Will the real estate bubble return in cycles?

Many experts and real estate market managers believe that there is currently no need to worry about a repeat of the real estate bubble, but we should not be subjective either.

Strong market growth

Assessing the current state of the real estate market in our country, the Vietnam Institute for Economic and Policy Research (VEPR) said that the recovery of the real estate market is a positive signal for the economy. However, VEPR warned: "We need to be cautious with the growth of the real estate market and prevent the formation of a cyclical real estate bubble."

The real estate market is growing well.

Analyzing this warning more clearly, VEPR said: the real estate market grew strongly in the third quarter as well as the first 9 months of 2015. Circular 36/2014 of the State Bank loosened real estate lending, reducing the risk coefficient from 250% to 150%, creating a positive effect.

According to Savills statistics, in the third quarter the market absorbed about 5,220 and 6,650 apartments in Ho Chi Minh City and Hanoi, up 59% and 50% respectively compared to the same period in 2014. Real estate prices have been quite stable, with a slight trend showing no signs of overheating.

According to CBRE, the transaction volume in Ho Chi Minh City is mostly in the high-end segment. In the Hanoi market, the mid-range segment still dominates, while high-end apartments have increased sharply.

In contrast, the low-income segment has received little attention. The preferential loan package of 30,000 billion VND for low-income earners has only disbursed 26% as of September 2015. Meanwhile, the real estate lending rate has shown signs of increasing sharply, reaching 10.89% in the first half of 2015.

Another point to note, according to VEPR, is that real estate credit is on the rise, transactions are mainly concentrated in the high-end segment and the price level is on the rise, causing concerns about the sustainable development of the market. Therefore, "when the market has recovered, it is necessary to adjust the policy of encouraging real estate lending" - VEPR recommends.

Can not be subjective

VEPR’s warning about the risk of a real estate bubble returning is not unique. At the Global Investment Forum held in Hanoi in October, many experts in the industry said that there was no basis to say that the market had a bubble. Recalling the story of the real estate bubble in Vietnam in the period 2007-2010, Mr. Vu Van Phan, Deputy Director of the Department of Housing and Real Estate Market Management (Ministry of Construction) said that the real estate bubble at that time was most clearly demonstrated by the skyrocketing price of real estate every day, with very little supply while demand was high.

But with the current market situation, Phan also warned: "A bubble may appear if the market grows rapidly and prices continue to increase continuously...".

The market is different now…

“There are no worrying signs of a real estate bubble re-emerging in Vietnam. Because the market at this time is fundamentally different from the previous real estate bubble. Previously, buyers were mainly speculators, but now, real buyers make up the majority due to the need to buy for living, then buy to rent and buy to find opportunities to make a profit from real estate. Current investors also carefully research market demand to supply suitable products to ensure sales. At the same time, the current macro environment is also different when the consumer price index has developed, the current inflation rate is low, while interest rates are controlled.” - Mr. Richard Leech, Director of CBRE Vietnam.

Minister of Construction Trinh Dinh Dung, when answering questions at the National Assembly at this session, assessed that speculation has begun to appear in the real estate market. The manifestation is that home buyers have to pay much higher prices than the prices offered by investors, especially in projects in good locations with fast construction progress. Investors themselves have also proactively increased prices and many projects have simultaneously started construction, leading to concerns that a real estate bubble will appear in the near future.

The Minister said that a real estate bubble can only appear when the following factors converge: The economy is not developing stably; other markets are also developing unstably and are not attractive, so investors will put money into real estate; the real estate supply is lacking or there is a mismatch between supply and demand; the financial and credit policies for real estate are loose; there is a lack of state control in the process of managing investment in construction, urban development and real estate market development.

However, with the current reality of Vietnam, Minister Trinh Dinh Dung said that it is very difficult for a real estate bubble to occur. Especially when our country's economy is recovering, has a stable macro-economic growth rate as well as the major balances of the economy always maintain stability along with other factors. However, the Minister said that "market developments are very complicated, we cannot be subjective"./.

According to VOV