Real estate 2019: A turbulent year

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The real estate market may be tougher and real estate business may be much more difficult in 2020.

Supply drops, prices "dance"

Many experts assessed the real estate market in 2019 did not appear to have a "bubble" phenomenon but saw a serious decrease in project and housing supply as well as number of transactions. Besides, real estate enterprises had difficulties in accessing capital. At the same time, rampant sale of plots and virtual land price fever in some localities has recurred; and phishing to sell "unreal projects" has become common.

Many people are concerned the real estate market will be tougher and real estate businesses will be much more difficult in 2020. According to independent real estate consultancy organisations, commercial housing projects licensed for construction in Hanoi and Ho Chi Minh City are counted on the fingers so far. Not only are newly-implemented projects rare but many projects under construction, even the ones that are coming into the handover stage, have also been delayed. The quantity of products offered for sale dropped sharply, resulting in a slowdown in trading.

JLL Vietnam’s (Real Estate Investment Management Company) report showed a record low apartment supply in the two largest cities of the country, Hanoi and Ho Chi Minh City. Specifically, the number of newly launched apartments in the second quarter of 2019 was only about 7,000 units in Hanoi, equal to half compared to the previous two quarters. The number of apartments put up for sale in the third quarter was more than 4,660 units, 65.3 percent lower than the second quarter. In Ho Chi Minh City, the number of apartments for sale exceeded 4,100 units, a record low since the market recovery in 2014.

Along with the decrease in supply, there were land "fevers" in most localities across the country in 2019. They began to break out in Da Nang and Quang Nam shortly after the Lunar New Year, spreading to the countryside. Specifically, ground land lots of about 100m2 in Hoa Xuan area (Cam Le district, Da Nang city) were worth from three to five billion VND (depending on location). However, just two weeks after the Lunar New Year holiday, their price quickly increased by 600-800 million VND per lot.

In Hanoi, news that some areas such as Gia Lam, Dong Anh, Thanh Tri, Dan Phuong and Hoai Duc were about to become a district also made land prices "dance". Investors and land brokers warmed up transactions with many different methods such as spreading rumours that land prices would increase, and making virtual transactions, which pushed real estate prices in the areas to increase rapidly. In some places the land price was two to three times higher than it had been a few years ago.

In Dong Anh town, according to a land broker, the price of residential land on big roads was about 100-120 million VND per m2, up 10-15 unit price compared to the end of 2018. The area with the highest increase in price was plots in Le Phap village (Tien Duong commune, Dong Anh district) at 30- 35 million VND per m2, while the selling price at the end of 2017 was 15 - 17 million VND per m2; in Xuan Canh commune, land price was 35- 40 million VND per m2 while it was 15-20 million VND per m2 in the previous period.

In 2019, there was also a shocking incident when homebuyers complained because real estate company Alibaba "tricked" to sell many "ghost projects" to buyers at "exorbitant prices" in Dong Nai, BinhThuan, and Ba Ria-Vung Tau.

In addition to "dancing" prices, and the fact that buyers are blatantly deceived when the mistake of Alibaba was discovered, there was the turmoil of condotel products at the end of 2019 when Cocobay Danang project had ended its commitment of 12 percent profit, leaving some secondary investors at risk of losing their properties. The incident of Cocobay Da Nang also made many investors flinch when mentioning condotel products.

Besides the "bottlenecks" of the market, the real estate market also had certain bright spots in 2019. Nguyen Van Dinh, Vice Chairman of the Vietnam Association of Real Estate Brokers, said the stock market significantly fluctuated, and cash tended to shift from securities to real estate.

According to Dinh, macro reforms and Vietnam’s competitiveness index are getting better, causing FDI to increase in real estate, especially industrial real estate. According to statistics, the total amount of capital poured into real estate business activities in the first nine months of 2019 hit US$478 million, accounting for 5.6 percent of total registered investment capital in Vietnam.

Remove "bottlenecks"

Analysing real estate in 2019, Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, said the decline in project and housing supply would have a negative impact in the coming years, leading to a number of businesses facing difficult situations, even bankruptcy. It was difficult for consumers to own their houses because housing prices tend to increase according to the law of supply and demand.

“Scarce supply will push housing prices up, so people, especially those with average and lower income, will hardly have a chance to own their house. At the same time, businesses are also miserable because capital costs increase many times, interest rates increase in bank loans and especially, business opportunities are lost,” Vo stated.

Nguyen Tran Nam, Chairman of the Vietnam Real Estate Association, said difficulties in the real estate market would last until 2020 because of legal issues, credit issues, and capital flow safety. "Legal problems are not easy to solve immediately, credit for real estate is increasingly tight, and access to land is limited, which makes the market more and more difficult and declining, so businesses have to be careful,” said Nam.

To partly remove the "bottlenecks" of the market, Stephen Wyatt, General Director of JLL Vietnam, said State management agencies should pay more attention to completing the legal mechanism, resolving illegal projects to rebalance the market, and licensing projects eligible for development.

According to JLL's General Director, the management agency needs to create a large land fund and the Government needs a flexible mechanism for investors. In particular, there should be better mechanisms for investors to develop large-scale, methodical projects, serving real needs rather than investment demand.

Dang Hung Vo said there should be a classification and zoning of projects according to segment and practical needs should be met. It is necessary to promote good projects and eliminate those that disturb the market. At the same time, rectifying and eliminating the situation of "dividing plots for sale" without a project or land allocation so management activities are public and transparent.

Nguyen Van Dinh said that in order for the real estate market to operate stably and minimise the "bubble" situation, State management agencies need to develop, amend and perfect the legal system of land, investment, construction, urban planning, and real estate business (including bylaws), ensuring systematisation, synchronism, and interconnection.