Vietnam Real Estate Market: Policies for Demand Stimulation

22 May
The real estate market in early 2008 has recovered, after a series of policies to stimulate demand. Looking back, this market experienced three times of depression, the first from 1994 to 1996, the second between 1997 and 1999, and the third starting in late 2004 until end of 2006. Currently, most property experts said that Vietnam’s real estate market in 2008 will bounce back in a sustainable manner after a long freeze

Untying policies

The latest move from state management was seen on 10 January 2008 when the government office released the official dispatch No.231/VPCP-CV delivering the guidance of Deputy Prime Minister Hoang Trung Hai on the management and development of the real estate market. According to the dispatch, the Deputy Prime Minister asked the Ministry of Construction to coordinate with relevant ministries and agencies to consider setting up the working board on the property market so the Prime Minister can have information and then frame proper mechanisms and policies to manage and develop a healthy real estate market. The information must be reported to the Prime Minister in February this year. Earlier, the Prime Minister Nguyen Tan Dung on January 8 introduced instructions requiring related ministries, industries and localities to consistently take measures to cool down the overheated property market. PM has also asked for an inventory of public land from 1 April 2008. The instructions No.31/2007/CT-TTg pointed out that the management and use of public land by organisations which have been assigned or lent it are now ineffective. Many abuses are apparent, such as using public land out of the area and illegally renting, transferring, or destroying land.

In addition, a series of legal documents, issued earlier to address difficulties related to the real estate market, had a good impact on market development. Mr Tran Huu Huynh, Head of the Legal Department under Vietnam Chamber of Commerce and Industry (VCCI) affirmed, “The decree guiding the implementation of the Law on Real Estate Business has been issued to create an open legal framework for both state management and investors, and people will benefit from this.” Specifically, property brokers are forced to register business licenses, otherwise they will be penalised under Clause 50, 8, items 1,2,3 of the Law on Real Estate Business 2006. If being private, property brokers must have professional certificates for their operation, requiring a professional training course. A brokerage company must have at least two employees with certificates. Newly established enterprises are still considered to grant certificates, or allowed to return certificates as of early 2009. All property transaction information must be publicised at the trading floor and by the media (in pursuance to Clause 11 of the Law on Real Estate Business 2006). As for big real estate projects, investors are required to have enough financial capacity. As for new urban areas and industrial parks, investors must hold at least 20 per cent of total investment capital.

Especially, the state’s policy allowing foreigners to buy houses since 15 November 2007 is also a stimulator to heat the real estate market. Besides, as the unlisted stock market (or over-the-counter market) has recently seen irregular fluctuation with unexpected risks, investors realised that it would be safer for them to invest in the real estate market. Many listed companies on the stock market have also poured money into the property market in order to increase the asset value of their businesses.

A current brighter situation

At the Vietnam Property Market 2007 forum, held December 3-6, the Deputy Minister of Construction Nguyen Tran Nam affirmed that the development of the real estate market would have a widespread influence on the national economy. A representative of Real Estate and Housing Association said Vietnam currently has 729 urban areas, including two special urban areas, three grade one urban areas, and 14 grade two ones. The urbanisation speed of Vietnam is forecast to be high in the coming time. Therefore, demand for accommodation in Vietnam is very high. In 2007-2010, Vietnam need to build 366 million square metres of houses, including 176 million square metres in urban areas and 190 million square metres in rural areas. In addition, the demand for offices for hire, retail space and hotels is increasing.

These figures paint a brighter picture for the real estate market in Vietnam. Vietnam has also attracted great interest from foreign property investors. They assessed that Vietnam is one of the most attractive real estate markets in Asia. The attractiveness is explained as follows: Vietnam has maintained strong economic growth over the past ten years and was admitted as a member of the World Trade Organisation (WTO) in early 2007, Vietnam has a young population which will be potential consumers of accommodation in the future. These elements have helped boost urbanisation and increase the payment ability of local people, which have contributed to strengthening the economic growth rate. Mr Nguyen Duc Thinh, Deputy Manager of Land Price – Price Management Department under the Ministry of Finance said, “Currently, the society has seen a sharp increase in young middle class with thick pockets, and they are willing to pay big sums for goods and services, including accommodations.”

Forecast on property market

The real estate market of early 2008 is outstanding with a busy transaction atmosphere and skyrocketing prices of land and luxury apartments in Hanoi and Ho Chi Minh City. The property business community in Hanoi assessed that although the 2008 land price framework of the municipal authorities is applied only to land used for site clearance compensation or for tax calculation in case of transfer, the increase of land price by about 20 per cent will be a stimulator for surging land price base. The land price in urban districts within Hanoi has risen to from VDN54 million (US$3,375) per square metre to VND67.5 million (US$4,218) per square metre at maximum level and VND1.5 million/square metre at minimum level. Land prices in rural areas are forecast to rise to the maximum level of VND2.25 million/square metre, in some communes of Tu Liem District. According to Mr Nguyen Van Minh, Director of Hanoi Real Estate Trading Centre, if previously some real estate trading centres in Tran Duy Hung Street, Hoan Kiem and Hai Ba Trung districts advised their customers to buy houses in urban areas of My Dinh, Trung Hoa-Nhan Chinh, and Linh Dam, they are now recommending to their customers projects such as Van Phu, An Khanh and Mo Lao in Ha Tay Province. Investors tend to buy land in suburban areas because land there will be used to build new urban areas in the future and the land price will increase accordingly. Mr Le Van Sinh, Vice Chairman of People’s Committee of Van Mo District, Ha Dong City, said, “The land fever in Ha Dong has started overheating when many feasible projects to build houses for foreigners have been launched, such as the village for European Vietnamese people in Mo Lao, South Korean area in Van Phu, and La Khe Industrial Park. Ha Tay Province’s People’s Committee has also partnered with the National Oil and Gas Group (PetroVietnam) to build Ha Tay PetroVietnam Urban Area in Hoai Duc District on 840 hectares. Therefore, investors have rushed to purchase land there hoping to grasp a golden opportunity.”

Many real estate brokerage centres have reported much brighter transaction information early this year. The demand for land to construct offices and agencies is also soaring as office rentals have been rising, and it would be a safe solution to possess an office. These signals show that Vietnam’s real estate market has seen a basic recovery in 2008 after a long freeze. However, domestic and foreign property traders and investors should have long-term and flexible strategies ride out market movements and avoid risks.

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