Hanoi Real Estate Market Facing a Potential Bubble

After the detailed plan for Hanoi zoning was polled, fevers occurred in places expected to be rezoned. According to reporters of the Vietnam Business Forum, land prices along Lang - Hoa Lac Highway have at least doubled. Land price in Sai Son commune, Quoc Oai district stood at VND10 - 15 million per square metre in February but it has climbed to VND30 million. Well-located lands close to Lang - Hoa Lac Highway are offered at VND100 million per square metre, 3-4 times higher than the same period of last year.

 

Land fevers are also occurring in other localities apart from Quoc Oai. Residential land plot (140 square metre each) is sold by Hapulico at VND140-150 million per square metre in Thanh Xuan district, nearly doubling the rate before February. Ba Vi area, where is reported to be built into an administrative centre, has the fastest growing price. According to surveys, the land price has climbed several times in a few months to VND2-4 million per square metre. Many are collecting land to wait for higher prices.

According to Dang Hung Vo, senior advisor to the Ministry of Natural Resources and the Environment, the Hanoi land market has become more bustling recently because many Hanoi people have idle money and have decided to inject their money in real estate. Meanwhile, many speculators try to push the prices up. The real estate prices have been raised to levels that are higher than their actual value; thus, buyers need to be more careful to avoid paying dear prices.

 

According to the Hanoi General Statistics Office, consumer price index (CPI) in Hanoi in May rose 0.41 % from the previous month. The group of housing, electricity, water utilities, fuel and building materials leaped 1.77 % from the previous month - four times higher than the general rise.

 

Some real estate experts said: The excessive rise in land prices is forged by several companies. They create unreal demand to push up prices to sell out their assets for mercenary profits. Currently, many people believe that land prices will continue rising in the future and they are rushing to buy at higher prices, leading to the formation and inflation of a bubble. Speculators will make huge bargains from the rush. But, if the market does not develop, the bubble will burst out. Many have envisaged a runaway and people without knowledge and information will lose most. Unlike previous fevers, this occurrence is only local, mainly in Hanoi. Even in the city, land prices are unchanged in many places, especially old apartments - a very hot cake last year but a pain this year.

According to a report released by the joint working group last week, property prices in Vietnam are complex, hard to control and too high in relation to incomes of people, economic growth and intrinsic value. The report said investment cost for a 20-25-floor apartment is VND16.7-17.5 million per square metre (based on prices at the end of 2009) but the market price is VND28-32 million per square metre.

According to experts in the working group, the scarcity of goods, the floating of property market and the herd investment are the main causes for escalating real estate prices. On the other hand, without sufficient information, buyers are ready to pay at any price and with any condition to realise their purpose. For this reason, experts have formally asked the Government to manage the property market closely and transparently.

 

Experts recommended: In the world, to assess the degree of risks in real estate investment, they use the ratio of monthly payables of a family to home loans on its monthly income. The good average ratio is 1/3 for a middle-income family, which means a third of monthly incomes are used for housing investment. Meanwhile, according to recent statistics, approximately 80 % of monthly incomes of Vietnamese people are used for housing investment. This rate is too high and may result to a debt crisis.

 

Real estate experts also asked authorities to publicise all information about the property market. In truth, people mainly know the land information on media channels, not official sources from state management agencies. Meanwhile, State agencies fail to perform their market regulating and stabilising functions.