Sustainability of Vietnam’s Real Estate Market

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By Mattia Capsoni

Mar. 13 – In recent years, Vietnam’s real estate market has shown considerable strength and a propensity for growth.

“[The real estate market] has contributed an important part to ensuring economic growth and social security, but besides the positive results there remain a number of weak points,” Minister of Construction Nguyen Hong Quan said in an interview with VnEconomy News.

Problems do still persist, such as high housing prices and the difficulties that have to be faced in everyday management. In addition, a lack of luxury apartments and offices in recent years has caused the market to focus on this kind of construction; leading to an over-saturation of supply and a high rate of unsold properties.

Another weakness of this sector is the financial system, with a lack of mid to long-term credit and high short-term lending interest rates. Doubts arise about the rumors affecting the real estate market, followed by speculation, price hikes and market instability.

Only 30 percent of the total floor space built in 2010 was belonging to real estate companies, whereas the latter 70 percent was built by individuals for their own use, according to Quan.

Furthermore, the secondary market has no direct access to the public and no fund certificates circulate through small investors. Foreigners, not allowed to invest in real estate trading, are involved only in construction projects.

On the other hand, the risks seem to be always around the corner, because of the misleading pricing trend which can attract low quality investors, with low experience and borderline financial situations.

The Vietnamese government is a primary player in this field and follows its development closely, driving it through a continuous improvement of new regulations and laws. The primary target is to control the effectiveness of capital investment flows in the market, fight mere speculation, and keep it alive and dynamic in order to lower the risk of bubbles and reduce effects on inflation.

Dezan Shira & Associates is boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in Vietnam. To contact the firm, please email vietnam@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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