Short-term speculators who last year borrowed to invest in new “high-end” suburbs and apartment blocks in Ho Chi Minh City are rushing to sell off these properties after banks raised interest rates sharply.
The distress selling is also having the effect of pricking the property price bubble that built up since the middle of last year.
Prices have plunged by even half in some places.
Many speculators are advertising at the original prices they paid, or even lower.
The downward spiral began when the government tightened monetary policy earlier this year to fight skyrocketing inflation.
In January speculators were ready to pay double the cost price of VND16 million (US$990) per square meter for an apartment in the New Saigon project in the South Saigon area.
The price has now fallen back to VND17 million ($1,052) and some sellers are even ready to bear the property transfer tax.
Nevertheless, sales have dried up with buyers waiting for further drops, a prospect echoed by many analysts who also say the market is returning to realistic valuations.
Many developers last year labeled their projects “high-ranking”, a standard that has never been defined by any local institution, and sold them for at least US$1,000 per square meter.
The country’s per-capita gross domestic product is less than $900.
Yet buyers, driven by a dire shortage of housing and strong economic growth, scrambled to secure a piece of Western-style suburbs and apartment blocks.
With speculation fueling them further, prices went up two- to three-fold.
Since developers are allowed to sell their properties once they build the foundation, most adopted the installment-payment route to mobilize capital from future home owners and investors.
Speculators resorted to borrowing from banks and making down payments while waiting for prices to soar.
However, their calculations went awry this year after commercial banks upped interest rates by up to 20 percent and refused to extend loans or grant new ones.
The downward spiral in property prices, meanwhile, kept eroding profits and, in many cases, actually caused losses.
Analysts estimate prices have plunged by over 40 percent from the peaks of late last year and early this year.
A real estate agent in District 7 said many of his clients were trying to sell their apartments at the BMC Hung Long project, where registration cards - that confers the right to buy an apartment once construction is finished - cost VND300 million ($18,579) last year.
Some were willing to sell at cost price and even offered discounts of up to VND50 million ($3,095) for immediate payment, he added.
Many apartments in New Saigon, where retail prices were VND29 million ($1,796) per square meter, are now available at VND25 million ($1,548).
The cost of land in high-end housing projects in District 7 has plummeted to VND45–50 million ($2800 - 3100) per square meter, down from almost VND90 million ($5,573) last year.
The situation is so gloomy that some investors who paid deposits for property in under-construction projects have decided to forgo their advances of up to 10 percent of the final price to avoid further losses.
Some analysts forecast prices will continue to fall until the end of this year.
Source: TN, Agencies |