There are rising concerns that increasing house prices will result in a Real Estate bubble. Mr. Matthew Powell, Director of Savills Hanoi, said levels of personal income and equity against rising house prices means not everyone may participate. However, the price issue is not a major concern when considering the economic fundamentals which underpin local market forces.
Mr. Powell commented most sectors continue to be affected by COVID-19, however, in Real Estate growth continues, and the number of buyers continues to increase too.
“A Real Estate bubble is difficult to imagine with the market fundamentals that have supported steady growth of Ha Noi Real Estate. Bubbles generally develop on the back of unrestricted lending and speculation. Banks in Viet Nam do not lend without a fully supporting rationale, require a guarantee they will recoup their loan, and do not offer loans to full value. Property prices are basically driven by demand, and demand is rising. We do not feel this growth is unrestricted or dangerous, but actually safe and sustainable”.
Not everyone in Viet Nam has the financial wherewithal to buy property at the top tiers of the market: further supportive investment policies are required to develop more affordable housing for low-income groups. In the past two years, many solo Real Estate investors have shifted focus from high-end properties to more affordable housing. A healthy Real Estate market requires affordable entry level housing which allows everyone to participate.
Only then will we see a healthier business environment where house prices are primarily driven by demand rather than land prices. Housing and land prices are market dependent of which, supply and demand are key aspects. There is no need to put a dampener on Real Estate prices.
We also need to take into account key aspects such as guaranteed housing supply, development of facilities, modern connected transportation systems, allowing the development of new areas and provinces. Transportation accessing new areas, opens new markets with area appropriate product development. Infrastructure development of roads and public transport are the primary drivers of new development areas.
Again, this is subject to government policy. For example, in the UK, people rarely live in central London as house prices are usually out of touch. Instead they live in the suburbs, or satellite towns, and use fast public transport to travel to work, avoiding jams, parking fees, fuel costs etc. Growth is rarely uncontrolled if effective policies are in place. The good news in Viet Nam is we do not need to worry about that problem for some time. Good supporting policies already play a central role on land, infrastructure development, and supply levels, especially of social- or low-income housing. To be able to effectively adjust house prices, we need more supply with a more refined approach, rather than unilaterally acting to acquire, with the aim of then lower housing prices. This would be an extraordinarily difficult thing to effect, with no guarantee of success.
Ms. Do Thi Thu Hang, Senior Director, Research and Consultancy, Savills Hanoi, commented: “Reducing house prices would require solutions with agreements from an extensive raft of stakeholders. The most important task now is effective management of the Real Estate market which allows development to align with economic growth, supported by an overarching aim of stable and sustainable market development. As the economy develops and incomes increase, far greater real estate product diversification is required, whether to buy or rent, which then enables opportunities for all income levels. There is no real reason to be concerned about rising prices. The market is still developing, and larger investors are very experienced. A buyer may easily calculate what a reasonable price is to pay for a property by its location and handover condition. In 2021, a few projects expected their high launch prices would require pre-launch review. Agreeable selling prices and actual project conditions reduce pressure on the project, and its developer, when launched.
“Savills Vietnam has worked with many foreign real estate investors and supported many market entries. We anticipate more large investors will join the Viet Nam market which will result in far greater diversity in product. Investors are now eyeing the affordable housing market, which will likely bring development to new areas, new access points, new roads, and new factories. This will promote further expansion and development of Real Estate markets outside of Ha Noi and across Viet Nam.”
Mr. Matthew Powell added. “Expansion also aligns with development of local demographics and the pace of economic growth. Housing products may be built according to the needs of the people in the areas that they wish to live and can afford to pay for.”