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Vietnam Business » Vietnam Real Estate Market News » Real estate bubble - the accessory to inflation

Real estate bubble - the accessory to inflation

No official statistics have been released, but it is estimated that the volume of traded land has reached several millions hectares with the added value of 30-40 percent. The value of the land may reach tens of trillions dong which obviously accounts for a big proportion in GDP.

The real estate bubble is the accessory to inflation, and it should be considered as the "dangerous germ" which must not be allowed to live together with a healthy economy.

Minh, a securities investor, who went bankrupt due to the continued drops in stock prices, has unexpectedly got rich again. Several days ago, he came to a friends party as a real estate billionaire. Minh related that after he lost big sums of money on the stock market, he decided to sell all the remaining stocks he had. With the sum of money from selling shares, he bought 200 square meters of land near the Bao Son Paradise area in Hanoi at 30 million dong per square meter. Now he can sell the land plot at 60 million dong per square meter. If he sells the land plot right now, he will get a huge profit of six billion dong - the dream of many businessmen.

Living on virtual values

In theory, Minhs sum of money has increased by two times. Meanwhile, the 200 square meter of land will still be the same and it has not been enlarged. The increased value can be described as a pumped ball that will return to its initial shape when it goes flat.

However, in urban areas, hundreds of thousands of people are living on the "bubble".

The real estate fever not only has attracted professional real estate traders, but also individuals, both Vietnamese and foreigners. Even regular employees in state agencies have also jumped on the bandwagon.

Wealthy people rush to purchase land and keep land as valuable assets. People with lower income rush to purchase land to resell land later for profit. As for many ordinary workers, the money from trading land, not daily wages, is now the main income for their families.

No official statistics have been released, but it is estimated that the volume of traded land has reached several millions hectares with the added value of 30-40 percent. The value of the land may reach tens of trillions dong which obviously accounts for a big proportion in GDP.

The real estate bubble is feeding millions people.

People have their pockets picked

While millions people are getting richer thanks to the real estate bubble, another millions people are losing their opportunities to have accommodations.

A civil servant related that he has nearly one billion dong now deposited at banks. He has been saving money for the last 20 years and he hopes he can buy a mid-class apartment in the suburb area. However, he could not imagine that the real estate price would increase so dramatically. At the beginning of the year, an apartment in the area was priced at 20 million dong per square meter. Meanwhile, the price has jumped to 30 million dong. As such, with his sum of money, he would only be able to buy 30 square meters instead of 50 square meters as he previously thought.

According to experts, a reasonable sale price of apartment in multi-storey buildings (25-30 stories) is about 20 million dong per square meter which is high enough for real estate developers to cover expenses and generate profit. However, in fact, apartments are selling at 30 million dong per square meter.

As the price of real estate keeps rising, regular employees are getting poorer. Previously, they could purchase an apartment after 10 years of working, but now, they need 15 years or 20 years to buy an apartment.

The real estate price increases have brought about the increases of all other kinds of goods. House tenants have to pay higher rents, while the prices of materials, equipments all increase. The service fees of education, healthcare and transport all increase accordingly. The "price storm" is attacking every corner of society. It is obvious that the real estate bubble is the accessory to inflation.

A dangerous germ

In 2008, the US witnessed the worst financial crisis in the last 80 years. The crisis originated from a swelling real estate bubble.

Experts have warned that recently the real estate market in Vietnam recently has shown characteristics similar to the US real estate market during the crisis.

People are still rushing to purchase real estate which in turn is leading to virtual growth (the actual value does not increase). If the situation does not improve the real estate bubble is due to burst in a matter of days.

In the world, every family spends 33 percent of their monthly income to pay debts for their house. Meanwhile, in large urban areas in Vietnam, the figure may reach 80 percent.

Experts have warned that a debt crisis is likely to occur in a economy where people have to spend most of their income on accommodation.

Vietnam Business And Financial News Network. Source [english.vietnamnet.vn]

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