Risky to borrow from banks for property investments

16 May
VNREThe current real estate environment in Vietnam, though lucrative, is unpredictable and it would be risky to take out high interest bank loans for investment, according to experts.

The current market is an opportunity for investors to purchase now at relatively low prices. When inflation is controlled and banks increase money supply by reducing interest rates, prices will surge as the real estate sector becomes busy again, experts said.

However, because it is not known how long it will take for the economy to stabilize, borrowing from banks with high interest rates is very risky, according to experts.

Silence in this year real estate market:

The real estate market in Vietnam has been remaining silent since the beginning of 2011, with only a few investments made. Many investors have blamed the current situation for tight credit policies major banks are initiating, which restrict the supply of funds to the sector following the government decision to stabilize the economy and curb inflation.

Another factor pointed out by experts is the psychology of investors. Many are hesitant to make investments when they see a slow market.

Muddled transactions

The Vietnam real estate market remains a muddled practice where investment properties change hands numerous times, moving from the main investor to secondary investors and eventually to the customer, according to VNExpress.

One project was handed over four or five times, going from the main investors to a secondary investor and then to smaller investors. The final customer, who bought the project to live in, had to pay substantially more than the original price, VNExpress reported.

The auction process for some real estate developments also lacks transparency, especially state-owned ones such as the Hanoi New Urban project in the capital, said VNExpress.

Projects in an expensive area, which can be very prosperous when resold, are commonly sold based on personal relationships between investors.

As a result, some secondary investors borrow from banks at remarkably high rates, between 25 to 27 percent, to invest in projects in prosperous areas that the main investor promised to them.

This year the government is not offering a stimulus package for the real estate sector, like they did in 2008 and 2009, as it is focusing on macro-stability and inflation control this year and next.

Bubbles Pop may happen in the Hanoi real estate market next year:

Hanoi now has hundreds of new real estate projects in a city with only 7 to 8 million people. Many experts predict the supply will overpass demand next year.

This will result in a sudden and steep fall in price, which could cause heavy losses for the many Vietnamese invested in real estate.

Source: Tuoi Tre | Vnexpress

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