4 reasons to be cautious when investing in real estate in 2018

Chairman of the Real Estate Coffee Association, Tran Khanh Quang, said that there will not be a completely rosy picture for the real estate market in 2018 and it is certainly difficult to avoid gray dead corners.

Therefore, caution is the criteria that investors need to put first in the year of Mau Tuat although the market still has many growth opportunities. Mr. Quang shared 4 reasons warning real estate investors to be vigilant and alert before deciding to "choose the right place to put their money" in the new year.

The price level is being pushed up too high.

According to this expert, apartment prices have increased by an average of 15-20% over the past 4 years: 2014-2017, which means the price has increased by about 60-80% over the entire cycle. During the same time period, land prices have also increased by an average of 25-30%, which means an increase of 100-120% in 4 consecutive years. The upward trend of apartment and land prices is still there, but it is very difficult to predict how much the increase will be in 2018 and it depends largely on the location and area.

Not to mention that many investors have been making moves to increase real estate prices for many years by setting the highest selling price in the history of the area where the property is located. When real estate has been pushed to a high price threshold, the market enters a price chaos cycle, when the property is inflated to a price range exceeding its inherent value, which is when the price bubble begins to accumulate. Investors need to carefully assess the price and potential when buying, do not spend money blindly, because only the buyer makes a mistake, not the seller.

Profitability enters a challenging phase

2018 is the time when many real estate projects enter the product handover phase. This is a mandatory milestone to test the actual ability of the investor to commit to profit. For many years, the trick of dropping bait with huge profit margins to "exchange shrimp to catch shrimp" has been applied by many businesses.

However, the theoretical problem when faced with reality is not simple and will certainly have some errors. Because, when the supply ready to operate simultaneously increases, according to the market rules, rental prices and exploitation prices will decrease, leading to lower profit margins than expected. The market needs to pass this test to find balance after a long period of fever.

Banks cautiously lend to real estate

Investors, before deciding to use financial leverage to buy houses and land, should note that in 2018, banks will not be easy to lend for real estate. The reason why financial institutions are cautious about lending for real estate investment is because the credit ratio of this group is at a high level. The caution of banks may create certain barriers, but this is a necessary and positive test.

Sales may slow down

In the years 2014-2017, the purchasing power of real estate increased and continuously set historical liquidity records. But in 2018, this may not happen because since the second half of 2017, signs of a slowdown have appeared in the apartment market. Currently, the liquidity of real estate (land or assets attached to land) is still extremely good, but the price column has been inflated to a higher peak than the previous peak.

The question is, the buying phase is going well, but how will the market react when everyone sells? The answer is that purchasing power may slow down, as a natural reflex of the market. Therefore, investors should not forget to pay attention to this issue to have a specific plan for short, medium or long term capital flow.

Mr. Quang commented that the subjectivist theory was applied very favorably in the years 2014-2015-2016-2017 and led investors to success. However, the year of Mau Tuat needs a quiet time for skepticism and criticism. Investors need a cool head to enter the market selectively and should not pour capital into all segments.