 per cent in houses and new offices in Vietnam and in the world while the average growth of Vietnam’s population is around 2 per cent, in which mechanical emigration in big cities is imposing great challenge. Emigration wave can be seen in some heated areas such as Phung Khoang and Trieu Khuc villages in Thanh Xuan district, Dich Vong and Dong Xa villages in Cau Giay, and Co Nhue in Tu Liem district, in which rural people renting houses accounts for up to 70 per cent of local people. Along with the current economic growth rate, the number of foreign investors working in Vietnam has created a big demand for luxury office buildings. According to the Socio-economic Development Research Institute, Hanoi will need about 100,000 apartments from 2006 to 2010. Meanwhile, the construction of new building often lasts 2-3 years, the demand for houses and luxury offices at this time is surpassing supply.

 

Apart from emigration wave from rural to urban areas, one of important elements leading to the increase in house demand is the tendency of small-sized family. With the increasing income and general development trend, the model of a household with many generations has been gradually replaced by nuclear family model.

 

The double-sided nature of real estate sector is also one of the important features in this market that leading to unusual fluctuation in property price. Property functions as both consumer goods for personal demand, and also an investment item. After the securities fever, investors now realise unexpected risks on the financial market and pour capital into other assets with stable value.

 

Ms. Phung Thi Long, a retiree, said that the interest rate of safe financial investment such as government bonds with five year tenor is 7.4 per cent per year. But she bought a flat in an apartment building one year ago in Hoang Hoa Tham Street at a price of VND800 million and then rented foreigners at VND9 million per month, equal to an annual interest rate of 13-14 per cent. At present, her flat is valued VND1.5 billion that nearly doubles the initial price. Of course her success is an exception because she could face risks when she could not rent the house, leading to its devaluation. The real estate price is likely to slow down but not lasting as population keeps rising while land is limited. Mr Alastair Orr Ewing, chairman of Savills Vietnam also said that Vietnamese people have ideas of owning a plot of land.

 

 

Real estate development requires a long period of time; however, many projects are started in the top fever of the market, and many finished buildings are introduced when the fever brings down. Mr Ngo Duy Thai, general director of ACB Real Estate Joint Stock Company, forecasts that in two central districts in the Ho Chi Minh City including district 1 and district 3, about 400,000 square metres of offices for rent at grade A and 200,000 square metres at grade B will be introduced by 2010. Mr Thai added that buildings and offices for rent in the future will be overproduced. Savills Vietnam Chairman Mr Alastair Orr Ewing also acknowledged that the number of current projects in the real estate sector is very big. This will result in supernumerary supply in several coming years.

The stabilisation in real estate sector is often reached in developed economies with balanced growth path, when the economic growth rate, population and population structure are stabilised. According to Mr Bok Sang Chang, deputy general director of S. Korea’s Kumho Industrial Group, Vietnam’s property market is growing and keeps growing in 50 next years. However, the attractiveness of the market lies in 10 next years.50 next years. However, the attractiveness of the market lies in 10 next years.

The government should introduce long-term general real estate development policy in accordance with the country’s economic development situation. In addition, a good and convenient legal environment for real estate transaction is also an important element to raise transaction volume to stabilise the market in the long-term, avoiding seasonal fever as currently.

 

Besides, programmes for credit assistance and building a real estate database all over the country and allowing foreign direct investment in some property projects will also increase the market’s transparency and maintain stable supply in the long-term.