Vietnam’s real estate market is marked with volatility and uncertainty due to two major events. First is the implementation of Decree No.71/2001/ND-CP (Decree 71) since August 2010. Second is the economic crisis due to falling US dollar reserves, the weakening Vietnamese dong (VND) and high inflation.
In HCMC, Vietnam’s economic center, residential resale prices in all segments have been steady for the past two years, according to CB Richard Ellis Vietnam.
• In the low-end market, the average asking price was US$726 per sq.m. in Q3 2010 • In the high-end segment, the average asking price was US$1,898 per sq. m. in Q3 2010
On the other hand, Hanoi residential resale prices were up 9% on average during the year to Q3 2010, at US$1,837 per sq. m.
• In the low-end segment, average asking prices jumped 24% y-o-y to Q3 2010, but were up a mere 2.2% from the previous quarter. • Prices in the luxury and high-end segment fell 1% during the quarter to Q3 2010.
Decree 71 provides guidance on the implementation of Law on Residential Housing promulgated in November 2005. It replaces Decree 90 passed in September 2006. Intended to minimise risks for buyers, Decree 71 also aims to discourage speculative investments and reduce market liquidity. It also requires clearance from the Prime Minister for large-scale developments.
With the uncertainty over the actual implementation of the new decree, developers accelerated the construction of some projects and the purchase of lands. This led to huge price spikes in some areas while flooding other areas with new supply.
Vietnam’s economic debacle adds to the problem. Double-digit inflation rate led to the rapid depreciation of the VND against the USD. With the managed-float exchange rate regime, dollar reserves are quickly drying up as the government sells foreign currencies to keep the exchange rate within a band.
Some people have even turned (or returned) to a more secure asset for their investment, gold.
As the currency depreciates further, the more people wanted to convert their money into dollars or gold as soon as possible. This has serious repercussions to the housing market because most real estate transactions are quoted and concluded in US dollars. If the supply of dollars dries up, the real estate market can grind to a halt.