Compared to other regional countries, Vietnam real estate market with an incomplete legal framework is still nascent. Major risks emerge when the legal framework improvement fails to keep pace with the market’s rapid evolution. These shortcomings were one of the key factors that affect the growth of real estate market in recent years.
2018 was seen as an exceptional year for HCMC’s apartment market when the supply-demand balance sharply tilted toward the demand side. Limited supply came from a handful of projects that managed to complete the legal documents in the past years. The market supply for the first ten months of 2018 fell 39.2% year-on-year, according to statistics released by the HCMC Real Estate Association (HoREA).
Legal bottlenecks have affected the stable development of Vietnam real estate market. (Photo: Phung Huynh Vu Qui/Getty images)
The lack of supply is ascribed to shortcomings in the regulations on land origin stipulated in the 2014 Law on Housing. Pursuant to this law, developers must comply to win approval for their housing sprojects. It stipulates that only residential land is qualified for the development of housing projects without competitive bidding. According to the HCMC Department of Construction, some 70% of the 170 projects whose applications were submitted after the law’s effective date (1 July 2015) to meet such requirement, leading to the shortage of housing projects in the city.
At present, it’s still unknown whether such requirement is a “mistake” of lawmakers or an intentional ruling issued to achieve a tighter control on the licensing process for real estate projects, but it has influenced market development enormously. Demand is the driving force for supply in a healthy market. And when supply falls short, speculators will appear to “blow” prices up.
In 2018, some lucky projects whose developers completed the legal documents opportunely were launched for sale at much higher prices against other projects in the same area. The lack of supply is considered the reason for this situation. The price hike which is not triggered by fundamental factors indicates that market demand is tilting toward swing traders. This practice affects the healthy development of real estate market, since even after the legal bottlenceks are removed, price would already be at a new level.
Normally, a real estate developer’s financial capacity and potential are evaluated based on the land site of its own. This principle, however, does not apply what is happening in the current context. In fact, developers who have spent huge financial resources developing land funds are probably sitting on tenterhooks as legal hurdles are denying their possibility of developing projects.
Even when supervisory agencies consider removing legal bottlenecks, the situation would not get better soon, because the legal document in question is under the jurisdiction of the National Assembly. While waiting for revisions, the financial burden on property developers may become increasingly heavy in the coming years, and house prices will further skyrocket to go beyond the reach of the majority of people those are truly in need.
