return icon Vietnamnet.vn

Land fever: bad consequences and new solutions

Since doi moi (renovation) in 1986, the Vietnamese real estate market has witnessed many ups and downs, including four “price fevers” so far.

The first spell occurred in 1990-1992, and the second in 2000-2002. In fact, this was not a real fever but just a price increase as Vietnam shifted from a subsidy economy to a market economy. 

Under the subsidy mechanism, in theory, land did not have prices. However, during transactions of  assets attached to land, one could see that land had a price, but the prices were very low.  

During the two land price increases, prices in large cities increased by tenfold each time. 

The question is why land prices increases in the two periods were 10 years apart.  Each time the land prices increased to suit the market conditions of regional countries, this was interrupted by the enactment of the Land Law, including the 1993 Land Law and 2003 Land Law. 

The land laws lacked provisions that restricted land price increases. People stopped all actions to wait to see how the new laws would affect the real estate market. 

As of 2003, land prices in large cities had been nearly equal with those in other large cities in the region, including Jakarta (Indonesia), Manila (the Philippines), Bangkok (Thailand) and Kuala Lumpur (Malaysia). 

In 2003, the real estate market turned quiet because investors were shifting to the fledgling stock market. Many investors sought profits from the value of land held by equitized companies. When State-owned enterprises were equitized, the valuation of the land was still within the price framework set by the state, and therefore the prices were very low. 

With this trend, a bubble accumulated in the stock market. In 2007, the securities bubble burst and investors rushed to withdraw capital from the stock market to inject into the real estate market.  

The third land fever occurred in that 2007-2008 period, as a result of the massive capital shift from the stock market to the real estate market. 

The land price hikes in that period were believed to be the reason behind the high inflation. The solutions to curb inflation led to  a real estate market that did not have enough capital.  

The Government found solutions to recover the market in 2013. 

In 2014 and the next few years, the supply of high-end products was plentiful, while there was a shortage of affordable housing, even though demand was very high.  

The Government then gathered strength to settle the supply-demand imbalance in the high-end sector, which centered on bad debt settlement. Meanwhile, real estate developers began making investments in new real estate products, such as condotels, shophouses, resort villas, homestays and farmstays. 

In 2018, real estate market segments, including commercial housing, social housing and tourism, all faced difficulties because of the inadequate legal framework, or conflicts among related legal documents.  

In 2020, the housing market segment witnessed a fourth price fever with prices increasing by twofold.

Fourth land price fever 

The fourth land price fever occurred for several reasons.  

The year 2020 was the first year of the 2021-2030 development planning period, when suggestions about new urban development and new projects were made. The Government also decided to increase public investment in transport infrastructure. 

These factors had an impact on the real estate market, making the housing market segment more attractive to investors.  

Another factor that enlivened the real estate market was the increased land lot allocation for sale. Local authorities wanted to allocate land lots for sale to increase local budget collections, while small investors wanted to buy land for speculation. 

Second, the Covid-19 pandemic affected people’s incomes. People who have idle money sought new investment channels to improve their income, and the real estate market was seen as a safe choice. 

That is why investor demand for real estate increased but not for the purpose of living accommodation. 

Meanwhile, supply decreased because of problems in legal documents. A number of projects are still on the table, waiting for approval from state management agencies. 

Third, land prices increased because of speculation and profiteering. Many real estate brokers disseminated fake news to create artificial demand.  

If the fourth land price fever cannot be stopped, this will lead to high inflation. The reason behind the demand increase is speculation, and it still has not been settled. 

Vietnam needs to learn from experiences from industrialized countries and discover effective measures to prevent land price fevers, which are believed to be the beginning of economic crises.  

Land fever can also occur in countries with tight management like the US and Japan. A minor mistake is enough to lead to serious consequences which may take decades to solve. 

Land speculation also causes a social impact. The gap between the rich and the poor increases, and the poor don’t have opportunities to buy homes. 

The radical solution for Vietnam is eliminating speculation and encouraging investment in production and business. And in order to do that, it’s necessary to apple reasonable real estate taxes.

Prof Dang Hung Vo

MORE NEWS

Credit package for social housing not as productive as hoped

Few have benefited from the VND15 trillion credit package for social housing as there is a limited supply of low-cost homes.

VIETNAM BUSINESS NEWS AUGUST 17

More effective tax collection of e-commerce necessary

VIETNAM NEWS HEADLINES AUGUST 17

Cultural industry to contribute 10% of Hanoi’s GRDP by 2045

Authority warns of scam South Korea labour export programmes

The Department of Overseas Labour under the Ministry of Labour, Invalids and Social Affairs have warned about scams targeting people who want to work in technical occupations in South Korea.

Textile firms call for favourable policies amid pessimistic prospects

With a pessimistic outlook for the second half of 2022, textile firms are calling for favourable governmental policies to turn their situation around.

Enterprises ignoring waste management to face penalty

Enterprises that are required to manage their waste and have yet to fulfill their payment obligations will be inspected, with a possible fine of up to VND2 billion for violations.

Favorable conditions pledged for Qatar’s funds, enterprises

Competent Vietnamese agencies are willing to create favorable conditions for Qatar’s investment funds and enterprises to seek investment opportunities in the country.

Woman posing for Tiktok video at Phu Quoc airport banned from flying for six months

The head of the Civil Aviation Authority of Vietnam Dinh Viet Thang has decided to issue a flight ban on a woman posing for a TikTok video at the Phu Quoc Airport tarmac for six months.

“1,000 public employees quitting jobs each month is inaccurate data”: HCM City

The Ho Chi Minh City Department of Home Affairs says the information that 6,177 public employees quit their jobs in the first half of 2022 is incorrect. These are actually statistics from January 1, 2020 to June 30, 2022.

Gov't sets up six working groups to inspect disbursement of public investment capital

Prime Minister Pham Minh Chinh has tasked six working groups to inspect disbursement of public investment capital in 41 ministries, state agencies and 18 localities where disbursement is below the national average rate of 34.47 percent as of July 31.

Vietnam to mobilise $360 billion for sustainable development targets

Vietnam needs to mobilise $360 billion for implementing its green and sustainable development targets by 2030.

Vietnam to make Apple Watch, MacBook for first time

Apple is in talks to make Apple Watches and MacBooks in Vietnam for the first time as the US tech giant looks to diversify production away from China, Nikkei Asia reported.

Japanese firm buys 35.1% stake at Vietnam’s power company

JERA Inc., a power generation company of Japan, has signed a deal to buy a 35.1% stake at Vietnam’s Gia Lai Electricity JSC (GEC) to tap the Southeast Asian nation's growing demand for electricity and further its own decarbonisation efforts.

Goalkeeper Dang Van Lam officially signs contract with Binh Dinh

Goalkeeper Dang Van Lam has signed a three-year contract with Binh Dinh FC and is expected to play his first match for his new team in the V.League 1 this weekend.

Vietnam faces shortage of Protamine sulfate

The Drug Administration of Vietnam (DAV) has sent a letter to provincial and municipal departments of health, hospitals and drug importers, asking them to supply information on stocks of Protamine sulfate.
back_to_top