VietNamNet Bridge – Some economic experts and officials have expressed concerns over the possible return of a real estate bubble in the coming years. Nguyen Van Duc, vice chairman of the HCMC Real Estate Association, discussed the matter in a talk with The Saigon Times Daily. Excerpts:

What do you comment on concerns over a possible real estate bubble as the market has just recovered after many years of stagnation?

- I think a real estate bubble will not return in the next several years. However, there is reason to worry about recent developments of the local property market though the market has recovered since late 2013. The worrying signs are an upscale apartment oversupply, virtual property fever and price manipulation tricks of property investors. After years of stagnation, thousands of property projects nationwide have not resumed construction. 

Nguyen Van Duc

There are problems with the property market when the demand for budget condos is huge but the supply is scarce. Property developers have launched more products for high-income buyers. Are you concerned about this?

- Yes. It is clear that the supply of luxury housing projects outpaces that of medium- and low-income buyers. The number of luxury units at housing projects under construction in HCMC alone amounts to 40,000 and it is a worry that these projects will be completed in 2017. This means there will be a huge supply of high-end apartments on the market in the next two years. Meanwhile, the market is in dire need of many more low-cost apartments and the annual demand for these products could be 30,000 units. The market will grow sustainably when its products meet a majority of customers.

But investors of the luxury property projects say their products are selling well. Is the prediction of an upscale apartment oversupply in the next two years correct?

- Of course, investors have carefully surveyed the market before investing in high-class products but there are concerns out there for some reasons. In addition to planned completion in the same year 2017, these apartments cost more than VND2 billion (some US$91,600) a unit, which is beyond the reach of a majority of home seekers, and these property projects are up and running in a radius of 3-4 kilometers. The volume of already sold apartments announced by investors is just for reference and does not reflect the reality of the market. Investors boast they have sold out their products or most apartments at their projects but they do not unveil who the buyers are. The big question is who their customers are: property exchanges, speculators or people who purchase homes to live.

The property market began to recover more than one year ago, backed by products for medium-income buyers, not luxury units, and the demand in the first segment remains huge today. However, it is unfortunate that a number of property developers who weathered tough times in the past by their medium-class products have rushed to invest in products with higher prices.

January-May real estate loans jumped nearly 11% and doubled the country’s average credit growth in the period and more incoming remittances have flowed into this sector. What do you think?

- Real estate woes in previous years were partly attributable to easy lending to this sector and some of the problems were solved after the Government tightened credit for this sector. Now, much money has gone to property projects. A report of the Ministry of Construction showed bank loans for the real estate sector were VND333.7 trillion in the first quarter of this year, rising by 10.5% compared to late last year. So, I think the Government should better control lending to property projects to ensure that money will flow to the projects that benefit many people in dire need of a home. If more credit goes to luxury housing developments and their buyers just speculate, the market might fall into the same troubles of the past, stoked by oversupply in the luxury apartment segment.

The 2014 Housing Law and new regulations on property trading took effect on July 1. How will these new regulations impact the real estate market?

- Immediate impact of the new regulations will be insignificant. Many investors are pinning high hopes that the new housing law will benefit both investors and foreign buyers as it eases restrictions on foreign property ownership. However, the demand of expatriates is estimated to account for a mere 3% of total demand in the local property market. Foreigners will certainly wait and see how the market will play out before they decide to buy. Moreover, complicated administrative procedures in Vietnam may be a source of discouragement for expats planning to purchase apartments.

In all, new regulations will not be a miracle for the market to boom as expected by many investors.