Real estate market can recover late this year: executive

2022 was a rough year for the real estate sector with 1,194 bussiness dissolving, up 38.7% year-on-year, according to the General Statistics Office. However, 8,593 new players entered the market, up 13.3%. What are your perspectives on the market?

In the first quarter of 2022, the real estate market went through a booming phase upon information of the government's post-pandemic economic stimulation package worth VND350 trillion ($14.93 billion), but then quickly fell into a downtrend from the second quarter due to the liquidity crunch. There were three reasons behind the liquidity crisis.

First, property prices have skyrocketed since 2014. This growth cycle is longer than expected, partly due to impacts driven by the pandemic and money stimulus during the economic recovery phase.

Prices have increased 10-15% annually in the past decade, outpacing personal income growth and property purchasing power. Such growth is not sustainable.

Second, following the U.S. Federal Reserve's (Fed) interest rate hikes, the State Bank of Vietnam requested banks to tighten credit, and later on imposed rate hikes, leading to credit scarcity with high borrowing rates.

Besides, the authority has been cracking down on violations in the corporate bond market, leading to businesses struggling to access capital. For buyers, hiked interest rates have made it harder to purchase properties. Data from Batdongsan.com.vn showed that 30% of real estate transactions in Vietnam are made with loans.

The consequence is an infinite loop of investors incapable of bringing out new products due to capital shortage while buyers are unable to make transactions due to high capital costs.

Third, scandals and negative news in the real estate market have affected customer sentiments, making investors, even the wealthy, less willing to disburse money.

In combination, the three factors pushed down the real estate market from the second quarter of this year. Yet, the for-lease sector remained a bright spot.

Overall, for 2023, the authority is exercising cautious policy with a GDP growth target of 6.5%, lower than the 8.02% in 2022, and inflation target of 4.5%, higher than the 4% last year.

Analyzing the real estate market cycle in 2008-2013, the negative year 2022, as well as the delayed impacts of aid policies, credit control, interest rates, and others, the earliest expected point of market reversal is end-2023. However, there are uncertainties like changes in the legal framework, including the law on land, housing, realty business, Fed interest hike, among others.

What are the necessary steps for the real estate market to recover?

High prices, the capital crunch, and negative sentiment among buyers have impacted the real estate market. Updates in the legal framework to address these factors are critical to enable the recovery phase in the market, with some draft laws having addressed the issues.

For example, draft terms on limiting apartment ownership to 50-70 years will help reduce apartment prices. Additionally, taxes on second properties will reduce speculation and establish a more feasible price range for buyers. Past fever prompted people to buy lands, but with no plan other than waiting years for prices to increase. Idle land lots attract no added value and cause economic waste.

Foreign direct investment (FDI) in Vietnam's real estate sector reached $4.45 billion in 2022, including $1.82 billion of capital in new projects, $1.06 billion of additional capital, and $1.58 billion of capital contributions for stake acquisitions. This figure was the second highest, only behind the manufacturing and processing sector. What does this reflect and what are the expectations for foreign realty investors in Vietnam?

Such figures demonstrate that real estate remains among the top priorities of foreign investors in Vietnam. Despite current troubles, the sector has always been a driving force of the economy in the long term.

In particular, Vietnam’s big population of 100 million can grow by one million a year, equivalent to 300,000-350,000 households, showing huge potential. Additionally, urbanization in Vietnam will continue for the next 5-10 years, while the middle class will continue growing. Besides, FDI will keep on flocking into Vietnam as foreign investors seek opportunities over long-terms and they look at fundamental elements to make investment decisions.

Batdongsan.com.vnjoined Singapore-based PropertyGuru Group in 2018 after initial cooperation started in 2016. As the biggest proptech firm in Southeast Asia, PropertyGuru offers solutions to realty businesses, investors, and consumers in terms of marketing, legal information, portfolio management, and others.

In the real estate sector, technological advancements have been pushing house buyers to gain insight on the potential purchases remotely, without physical presence; helping the evaluation of properties; and delivering management solutions to investors and residents.