Real estate market: investors are preparing for a new investment wave?
Dr. Le Xuan Nghia has predicted : "Securities and Real estate markets will display first signal of recovery during the second quarter of 2012”. Well, in case the lower land price become a tendency, such prediction may probably become true …

Inflation in 1st Quarter is only 3%?
During the last year, Dr. Le Xuan Nghia had never been so “optimistic” in his comments and predictions on real estate market of Vietnam.

Basis for Vice Chairman of National Financial Supervisory Commission to draw an image of the real estate market in the coming time was not the Instruction No.2196 of the Government – the document that often is quoted by official and business circles as essential – but it was the recent factor: on 18 February, Central Bank of China decided to reduce regulatory reservation of commercial banks to 0.5%.

In fact, China’s move is a signal to ease credit regime in this country. So what about Vietnam?

In order for the banks to open their money sacks, our national economy is still dependent on two factors: inflation and the bank liquidity. A very simple calculation by Dr. Le Xuan Nghia produced a result that perhaps amazed many investors: inflation rate in March 2012 will be only around 0.6%.

Together with inflation rate of 1% in January and 1.37% in February, total inflation of the quarter will be around 3% - a completely acceptable rate that serves as good food to think that inflation rate during whole 2012 will be maintained under 2-digit number, around 7-7.2%.

In case this scenario takes place in practice, Vietnam national economy would enjoy a great year, at least from the interest rate reduction perspective.

However, Dr. Nghia “shares” opinion of the National Bank on liquidity of banks. Currently, banks are in difficult situation with regard to liquidation. In previous years, the capital circulation in society was 2-3 cycles per year, but in 2011, the same indicator was 0.8. And almost everyone can see the reason thereof: that is the slow inertia of most of commodity market, especially real estate market that holds big debts and high rate of bad debts.

“Never before in our banking history, banks do not dare to provide loans to each other” – Dr. Nghia bitterly stated.

According to some recent evaluations, this could be seen as crisis of confidence inside the banking system. Until 2nd quarter last year, big banks still provided smaller banks with loans at “exorbitant” rate, right now, this does not happen quite often.

During recent time, bank interest rate seems to be “stable”. But the situation took place not because the rate was controlled. It happened simply because there was no strong flow of capital from big to smaller banks

Investment into low price real estate?

In such mentioned situation, future of real estate market still seems to be quite dark. However, again, from Dr. Nghia’s viewpoint, 4 years of reduction is enough to complete a downturn cycle of real estate market. In a year or two, real estate market will recover.
 
This time, the first time during the whole last year, Dr. Le Xuan Nghia openly talks on “a new wave of speculation” that, according to him, is forming in the real estate market of Vietnam.

Dr. Nghia recalled his discussion with a famous foreign businessman as a support for his idea. According to this businessman, in the coming years, it is almost sure that there will be a big wave for global investment into Asian real estate markets – the emerging markets with great potentials compared to real markets in Europe and US, or even in Latin America. Such investment wave may last until 2018-2019.

Being part of the mentioned markets, Vietnam of course is one of the targets of foreign real estate investors. Dr. Nghia shares that at this moment, “unofficial” meetings, discussions and contacts between foreign real estate businesses with Vietnamese businesses are going on. To date, although these contacts carry mainly exploration mature, but they show that there are actual concerns on real estate market in Vietnam. And this creates hope!

However, situation is not becoming better in simple and straightforward way. Dr. Nghia predicts that is order to deal with the liquidity issues, State Bank will have to have at least 6 months or even the whole 3rd quarter of 2012. It means that significant recovery of real estate market will come only in the 4th quarter of the year, provided that actual inflation and actual interest rate are reduced and liquidity difficulties are overcame.

Obviously, whatever it takes, real estate businesses and secondary investors should keep waiting. But if real estate market will develop stable until 2018, a less-than-a-year of waiting time is fully acceptable.

However, market always has unpredictable and “out-of-the-rule” turns as actually happened since 1994-1995. For example, in 2009, within the deep difficulties, real estate market of Hanoi had lively and strongly recovered. A wave of speculation generated and lasted until the beginning of 2011.

Securities market could be another outstanding example on unpredictability and “crazy” market change. Going ahead of real estate market, in 2009, securities market made a dramatic recovery with VNI indicator increased on 2.6 times compared to the lowest point while HNX indicator got 2.8 times of increase. In 2012, history seems to repeat again.

One may question that with Dr. Le Xuan Nghia’s prediction on a “new way of speculation”, would there be any opportunity for real estate market to touch its bottom and to bloom in coming time, even though only at some localities.

With reduction of interest rate of several key banks in Vietnam such as BIDV, Vietcombank, Vietinbank, ACB and VIB, a flow of capital into the low-cost real estate market seems to be forming.

In case such forming flow actually becomes strong tendency, part of Dr. Le Xuan Nghia’s prediction that securities and real estate markets will deliver first signal of recovery in 2nd quarter of 2012 will be realizing…, who knows!

Source: http://phantichnhandinh.batdongsan.vn;
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