An Awkward Real Estate Market

Real Estate - Saigon/HCMC: April 26, 2016

Anyone who’s lived long enough in our city probably wonders how logic plays out when it comes to real estate value and developments.

Making sense of it all is a pretty daunting task, I guess. But Vietnamese think otherwise since economical performance uses real estate as its barometer. Look around, count how many properties are in the making and evaluate how well our economy is doing!

“A key issue to understand the local real estate market model is property valuation”

My perception of a proper system is based on market supply and demand cannot really apply here. It is the root of the misunderstanding between Western and local culture. For most Vietnamese, land value can be explained as, “my neighbour's price is the right one.”

The reason behind such awkward reasoning lies in the complex process of land acquisition and compensation. My family in law owns a beautiful patch of land and after five years they are still waiting for a license to build! And most, if not all foreign investors often give up trying to understand or see value in these exhausting, costly and lengthy land clearance activities. Vietnamese simply factor it in the overall value, which explains why land often comes with such a hefty price tag.

“Many believe that property value is inflated and ready to implode.”

The city is growing so fast and upward, are we on the verge of a major market shift similar to the one that Hong Kong, Singapore and Bangkok currently cope with? Large local developers disagree. They continue investing in the apartment buildings, villas and condominiums complexes that pop-up weekly. How can this be? Some point out, and rightly so, that most completed housing developments remain mostly empty of lights at night, regardless of the fact that they are effectively sold to “ghosts”. Then why shall they continue to develop as much as they currently do?

This is a non-logical issue, which I cannot explain. And let’s be honest with each other, most of us who were here 5-10 years ago believe that property prices were already then up the roof. Now they are even more expensive. How far can it go? That remains to be seen. What we know is that HCMC is still an emerging market where substantial growth potential exists. Fortunately for us, improvements have been made to stabilise the market, the legal framework is strengthening and the FDI is increasing, even if it remains marginal.