Real Estate Speculation

The first reason is enrichment from stock trading. Many stock-trading winners buy luxury houses to show off their riches, while others withdraw money from the stock market to invest in real estate, when stock investment seems uncertain. They bought new houses, not because of need for housing, but as a means of speculation for gain. Policymakers called this a “fever” because the number of people with the funds to speculate is still modest. Furthermore, the stock market has been on the downtrend; thus speculation will decrease.

 

The residential land - housing tax in Vietnam is very low. The tax for a 200 square metre house is only about VND500,000 (US$31) per year. So, this rate means little to speculators. They will continue to speculate houses to make bargains.

 

 

This house fever is happening only the luxury apartment market, the change is small in the ordinary house segment. To resolve the fever in the high-end segment, increasing supply is a sound option. Or in other words, we should build more luxury houses, as well as speed up construction of projects already underway. The fever will ease when the supply meets the demand. However, in my opinion, these solutions are passive and will not end speculation of houses and residential land.

 

The market must be regulated according to the law: “neediness to buy and redundancy to sell”. Speculation ought to be put to an end; otherwise, many will have no houses, while some will have many. In fact, supply and demand quantities are interdependent, and supply depends on the population size. More simply speaking, high-income earners and foreigners make up some 20 per cent of total housing demand, medium income earners about 60 per cent and low-income earners the remaining. With this structure, the low quality houses account for some 20 per cent of total housing demand. If there is no speculation, 60-70 per cent of housing demand belongs to medium income earners. The needed housing funds should match supply and demand. Therefore, to have a stable and healthy market, management authorities must introduce measures regulating speculation. But, Vietnam currently lacks a mechanism regulating real estate speculation.

 

It possible to say there are no economic tools for regulating real estate markets, but too much interference by administrative decisions. These turn out to be ineffective and cause corruption. For example, currently, Vietnam has one regulation: after one year of inactiveness or two years of undue implementation without permit from province-level governments, land will be recovered by the State. In my opinion, this is a very lax administrative regulation, because investors have thousands of rationales to persuade the provincial or municipal People’s Committee not to issue land recovery orders. Besides, in case investors break the rule, the government will face difficulty dealing with unfinished projects of violators, if the land is recovered.

 

In my opinion, we can solve this conflict with tax. If investors do not carry out their projects within one year after licensing, the tax will be doubled. The tariff will be quintupled in the second year of inactiveness, and so on. Investors will return their land if they cannot bear the consecutive year-after-year tax rise on inactive projects. In the same way, this type of tax should be applied for unused houses, to reduce speculation.

 

Most developed nations applied such policies. For example, in the US, Canada, Sweden or Norway, property prices are low but taxes are very high, especially on luxury buildings. We can see our shortcomings from the systems these developed nations are using. This is the fault of the management authorities. We lack the tools to prevent market changes. We are now trying to implement these changes by making adjustments.

 

 

Actually, Vietnam lacks experience in tackling the three input markets of the economy, namely the real estate, capital and labour markets (some include the technology market). About 15 years ago, Vietnam was still debating whether it had real estate market or not. Hence, until now, Vietnam does not have excellent managers for input markets.

 

 

In principle, Vietnam has no discrimination between domestic and foreign investors. But, the real estate market has a certain prejudice: Capital-rich foreigners are far from land while capital-short local investors are near to the land. The Vietnamese Government is seeking measures giving more land access to foreign investors and more capital access to domestic investors.

 

Vietnamese companies dominate the real estate market, especially State-owned companies. Foreign property companies in Vietnam are few. To date, only Phu My Hung and Ciputra urban zones have been developed by foreign investors, although several other luxury urban zones have been planned. In the investment market, foreign investors have so far only focused on production and services, such as factories, industrial zones, luxury hotels and trade centres.

 

Vietnam has joined the WTO and many foreign companies will come to develop the Vietnamese property market. Many leading international companies, especially those from South Korea, Taiwan, Singapore, EU and the US, are preparing to carry out projects in Hanoi, Bac Ninh, Ha Tay, Binh Duong, Dong Nai, Ba Ria - Vung Tau, Kien Giang, Ho Chi Minh City and other areas.