It needs much more than luck to get rich by trading property

March 5, 2023 | 09:10 am PT
Huynh The Du Economist
I had a conversation one day late last year with Hoang, a motorbike taxi driver in Hanoi.

He had left his hometown for Hanoi not just to earn money but also to hide from creditors. After marriage he had started trading land for a living, but the business put him in debt within just a few years after he bought too many pieces of land and the market suddenly fell.

These days, when he misses his wife and children, he goes home for a short time and quickly returns to Hanoi for everyone’s safety.

He also told me about people who quickly became rich from the business. He blamed his own failure on "bad luck," and promised "once I have enough money, I'll trade land again."

I really hope Hoang gets "lucky" next time though I am worried for him because, listening to his story, it is not difficult to see he has little knowledge of the real estate market. The success rate among amateurs like Hoang, in reality, is extremely low.

Earlier this year I thought of my conversation with Hoang when I came across comments on an online forum about the qualifications required for various professions.

I could not help but notice there exists a common perception that it is very easy to get rich from trading property even without much knowledge or effort. But at the same time people also believe that there is nothing glorious or respectable about making money that way.

This misconception is due to a bias in the way people receive information and disregarding arbitrage commonly seen in Vietnam.

The belief that "owning land means being rich" originates from the fact that nearly all Vietnamese households own houses attached to land and over time land prices always increase (especially non-agricultural land).

Thus, what everyone sees is that many households become rich off their land and live in houses worth billions, even tens of billions, of dong despite only having a modest income. (VND1 billion equals US$42,202).

Real estate projects in the southern part of Ho Chi Minh City, August 2022. Photo by VnExpress/Quynh Tran

Real estate projects in the southern part of Ho Chi Minh City, August 2022. Photo by VnExpress/Quynh Tran

The idea that "buying land means being rich" is partly a consequence of stories that spread by word-of-mouth. We often hear from other people, like how I heard from Hoang, about such and such person hit the jackpot by dabbling in property.

However, since people have a tendency to hide their failure, unsuccessful "deals" are rarely talked about, and as a result the submerged part of the property-trading iceberg remains unseen.

I know many people who understand the market, are knowledgeable about business and work at places that help them obtain critical information that enables them to make plans in advance.

But even they sometimes win and sometimes lose when trading land and housing.

Statistics show that only 25% of companies set up for trading property survive for more than a decade. As for amateur traders, less than 10% manage to get rich.

Misconceptions are also among the reasons for the prejudice against real estate businesses.

Like every other sector, real estate also has dubious businesses and people getting rich quickly and easily by buying and selling.

Even though a majority of real estate businesses operate normally based on the business environment and in compliance with regulations, news about scams is everywhere. The asymmetrical propagation of information, with negative aspects being exaggerated and becoming widespread, causes the public to unfairly judge decent businesspeople.

The people that buy and resell assets on the market (mainly real estate and securities) are an integral part of the economy.

They help circulate goods, allow businesses to raise capital and create wealth for society. However, like in every other occupation, a successful real estate trader requires knowledge, the ability to understand how the market operates, comprehend lending principles, and have management skills, especially risk management.

The misconception that it is easy to get rich by trading property has also contributed to the rapid increase in the number of nefarious "brokers" in a business environment that lacks a stringent legal framework and oversight, resulting in scams and fake land "fevers."

The default by people like Hoang and the slump in the real estate market in recent times are the clearest outcomes of such a situation.

This is also an opportunity to see that, from the perspective of government oversight, it is necessary to encourage entrepreneurship and people to make money. However, there is a need for mechanisms and policies to help people access information and avoid ambiguity, which enables dishonest people to commit fraud through projects that do not exist, inflate prices with unverifiable information about government plans and investment.

On a positive note, it is expected that in 2023 amendments to laws governing the real estate market such as the Law on Land, Law on Housing, Law on Real Estate Business, and Law on Real Property Tax will complete the legal framework, making the market more transparent.

A healthy real estate business environment itself will keep out people who enter the market with an opportunistic mindset and those who rely on luck without having the necessary knowledge.

More importantly, it will nurture genuine businesses, creating wealth for the whole of society.

*Dr. Huynh The Du is a lecturer at Fulbright University Vietnam, HCMC.

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