The Vietnam real estate market is overheating but who has been buying up the properties? Surprisingly (or not), an estimated 60% of the purchasers who bought houses actually don't need a home but are buying and selling to make profit.
These purchasers are what we called speculators. So, what is driving the speculators to this market?
1. Recently, Pricewaterhouse chose HCM City to be in the top 10 real estate markets in the world with the greatest potential. (Yes, that's top 10 in the WORLD). No wonder the speculators are rushing in, wouldn't you? Other areas such as Hanoi, Da Nang, Binh Duong, and Vung Tau have also seen development going through the roof--pardon the pun.
2. The government is allowing Viet Kieu and foreigners to buy houses (although they can't own land yet.)
3. Demand for homes keeps going up and up. Despite the torrid pace of development, the supply remains modest compares to the demand. But remember, the high "demand" is actually not from buyers looking for a home to live in but rather from speculators who buy and sell for profit. This is what we call flipping, which is partly responsible for the current housing slump in the United States.
4. Real estate analysts keep touting the market with estimates like 50% growth for 2008.
Speculators are definitely hard at work buying and selling and driving up real estate prices. It is a shame that those who actually need to purchase a home can't afford one in this market. It's ironic that Vietnam, which has one of the lowest income per capita in the world and yet its house prices are among the highest in the world.
The government of Vietnam is actually considering steps to force prices down such as revoking licences to projects which investors are leaving land idle or taxing speculators.
Despite the rosy forecast by analysts, it is going to be very difficult to keep the charade going for much longer. The 50% growth rate is just simply not realistic or sustainable for the next 2-3 years. We have already seen what happened to the real estate market in the United States and it's just a matter of time before Vietnam will face the same fate.
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Thursday, November 8, 2007
Doing Business in Vietnam and The Real Estate Market Bubble
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2 comments:
Are there any institutions looking to create funds for shorting the VN real estate market? What are the available instruments for institutions to do so? I assume the process or limitation is different.
I guess you could create a fund to short the real estate market by shorting the companies in that space such as the home builders and lenders although I don't think you can short stocks on HOSE or HASTC at this time and there aren't any Vietnamese real estate related stocks listed on foreign exchanges.
VinaLand is a closed-end VN real estate fund trading on the London Stock Exchange so you can trade it like a stock but I don’t think you can short that one either since it's not a stock or an ETF.
Even if you could find a way for a short play, I am not sure if you should at this time since the market still has a lot of support and momentum--it's going to be painful if you're bearish too early and get squeezed out.
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