Given that the real estate market is facing capital shortages, Vietnam should allow investors to access loans from foreign commercial banks at far lower interest rates.
Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, told Thanh Nien Weekly that the capital issue will provide the key to getting Vietnam's retail market back on track.
Thanh Nien Weekly: How has rising inflation influenced Vietnam's property market?
Dang Hung Vo: People are struggling to figure out what to do with their savings. As inflation continues to rise, no one is going to want to keep their savings in Vietnamese dong. Right now, their options are foreign currency, gold or property.
Vietnamese people have a habit of keeping their savings in property, because they think that it is the safest way. That habit can be good and bad.
Since late 2009, fewer and fewer people are speculating in Vietnam's property market.
Speculation did not fall because we took effective measures to prevent it. It's just no longer profitable.
In the past, property prices steadily rose. Now prices rise and fall and it's difficult to say whether or not people will pour their savings into property or not. If people continue to invest their savings in property, trading will increase.
The market's changes will depend on the state of investment and production.
We have to increase interest rates to reduce inflation. Such a move has slowed down production due to Vietnam's capital shortage. The real estate market is facing the same problem, as investors are lacking capital.
But we still don't know what that will do to real estate prices.
What will prices ultimately do to speculation? Aren't real estate prices high?
Prices are really only high in Hanoi.
In Ho Chi Minh City, trading is very slow, and prices have fallen sharply. A flat in a newly-established district in HCMC could cost between VND12-15 million per square meter"” marginally more than the construction cost.
Speculation is down throughout the country, but it's up in Hanoi because land has always been scarce in the capital.
How are efforts to make the market more transparent going?
We are trying, in terms of policy, to increase the market transparency, but the implementation (of the policy) remains weak.
Furthermore, the policies that are being implemented don't do enough to meet the demands of the investors.
People need to have a greater idea of what's going on in the market. Once investors can keep a close eye on market trends and changes, things will develop more smoothly.
What can be done to help develop a stable, prosperous real estate market?
Firstly, we should adjust our laws. Demand for real estate is high and our current laws have not opened the market wide enough to meet that demand.
In addition, we need to make Vietnam's complex bureaucratic process (for buying and selling property) simpler and more transparent. We have passed good new laws about making the process simpler. Again, however, the implementation of those laws has left a lot to be desired.
What's more, investors need to have an alternative means of seeking capital when we face a domestic shortage.
A government stimulus fund helped some projects develop smoothly between 2008 and 2009. However, the fund was limited and it only contributed a slight boost to the development of low-end housing.
What can be done to stimulate the market in the face of a capital shortage?
Lately, investors have managed to mobilize capital by selling units which have not yet been built. Government decree number 71 (which allowed developers to sell 20 percent of a project's units prior to the completion of construction) could facilitate capital mobilization.
Right now, Vietnam has many ways of mobilizing investor capital, but from domestic sources only.
We can mobilize capital from foreign direct investment. However, FDI projects in Vietnam, especially real estate projects, haven't proven too effective.
Right now, foreign investors mobilize capital from Vietnamese people to build expensive flats and sell them back to Vietnamese people. For this reason, it takes a while to make effective use of FDI.
We could allow local investors to use their property as security in seeking loans from foreign commercial banks. At the moment, Vietnamese law prohibits the practice.
We should adjust the law to allow investors to access the abundant sources of foreign capital that are out there. Foreign commercial banks are ready to offer (dollar) loans at an annual interest rate of 4-5 percent.
The bottom line is, ensuring access to capital is crucial to stabilizing Vietnam's real estate market.
What do you see happening in 2011?
This year, I think, the real estate market will not experience big changes. I think things will be similar to 2010.
The market may get a little better or worse, if we effectively deal with inflation. Interest rates will also play a major role. The big question is whether or not the government will launch another stimulus fund.
Without such a fund, the market will face more difficulties.