Real estate market in 2011 to depend much on government policies: Experts

Real estate market in 2010 witnessed various local and temporary ups and downs and management policies failed to catch up with market fluctuations.

In 2011, experts forecast that the property market would entirely depend on the government’s policies applied to curb price increases and seek capital sources for the market. According to Prof Dr Dang Hung Vo, there would be two main scenarios for property market in 2011.

Professor Vo said that in addition to forecasts based on characteristics of the market, scenario of property market also depends on the policy reform process and development planning of the management agencies. There might be policies that could positively change the market, but they would have strong impact on the benefits of investment projects. Similarly, there might be planning adjustments that could lead the market to develop towards a more balanced state, but they would affect the issue on benefit sharing.

Professor Vo said in fact, in the next few years, there would hardly be policies and planning which could have strong impact on the market. The reason is very simple, powerful measures are not suitable with the current situation.

Scenario 1

If interest rate is maintained at the current level of 16 percent, policies on price control are applied sufficiently to cut the current increasing trend of goods prices and the government has no effective solutions to increase capital for property market, the market would continue being in capital shortage, causing investors to continue “selling properties on papers” to call for funds from savings, and idle money in the population. The amount of capital poured into property market would be at least as same as of 2010, or might increase slightly from foreign direct investment flows.

In this situation, real estate market would have the same monthly price increase rate as the price increase of consumer goods. In other words, scenario of real estate market would not change much compared to the 2009-2010 period. The lack of capital would have stronger impact on real estate market. The number of transactions in low price areas might increase, but the number of transactions in high price areas would slow down and gradually reduce.

Scenario 2

If interest rate is higher than the current level of 16 percent, policies on price control are applied sufficiently to cut the current increasing trend of goods prices, and the government applies some solutions to increase capital for the market such as encouraging FDI flows in real estate, allowing mortgaging properties in foreign banks, the property market in 2011 would be under less pressure from capital shortage, or it might even get out of this situation. At that time, the market would no longer depend on domestic interest rate fluctuations, and monthly increase of property prices would still have chance to stabilise as the capital shortage has been resolved.

However, from practical perspective, Professor Vo said the first scenario has higher possibility of happening, as the ability to apply new policies to solve the issue of capital increase for the market is very low. Currently, the most important solution to raise capital is allowing investors to mortgage properties in foreign banks. However, this effective solution could not be applied immediately in 2011, it should be well prepared while the new Land Law would be built in 2012.

According to economists, if deposit rate is just about six to seven percent per year and lending rate for real estate investment is just from eight to 10 percent per year, purchasing houses by instalment loans would be feasible. Nevertheless, with interest rate of up to 18 to 20 percent per annum as at present, it is very difficult for house buyers to pay interest, not mention repaying the principal. Thus, purchasing dwelling houses by instalment loans would be very difficult. Consequences of this situation are real estate lending would be stagnant, and real estate market in 2011 is forecasted to be gloomy. In addition, at this time, liquidity of apartment market is very low, while lending rate is high, no investors could take risk by using borrowed capital to invest in real estate. In a recent press conference, Richard Leech, Executive director of CBRE Vietnam also confirmed that the current high and significantly fluctuant interest rates have reduced cash flow into real estate market.

From VietNamBusiness

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