Property buyers rush in when prices soar, exit when they fall

By Vu Le   March 27, 2023 | 11:53 pm PT
Property buyers rush in when prices soar, exit when they fall
Buildings in the East of Ho Chi Minh City. Photo by VnExpress/Quynh Tran
When the property market is hot, and in many cases prices double in a short time, people continue to buy, but wait on the sidelines during a prolonged price decline.

For almost three months now the market for apartments, townhouses and land plots have been in a slump. The fall in demand that began in 2022 shows no sign of stopping.

According to real estate service provider DKRA Group, in HCMC and the southern suburbs, the demand for apartments in the first two months of this year fell by half from a year earlier, with few townhouses and villas being sold.

Online market data in February from property listing platform shows that interest for real estate, as indicated by searches, dropped sharply.

In Ho Chi Minh City, Hanoi and Hai Phong cities and Khanh Hoa, Lam Dong, Dong Nai, Quang Ninh, Long An, Ba Ria - Vung Tau, Bac Ninh, and Binh Thuan provinces it decreased by 30-50%.

The number of transactions fell to the lowest level in the last five years.

The paradox is that buyers rush in when prices soar, but wait on the sidelines during a prolonged price decline.

When the market was hot, and in many cases prices doubled in a short time, people continued to buy. But in the last nine to 11 months housing prices have dropped by 20-25% and developers are offering ridiculous discounts of 40-50%, but no one is buying.

A majority of people intending to buy properties criticize the prices as too high in surveys. Others think prices are low enough but are not sure if their decline has stopped or fear there could be legal problems.

Speaking to VnExpress, Luong Dinh Thuy Van, CEO of Mogin Holdings Investment Consulting Company, said the phenomenon might seem paradoxical but reflects the true nature of the country’s speculative and less than transparent real estate market.

She said it is psychological and so popular sentiment prevails when the market is hot, and investors, speculators and home buyers pile on the market bandwagon with huge expectations that prices would keep rising.

But when prices fall the positive sentiment disappears and is replaced by fear, she added.

With the downtrend in prices showing no signs of abating, people with money are staying out of the market.

The second reason is that cash flow for real estate investment and speculation as of March is still congested, since people used credit while having liquidity bottlenecks, and the pressure of interest kept piling up.

Thirdly, legal uncertainty, unknown future outlook, and unattractive use cases of the properties are keeping prospective buyers away despite the heavily reduced prices.

But the central issue is not price. What people are worried about is if they will get delivery of the house if they pay 90-95% directly to the developer to get a discount of 40-50%.

They could make payment through banks to eliminate that problem but interest rates are very high.

According to Vo Hong Thang, R&D deputy director of DKRA Group, the primary and secondary market prices, though lower than last year, are still too high for a majority of people with actual housing needs, the only ones still in the market.

A recent property industry report by Bao Viet Securities Company said the downward trend in prices would continue since most projects are in the high-end segment where there is very little demand for housing. Many developers’ ability to implement new projects has become suspect, and the credit crunch and macroeconomic instability are not helping either, it said.

Van said: "In an overall picture that is still bleak as it is today, it is normal for buyers to stay out of the market."

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