A “provincial” and susceptible market

The whole market surged in the late 1980s and early 1990s when the economy changed from a government-subsidized to a market-oriented one.

The macroeconomic upheaval saw people rushing to buy what was considered the most secure thing in a world of changing prices and uncertain-ties – land.

Thus ensued periods of “land fever” that affected the whole country and all sectors of the real estate market.

Later outbursts of demand for real estate were limited to certain locations or market sectors.

And it is often the government’s price policies and planned developments that trigger a bout of real estate fever.

At present, the market is still subject to the government’s complex price policies, with subsidies for state-run enterprises.

The government business sector, for instance, receives preferential treatment, giving rise to under-the-table dealings between government officials and businesses.

The sheer variety of development projects has also affected the real estate market.

The construction of a highway or a residential center, for instance, often heats up the price of land in the surrounding areas.

In addition, the public’s perception and understanding of the real estate market also determines how they will react to and, in turn, influence the market.

Price convergence

The differences in real estate prices between different locations will gradually disappear in the long run.

For years, land prices have varied wildly across regions and even within cities.

For instance, one square meter of land on the front of Hang Gai Street in Hanoi’s Old Quarter costs tens of millions of dong, ten times more than the same amount in a suburban district.

Vietnamese real estate customers have long valued locations where they can open shops and have access to good roads as well as “good” (friendly, law-abiding) neighbors and have found the inner city answering their needs.

In the long term though, land prices will become more consistent across locations, with slightly higher demand for luxury urban centers, suburbs with pleasant surroundings and relaxation facilities and areas adjacent to important roads or other construction works.

Also, as the government raises land prices in major cities closer to its price ceiling, the average price level countrywide will be somewhat higher.

For instance, as of this January, the maximum real estate price in Hanoi and Ho Chi Minh City will be VND67.5 million (US$4,220) per square meter.

A more diverse, professional market

Other sectors of the market besides apartments and luxury residences will also see more competition among suppliers and consumers alike.

These sectors include investment properties, low-income housing and houses for overseas Vietnamese and foreigners.

More buyers will join the market, which until now has been dominated by middle-income earners.

The government itself is also likely to take a more active role in the market.

The market will become more professional with an increasing number of real estate transactions conducted through government agencies or real estate exchanges.

By Nguyen Minh Phong
(*) Nguyen Minh Phong is head of the Hanoi Institute of Economic and Social Research and Development’s Economic Research Department.

Source: TBKTSG