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Ho Chi Minh City apartment market slumps
Rising bank interest rates and tightened regulations are acting as a drag on the Ho Chi Minh City residential apartment segment.
The developer of a Go Vap District project decided to postpone the sale of apartments scheduled for the middle of this month after demand plunged since its unveiling a few months ago.
Another project in Go Vap District has been delayed for a second time after the developer’s banks told buyers they will no longer get mortgages. The foundation of the apartment block is complete.
A third project saw prices slashed to VND16 million per square meter from VND18-19 million but was still unable to attract buyers.
Pham Van Hai, general director of ACB Real Estate Company, blamed the less profitable short-term outlook, adding prospective buyers prefer to park their money in banks, gold, and dollars.
Bank lending rates have become very high but the double-whammy is the recent Circular 16 aimed at preventing speculation that prohibits property owners from selling out until they get the property deed.
This has becalmed the housing market since speculators are discouraged by the time-consuming documentation process involving administrative agencies and project developers.
While it has succeeded in curbing speculation, it has also hurt developers and real-estate trading floors.
Some bribe developers and officials to get a certificate stating that a property has yet to be handed over to first buyer so that they can sell.
Le Hoang Chau, Chairman of the HCMC Real Estate Association, told Tuoi Tre that the regulation is likely to tempt developers to take longer to issue property deeds so that they can extract bribes from those in a hurry.
The Circular also prohibits property developers from selling out their share in developments.
Chau said the ban should not be retroactive.
Potential pathogens
The collapse of the US bank Lehman Brothers, which triggered the massive financial crisis in 2008, was caused by the bursting of the US real estate bubble that built up due to subprime loans.
The Vietnamese real estate market has in recent years threatened to follow the same model.
The popular global indicator for assessing the risk levels in property investment is the ratio between a family’s income and the amount it pays on a mortgage. For an average family, this ratio is about 1/3, meaning a household spends around 33 percent of its monthly income to repay a mortgage.
But in Vietnam’s big cities, the highest current rate is 80 percent.
This shows a high level of risk and poses the threat of a debt crisis.
In America, most capital flows into real estate are sourced from bank loans, while in Vietnam the money is not only lent by banks but also by friends and relatives.
So when the real-estate balloon bursts, the ramifications will be felt not just by banks but the entire economy.
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