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Bubble threat a thing of the past: Saigon realty association

By Vu Le    September 6, 2018 | 06:04 am PT
Bubble threat a thing of the past: Saigon realty association
A worker is seen at construction site for new apartments in Vietnam's Ho Chi Minh city January 17, 2008. REUTERS/Stringer
The HCMC realty association says bubble factors have been neutralized, but skeptic experts insist that risks persist.

The HCM City Real Estate Association has listed six reasons for the 2007-2011 property bubble in its latest report, pointing out there are no signs of any of them now.

Firstly, there was the very high GDP growth rate in 2007, the report said.

Vietnam’s economy grew at 8.48 percent while HCMC’s grew at 12.6 percent, the highest rate in 10 years, which lulled investors and speculators into thinking there were easy profits for the taking.

Secondly, the banking sector had a loose credit policy and banks ended up with credit growth of 37 percent in 2007, with a lot of the money going into realty amid lax oversight.

Thirdly, there was a big gap between demand and supply in the property sector, especially in the high-end segment.

Fourthly, a large number of brokers and speculators took advantage to manipulate prices, which went sky high as a result.

Fifthly, authorities had neither timely, effective policies on tax nor efficient plans for land use and urban development to effectively regulate the market and drag it out of bubble territory.

Lastly, in mid-2009, there was serious misuse of the government’s $1 billion stimulus package, which was meant to help low-income people buy houses.

The association said “such a nightmare” would not recur now.

Credit remains under control, with growth last year being a modest 18.17 percent. It is expected that in 2018, credit growth will be around 17 percent.

The State Bank of Vietnam (SBV) has a prudent credit policy in place and has gradually reduced credit to the property sector.

This year, banks are only allowed to use 45 percent of their short-term deposits for medium and long-term loans, which mainly go the realty sector. It is set to further fall to 40 percent from January 1, 2019.

The association said authorities have drawn lessons from the previous bubble and adopted timely and effective policies while realty firms, banks, developers, and buyers are smarter now.

The doubters

However, some analysts are not convinced.

They say that realty bubbles are cyclical in nature and suggest that concerned authorities look at the time when the next bubble could burst in order to avoid a damaging fallout.

Banking expert Nguyen Tri Hieu noted that a bubble had formed when there was a lot of bank loans given to the realty sector, as was happening now. He warned that a bubble burst was possible in 2019, corresponding to a 10-year cycle that has been noticed in Vietnam.

Huynh Phuoc Nghia, deputy head of the School of International Business Marketing at the Ho Chi Minh City University of Economics, feared that a bubble burst could happen amidst ongoing land fevers in HCMC and other provinces.

Nghia said a land fever has persisted in Saigon since 2017, pushing the market into bubble territory.

He said the city needs to do at least five things to ward off adverse consequences: tighten land tax collection; tax land at market prices; tighten credit for the realty sector; strengthen management of land-use plans; and adopt adequate mechanisms for land administration.

The head of a realty investment and consulting firm in the south of HCM City told VnExpress that many market participants tend to ignore the risk of bubbles because of sheer optimism.

A new bubble would not follow the rules of the past, he warned. Therefore, he said, “prevention is better than cure.”

Nguyen Xuan Quang, chairman of housing developer Nam Long Investment, also told VnExpress he still feared a bubble, but added that his company was prepared to deal with it.

He said the company has three weapons to protect itself: product diversity, a war chest of VND2.6 trillion ($115.5 million) and good income from commercial real estate. “This was strong enough to cope with any crisis that may arise,” he said.

Most importantly, with enough land for its needs for the next five years, the company would be unscathed if a land “fever” breaks out, he added.

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