Saturday, November 10, 2007

Vietnam Real Estate Market - Is It Due for a Crash?

The Vietnam real estate market is overheating but who has been buying up these properties? Surprisingly (or not), an estimated 60% of the purchasers who bought houses actually don't need a home but are buying and selling to make profit.

These purchasers are what we called speculators. So, what is driving the speculators to this market?

1. Recently, Pricewaterhouse chose HCM City to be in the top 10 real estate markets in the world with the greatest potential. (Yes, that's top 10 in the WORLD). Other areas such as Hanoi, Da Nang, Binh Duong, and Vung Tau have seen development sky-rocketed as well.

2. The government is allowing Viet Kieu and foreigners to buy houses (although they can't own land yet.)

3. Demand for homes keeps going up and up. Despite the torrid pace of development, the supply remains modest compares to the demand. But remember, the high "demand" is actually not from buyers looking for a home to live in but rather from speculators who buy and sell for profit. This is what we call flipping, which is partly responsible for the current housing slump in the United States.

4. Real estate analysts keep touting the market with estimates like 50% growth for 2008.

Speculators are definitely hard at work buying and selling and driving up real estate prices. It is a shame that those who actually need to purchase a home can't afford one in this market. It's ironic that Vietnam, which has one of the lowest income per capita in the world and yet its house prices are among the highest in the world.

The government of Vietnam is actually considering steps to force prices down such as revoking licences to projects which investors are leaving land idle or taxing speculators.

Despite the rosy forecast by analysts, it is going to be very difficult to keep the charade going for much longer. The 50% growth rate is just simply not realistic or sustainable for the next 2-3 years. We have already seen what happened to the real estate market in the United States and it's just a matter of time before Vietnam will face the same fate.