Concern over unrealistic hike in property prices

Prime Minister Pham Minh Chinh, as well as the Ministry of Construction, have warned that the unusual high prices at auctions may prove to be risky for the real estate market in the country.

Soon after the Prime Minister sent a telegram to relevant ministries, branches, and localities to review and correct the ongoing land auctions, the Ministry of Construction sent a document to the People's Committees of related provinces and centrally-run cities to control the high risk being created by real estate bubbles and to further strengthen the management of the real estate market. The Ministry of Construction recommended that in some cases, the winning bid at the auctions is many times higher than the starting price, which can definitely affect the real estate market as a whole.

In some localities, cases have occurred whereby enterprises conducting real estate businesses that are still not legal have been seen to transfer land; trade in real estate illegally; implement projects; sell plots of agricultural land; carry out transactions for buying, selling, and transferring houses and land even when the conditions and legal bases are not yet fully appropriate.

The Ministry of Construction has proposed that the People's Committees of provinces and centrally-run cities must focus on reviewing control and inspect the land use right auctions for abnormal actions and evaluate the impact of cases with unusually high auction results, many times higher than the starting price on the land, housing and real estate market in the area. The Ministry emphasized that the above issues will affect the socio-economic development of the entire real estate market.

According to Mr. Tran Khanh Quang, an expert in this field, the warning issued by the Ministry of Construction is completely justified and well based. This is because right after the auction results for land plots in Thu Thiem area in Ho Chi Minh City, a new price level for each area was automatically set, regardless of whether it will be accepted by the market or not. The risk lies in the likelihood of the above information causing price fluctuation, making it impossible for buyers and sellers to determine what is the true value of property when doing any real estate transactions.

In dealing with the above situation, the Ministry of Construction has also requested localities to evaluate all information on the potential risk of a bubble or any other unusual developments. Accordingly, localities are focused on directing functional agencies to strengthen management, supervision, and inspection. Localities need appropriate solutions to prevent spread of rumours. They must strictly handle cases of brokerage, real estate trading, real estate projects, land use rights, loose management, violation of the law on land, and real estate businesses. They need to strengthen control, and strictly handle real estate projects that do not meet the legal conditions for doing business.

On social media recently, there has been a lot of information about land fever and business activities gradually returning back to normal. However, recent data of the real estate brokerage and consulting company, shows that the market absorption is still quite low. Accordingly, the overall consumption rate of the market in September 2021 reached about 54% of the new supply, an increase of 55.8% compared to October 2021 with 233 products, and 33% over the same period in 2020 with 273 products.

The demand for apartments has improved, but the ratio of consumption to new supply is still quite low compared to the first time after the social distancing period. Specifically, Ho Chi Minh City and neighboring provinces recorded seven apartment projects for sale, with one new project and six in coming next phase. The market has been supplied with about 2,981 units, 3.8 times higher than the previous month with 784 units, but only 65% compared to the same period in 2020 with 4,605 units. The overall consumption rate of the whole market reached 67%, 5.2 times higher than in October 2021, equal to 54% of the consumption in the same period of 2020.

Ms. Nguyen Thanh Huong, General Director of Van Phuc Land, said that the real estate fever in the past should be a warning. In the situation of a prolonged pandemic, people are facing grave difficulties, but this current real estate fever is difficult to understand. Mr. Binh, an apartment investor in Ho Chi Minh City, shared that he has invested in two apartments in the Celadon urban area project in Tan Phu, which is very far, and each apartment was closed at around VND 2 bn. Since Tet is approaching, he wants to sell these apartments with a mark-up of VND 150 million per apartment. However, for more than a month now, there have been no customers, while on social network sites there is a lot of information on sold out apartments.

Many experts also say that the real estate market at this time is a matter of speculation, and not an investment because many people are concerned about information on inflation and currency depreciation. Therefore, money is flowing into real estate in the form of speculation, to shelter assets, not for investment.

Mr. Phan Cong Chanh, an expert in real estate, has advised that faced with the above situation, it is possible that real estate prices will be pushed up because speculative cash is flowing. He believes speculative cash flow is not sustainable, and investors should be careful with their cash flow because not every land where they put their money has a high value. There are areas where money can be spent five to ten years before it can be made liquid again as the real estate market has the disadvantage of poor liquidity, slow pace, and increased capital. During this period, it is not recommended to use leverage and large capital because it is very risky.

Mr. Phan Cong Chanh says if the price of land stagnates, or the market crashes, or you buy land with the peak price during this land fever, then you have to wait for the next cycle for a very long time. In some cases, the winning land price is unusually many times higher than the starting price, which can negatively affect the real estate market on the whole.