Housing Projects and Solutions

In recent years, the property market in big cities has seen unexpected changes. Housing and land has reached high prices. Land for housing developments in urban areas has reached nearly VND100 million a sq. metre, equivalent to the price two years ago of land in central Ho Chi Minh City, such as Dong Khoi and Le Loi avenues, and Hanoi centre as Dinh Tien Hoang, Trang Tien and Le Thai To. The price of apartments in those quarters hits VND30 million per sq. metre, while the cost is only VND7.5 million (including land rental), or practical market price of VND15 million (including service fees and taxes). Therefore, there is some virtual value (not created by material and physical resources) in the present price of land and apartments.

 

It is common knowledge that the property market is under unexpected changes. But there are different explanations. Some see it as “normal” in the market economy. It has already undergone two price “fevers” and in each, land price increased 10 times. The land price in 2004 was 100 times higher than in 1990. In spite of the increased land price, the economy continues high growth without harming anyone.

 

Others regard it as “abnormal” and dangerous to the economy. The two previous land “fevers” were different in nature. They were changes in land price to adjust to the world market when Vietnam transforms from subsidized economy to market economy. Meanwhile, the current fever is abnormal as the price is already at the top of the world market and income in Vietnam remains very low. It is the aftermath of incoherent policy and poor management allowing speculative hoarding to dominate the market. Therefore, the present land price fever can in no way be regarded as “normal”.

 

When the 2003 Land Law was enforced, housing investors suffered from a market “freeze”. All transactions ceased. Banks refused loans for on-going projects and asked for payment of earlier loans. Subsequently, real estate investors turned to the stock market, causing “fever” in the stock market. Some invested a few billion VN Dong and after two months got ten billion. The list of 100-billionaires was made public on mass media (most of them are directors of State-owned enterprises after equitization). After winning in the securities market, they returned to the real estate market on the simple logic of “never put all your eggs in one basket”. It proves that they can do abnormal things in a cold property market, overheating it.

 

The press has put great effort into discussing and finding solutions to reduce the fever. Big investors said the fever is caused by imbalanced housing demand and supply, big demand and small supply. Therefore, planning must increase land and housing projects to the market. Hot or cold markets are normal. Price fever is also normal. It can be called a solution to increase land supply.

 

Some managers and many scientists find the cause in excessive hoarding. Real demand for poor living quarters is ignored, while demand for high-class apartments is virtual, caused by hoarding. Therefore, high tax rates must be levied on hoarding, on excessive houses and land. With this method taxes could be the solution.

 

The two viewpoints are from groups with different interests in the current price fever.     At the current session of the National Assembly, Deputy Tran Du Lich has proposed taxation as a pressing measure to reduce hoarding and land fever. Deputy Prime Minister Nguyen Sinh Hung has instructed the Ministry of Construction to study land rental and property ownership, especially progressive taxes on the hoarding of land and houses.

 

Naturally, each solution produces its own outcome which will have to be dealt with in the future.

 

In case of increasing land supply: When a big area of land is granted by the State to investors to develop high-class housing projects, rich people will continue to buy additional space. Consequently, big amounts of money would not flow into production, but would remain instead in hoarding, creating a big bubble in the market. The bigger the bubble, the sooner it explodes. When it explodes, economic disaster will occur. The result will be imbalance in the value of real commodities and money in the market. The currency will be devalued and the economy slowed down, or even recessed to negative growth. This is the inevitable outcome of excessive hoarding in the market economy. Vietnam has witnessed and analyzed such a property market crisis leading to the 1997 financial crisis in East Asia and South East Asia (Vietnam then lay outside the crisis).

 

In case of raising taxes: High tax rates will be imposed on unused houses (progressive tax rates on duration) and on excessive space (progressive tax rates on area). It will discourage rich people from hoarding. The virtual price element of high class houses will no long exist, and real supply and demand will reappear. In other words, the hoarding of high-class houses will end. The implementation of this solution requires transparent trading of houses on a transaction floor. Then, the property market will become healthy, land rental will be stable and low-income people will have suitable dwellings; while rich people will invest in business activities to create more commodities and services for society.

 

In fact, the property business has been fully developed in recent years. They know how to use market measures to get profit. Therefore, there must be a strong contingent of managers, rich in experience and knowledgeable in the market economy, to protect the interests of the State and people. Consequently, the State must have a complete legal system, high quality planning and an advanced finance network for the property market. As the society develops, its management requires higher knowledge and technology. Higher grades of market (property market included) need higher grades of management.

 

The property market has two aspects: one, creating economic development and economic growth by investment; two, creating social stability, jobs and housing for low-income people. The solution to price fever must be based on the interests of a target group. Certainly, a solution in the interest of the entire people must be chosen.