No thaw expected in Vietnam's frozen housing market

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Residential and commercial buildings stand along the waterfront in Hanoi. PHOTO: BLOOMBERG
Analysts say that the Vietnamese real estate market, which has been frozen since 2010, will not recover until housing prices plummet toward local earnings.
“Given low sales in the property sector at the moment, we have to accept the fact that the market is still frozen,” former Deputy Minister Dang Hung Vo of National Resources and Environment, the office responsible for land management in the country, told Saigon Tiep Thi newspaper.
Explaining the reason behind the sluggish situation, Vo, who is now an independent property analyst, said housing prices are extremely high compared to average local incomes.
A 2012 report by the legislative body’s economic committee showed that average housing prices were 25 times higher than average annual earnings.
That ratio was usually two to four-fold in other countries.
In other words, if a Vietnamese employee saved 25 percent of his earnings, he would have to wait for 100 years before he could buy a house.
Vo told Voice of Vietnam that the ratio has since fallen to tenfold in low-cost commercial housing and the social housing segments, which is still too high.
Alan Phan, a renowned Viet kieu fund manager, expressed a similar point of view.
“The only reason for the stagnant property market is that selling prices aren't affordable for potential home buyers,” Phan said in a recent interview with Voice of Vietnam.
“If housing prices remain too high, locals can’t buy, thus the market remains sluggish.
“The market depends on many rules, but the main rule is price harmonization. This rule is not applied in Vietnam,” he said.
Phan, who's been doing business in the US and China for 42 years, said the real estate market, in completely free market economies, follows a cycle: after being pushed up to a bubble, it bursts, collapses, and revives in line with economic growth.
But such a cycle doesn't occur in Vietnam, he said.
Vietnam experienced a property and credit bubble that popped several years ago and saddled the country’s banking system with bad loans.
Dang Hung Vo said a paradox in the property market is that supply of high-cost housing units has overwhelmed demand, leading to high inventories and bad debts, while there is a severe lack of low-cost housing units.
Only 1,500 condominiums were sold in Hanoi in the first quarter, according to property firm CBRE. While that’s a five-fold increase from the 279 sold in the same period two years ago, it’s still down from the peak in 2009, when more than 15,000 units were sold in the capital city.
In Ho Chi Minh City, first-quarter sales more than tripled to 2,263 compared to a peak of 13,000 condos sold in the city in 2010.
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