Vietnam speculators trapped in property bubble
HANOI - Nguyen Hai, a 30-year-old property developer in Hanoi, begged a storeowner to pawn his $4,000 stereo so he could meet interest payments on his third house.
In a country boasting one of the fastest growth rates in the world, Hai owns two other villas valued at $200,000 each, but he never imagined he wouldn't be able to enjoy his new-found wealth.
Like many developers, Hai is trapped in a classic property bubble pricked by aggressive government measures to cool a real estate bonanza that has driven urban property prices up 50 percent in the past two years.
"On paper I have a lot of money, but in reality it's a different story," grumbled Hai, who gave up a software business two years ago to join the communist nation's property stampede.
The latest boom began in the late 1990s, driven principally by Vietnam's transition from a centrally planned to a market economy and a fast-growing flow of foreign investment that has fuelled economic growth of 7 percent a year.
Speculators in Hanoi and Ho Chi Minh City have watched sky-high gains evaporate due to waning demand for urban housing and a transaction tax imposed at the start of this year.
The government has yet to slap a tax on property-related capital gains, but in January it imposed a 4 percent levy on the value of all real estate transactions.
That rate could jump to 10 percent under a new individual income rule being drafted by the finance ministry, which is also considering a 28 percent capital gains tax on property deals from 2008.
Late last year, another private property developer managed to sell two houses he had bought for $250,000 on the outskirts of Hanoi in 2003 for a 25 percent return.
"It felt like I just got a huge burden off my back," said the 29-year-old who studied business in Australia before moving into the real estate business in Hanoi.
Tuan, who declined to give his full name, said he was exploring other business opportunities, but would steer clear of the property market.
"For now, I'll stay out of the property game," he said.
Falling yields
Nguyen Xuan Dao, director of Vietnam Property Inc, said investing in urban housing made no sense while the government constantly changed the rules.
"New taxes will make people think twice before buying anything," he told Reuters, adding that companies were leaving curbside shophouses in favour of serviced office buildings.
He said Hai's $200,000 house in downtown Hanoi yields $300-$500 per month, half the rent it earned two years ago. In a regular dollar bank account, monthly interest would be $700.
Dao said urban house speculators would find it difficult to sell at a profit because prices have already risen so steeply.
This year, Hanoi still topped the country with a median sales price of around $150,000 for street-front homes, but that is already around 10 percent down from last December. On average, only one in 10 listings is sold, Dao said.
Hai said each of his villas cost him around $130,000.
Lack of alternatives
Industry experts said speculation fuelled much of the property boom as other investment options were few and there were big profits to be made on turning over properties.
"Market volatility is a result of speculation and prices are primarily driven by a lack of alternative investments," said Scott Robertson, a Hanoi-based economist who researches land market and property laws in Vietnam.
"But while other investment choices are developing, such as the securities market, land is still the higher risk/higher return speculative asset of the portfolio," he added.
A little more than five years old, the country's sole stock market remains tiny, with a capitalisation of just $270 million, leaving few investment choices for a growing number of wealthy entrepreneurs.
At a top-notch $2.1 billion Hanoi housing project backed by Indonesia's Ciputra, all the luxury villas and condominiums were sold pre-construction two years ago, but only around a third of the dwellings were actually occupied.
The rest sat empty with "For Rent" signs for months.
Speculator's price
The communist government has vowed to deflate the property bubble and repress land speculation.
"We should not think the market will be as animated as before," Natural Resources and Environment Minister Mai Ai Truc, who is in charge of land administration, told state media.
"Many speculators now have money lying stagnant in land and this is the price they have paid for trying to speculate."
Banks have taken a hard blow from the slow property market, with real estate-related loans accounting for more than 60 percent of non-performing debts in Ho Chi Minh City, the nation's commercial capital, prompting the central bank to urge banks to curb such lending.
Meanwhile, Hai said he had had no calls from potential buyers for his house even after he cut his asking price by $20,000.
"If I could sell this house, the first thing I'd do is pay off my bank loans so the banks would stop calling me all the time," said Hai, scrubbing mould from his villa's white-washed wall. "And then I'd buy a fat Mercedes and retire."
Reuters - August 31, 2005.
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