In just a short time, land prices have skyrocketed on a large scale. This raises concerns over a new real estate bubble cycle.
According to Mr. Mai Duc Toan, Director of CNT Group’s business and investment division, land fever still occurs frequently, but most of them are only minor bursts in localities. There have only been two times in modern history our country witnessed a severe land fever in two major cities, Ho Chi Minh City and Hanoi, in 2000 and 2007. The consequence of these two outbursts in land fever was the two real estate bubbles. In the aftermath, our country took nearly a decade to restore.
However, this land fever is more macro than all previous occasions. Because for the first time in history, the land fever has spread to the North – Central – South regions with dozens of provinces involved. If the government does not have a firm and decisive preventive measure to stop the real estate fever, the real estate market is likely to fall into a frozen state.
The cycle of the land fever
According to Mr. Toan, at present, the fever of land hunt is rising because the price increases by 50-100% or even tens of times for only within a few weeks. However, according to the data from previous land hunt fevers, the local soil fever cycle usually only takes place a few weeks or at max several months.
When the fever is over, real estate prices tend to decrease or, if we are fortunate, remain unchanged. Over time, the real estate market in these places will be adjusted. Accordingly, land prices will slowly rise but at a very low rate. This is because the land value had been pushed to the peak at the feverish time. At that moment, the real estate prices are many times higher than the real value of the property. Investors who bought real estate at the end of the fever often suffered losses and had to sell off because the prices fall extremely low at that point, and It is unlikely to rise in a near future.
Expert opinions on the potential of a real estate bubble
“In my opinion, in a year, if the increase fluctuates over 10%, or a little bit more, the market will be sustainable. If the land price in a year goes up to 50% people should be careful. Up to 70-100%/year, there may be risks. Starting at 100%/year or more, bubbles may occur. At the moment, there are no bubbles but if it continues without any timely intervention and prevention, we cannot foresee anything,” Mr. Toan emphasized.
Mr. Matthew Powell, Director of Savills Hanoi, said that despite the price increase, there is no need to worry about a real estate bubble: “We do not believe in the real estate bubble hypothesis. We are confident that the Vietnamese real estate market can keep its steady pace. Real estate bubbles are generated by uncontrolled lending and speculation. Currently, banks do not give out loans without a proper basis and reasons. Commodity prices depend on demand and the demand is growing. We believe that this growth is not at a dangerous level or out of control, but entirely within a safe zone.”
According to this expert, not everyone can keep up with the rising house prices with the current wealth and personal income of the society. To be able to adjust house prices, we need more supply and a reasonable approach, instead of just deliberately acquiring and lowering housing prices.
Ms. Kim Ngoc, Director of Appraisal and Consulting Division, Colliers Vietnam analyzed that if there are two signs below in the real estate market in localities, there will be a virtual land fever and a potential risk of real estate “bubble”:
- The market in many regions is currently experiencing a virtual fever when land prices increase rapidly, sometimes up to 200% or more within 1 to 2 years, possibly up to 50% in a quarter. Yet, the sales and deposits appear many unusual signs like buying and selling at a rapid expansion in price in a short time, or overlapping purchases cause virtual, unrealistic demand.
- The price value is not corresponding to the infrastructure development. Buyers mainly acquire real estate to expect price differences when selling off the properties, not to live or to conduct business.
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