Who Is Anchoring Real Estate Price?

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According to real estate experts, although in the recent periods, the price of real estate in all segments in Vietnamhas been significantly reduced, in reality, the price can only be seen as a slight decrease from the bubble time long ago. In fact, the property price in many segments is still relatively high, considering to the real demand and supply of the free market as well as the quality of the properties.

Real estate price 25 times that of the average income of people

According to the Central Economic Commission, the speculation which occurred in the real estate market of Vietnam is a major cause of the bad debts. This situation has completely distorted market signals and created misleading expectations that the price of land and real estate products has increased only.

From 1993 to now, the real estate market of Vietnam has experienced three cycles of peak price and subsequent freezes in the periods of 1993 to 1994, 2000 to 2001, and 2007 to 2008. The real estate bubble at these periods has dramatically inflated the price of the real estate by up to 100 times.

While the real estate price is skyrocketing, the real income of workers is not significantly increased. By this time, the average housing price was 25 times higher than the annual average income of workers, which creates an invisible barrier preventing the people from buying their own houses despite their strong demand.

Prof. Dang Hung Vo said that it may take more than 100 years for people with current income to save enough money to buy a house. These shortcomings lead to negative consequences to the Vietnam’s economy due to the rapidly increasing bad debts of the real estate.

The real estate market today is faced with the oversupplies of the high housing price and shortage of the low housing price. This paradox not only blocks customer’s access to the real estate market, but also drives real estate investors into problems. However, according to Prof. Dang Hung Vo, roundly 80 percent of investors in the real estate are still earning profit; however, this is unpredictable. It is difficult to determine what the real value of the property is because the property prices were blown up too much for a long time, not based on any economic principles. What is the real value of the real estate? How much does the current construction actually cost? In terms of technical skills, perhaps the government authorities as well as the experts in the real estate are not too hard to figure out”, analysed Prof. Dang Hung Vo.

The economist Vu Dinh Anh said that we cannot just look at the real estate inventory. The property is not inventory but rather by the higher prices, which leads its price to be multiplied many times as today’s outcome. And perhaps, the tragedy of the real estate market will not come to an end when the answer for how the real value of the property is estimated has not been found.

Real estate market remains quiet

Many real estate experts have said that although the price of most segments of the real estate market, particularly the villa segment, has declined, the real value of such the properties have not been estimated.

When the demand fell sharply as the prices have been pushed up quite high, the market fell into a state “freeze”, which forced many investors to apply the promotion programs to attract customers, but to the this point, the effect of these solutions has not improved. Because the reduced price is just compared to the real estate price at a peak, which was exaggerated by the investors and the secondary investors but not to be compared with the actual value of the projects. Accordingly, if the investors do not want to share profits with their clients, the falling of prices leads to poorer quality of the work as a result. To cope with the current difficulties and to stimulate demands, many investors, on the one hand, reduce the housing price and on the other hand, remove the interiors or subdivide the apartments or even, steal the building materials and increase the service fees.

Currently, the opportunities to turn the price of real estate to its real value are growing because the buyers have more options to consider. However, in general, property prices are relatively high and there is still an open question who is anchoring the property price.

Many people still expect that the housing price will continue to decrease in near future, especially the declining price in the middle segment of the apartment which has the largest inventory. But according to the exports, it is impossible to make more discounts to meet the demands of the majority of customers because the housing prices do not depend only on the input costs of raw material, labour costs, and clearance costs, but also on a hidden cost of “lubrication”. This has pushed up the property prices higher than its actual value while the investors are likely to accept loss rather than selling the products at cheaper price. It is the mind gap between the investors and buyers at this time.

Luong Tuan

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