Real estate is one of specially attractive markets for domestic and foreign investors, especially developing countries with relatively high growth rate like Vietnam. However, the Vietnamese property market sometimes gets cold and sometimes gets hot, and it is very hot to identify capital inflows and outflows on this sensitive market.
Vietnam Business Forum reporter has an exclusive interview with Dr Vu Dinh Anh, Deputy Director of Research Institute for Market and Price Sciences under the Ministry of Finance.
Could you describe characteristics of capital sources on the Vietnamese real estate market?
In fact, in Vietnam (and in many other countries, including developed countries like the United States before the global crisis in 2008-2009 or developing countries like China), in addition to long-term investment sources, the market always has short-term sources (with presence shorter than one year). Even, short-term investment capital, also called “hot capital”, overwhelm medium and long-term sources to dominate the market trend. It causes hot fevers, even bubbles, on the property market. These phenomena increase risks on financial markets, including official and nonofficial ones. Characteristically, this source of capital presents or disappears on the market very shortly. Therefore, the management on short-term investments on the property market is very important and necessary.
It is said that it is very difficult to control capital sources in Vietnam under the current economic conditions. Thus, the market easily becomes “too hot” or “too cold.” What is your viewpoint on this problem?
- The real estate market, especially in Vietnam, is currently very volatile in price, supply and demand while it lacks public and transparent information and is driven by both bad and good rumours. But, continuous price rises, to several times or hundreds of times higher in a very short time, amid limited supply and unlimited demand make the real estate market a super-profit investment channel. Hence, stock investors never skip a chance to make a super profit on this market.
In fact, despite numerous efforts, up to 80 percent of real estate transactions are off the record because the property lacks legality, the land planning is unfixed, administrative and legal procedures are too complex. More importantly, taxes from real estate trading are unreasonably high.
Investment sources on the real estate market are exposing weak points, risks and non-transparency?
Medium and long-term sources (usually official) fail to meet the development needs of the Vietnamese capital-thirsty property market. To date, medium and long-term capital sources, primarily provided for real estate developers, are usually driven by strict credit regulations on real estate lending, mortgage and settlement as well as restrictions in mobilising medium and long-term capitals by commercial banks and other financial institutions. This capital source is usually sourced from enterprises but a majority of Vietnamese business entities are small and medium-sized and their capacities are limited. Moreover, the participation of large enterprises in the property market is distracted by their wide-range business scopes and unprofessionalism in real estate investing. Foreign finances, both direct and indirect (inclusive of sources from overseas Vietnamese) tend to increase in recent years. However, this source usually focuses on a few real estate segments such as resorts, high-rise office buildings, apartments, hotels, restaurants and shopping centres. Meanwhile, the diversification of medium and long-term capital sources like setting up real estate investment funds or real estate securitization funds has not been implemented. To offset the shortage of this financial resource, the property market must rely on the “hot” sources, both official and unofficial.
Vietnamese people are holding a huge amount of unemployed capital but the formal financial system fails to attract due to macroeconomic instability (inflation, interest rate and exchange rates, etc) and the absence of attractive investment channels and financial products. No centralised real estate investment institutions have been formed; thus, a significant amount of unemployed capital is injected into the market in the form of “hot” investments, which may result to financial risks and social unrests.
Which measure is needed to limit impacts of "hot" capital on the property market?
Arguably, the hot capital source on the Vietnam real estate market gathers both subjective and objective conditions, necessary and sufficient for development. Therefore, we cannot simply prohibit the inflow of this source to the market by administrative or legal measures in the context that there is a good environment for this behaviour. The matter is now to find out measures to manage short-term investment capital on the property market to minimise potential risks associated with it. One of the first measures is to identify the source of “hot” capital on the property market in Vietnam. Hence, we need regulations on financial management to prevent this source of short-term capital from running into the real estate market. One possible measure is to require all real estate investments, both short-term and medium and long-term, to be performed through the formal financial system (similar to the way the stock market is running) to manage and monitor more effectively while preventing violations related to real estate transactions, including fraudulent deals or money laundering.
Reported by Hai Hang
Vietnamese
