Economist Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council, told The Hanoi Times of the prospects and challenges for the real estate market in 2022 and subsequent years.

Economist Le Xuan Nghia. Photo: Thanh Hai

Inflation risks have always been a concern for investors in the real estate market. What is your view in this regard?

In 2021, the US economy saw its inflation rate at a 30-year high of 6.2%, while rising petrol and energy prices also put inflation to a record high in European countries in the past 13 years.

For Vietnam, the risk of inflationary pressure is not evident but should be approached cautiously. This is especially important given the fact that Vietnam is one of the most open economies in the world with its trade to GDP ratio reaching nearly 200%.

Meanwhile, with a range of free trade agreements in place, high inflation in major world’s economies would pose negative impacts on Vietnam.

At present, Vietnam has been able to control the money supply and current stimulus programs do not have significant impacts on the aggregate demand. This was evidenced by the consumer price index (CPI) in 2021 expanding by 1.84% year-on-year, the lowest rate since 2016.

In 2020, there is likely that Vietnam may import inflation from other countries due to the economy’s nature of high engagement in trading activities. But on the other hand, the improving Covid-19 situation globally and resumption of global supply chains may partly offset the negative impacts.

How would the upcoming socio-economic program of up to VND350 trillion ($15.4 billion)  affect Vietnam’s efforts in containing inflation?

The State Bank of Vietnam with its experience may help keep inflation at around 3% in 2022. Meanwhile, the credit support is estimated at VND30-40 trillion ($1.32-1.76 billion), which is not too large to cause inflation, not to mention the program being carried out in multiple years.

One of the priorities for the SBV in 2022 continues to be keeping inflation at bay, as the credit growth target is set at 14%, around the same level as last year.

I expect the policy and exchange rates to go up slightly in 2022 as a reflection of the rising inflation rate, but the range would stay within control at around 1-1.5 percentage points.

How would rising inflation impact the investment capital into the real estate market?

Real estate is seen as a neutral asset when it comes to the inflation situation. In case the inflation goes up, the SBV may be forced to raise the lending rates and people may move away from the stock market to real estate.

There are already many predictions that real estate may heat up in 2022, which is a common phenomenon when the economy returns to the recovering path.

What segments should be in the center of the attention?

In the context of rising inflation, the extent of recovery or attractiveness of real estate segments would vary significantly. Apartments in 2021 had seen a fast recovery compared to others, especially for budget products. This is also the segment with a high rate of successful transactions and large demand from end-users.

I expect this trend would continue this year, while others, such as detached houses, shophouses, and villas are having a positive outlook, mainly due to scarce supplies.

Those interesting in these segments are mainly investors rather than end-users. Meanwhile, the majority of villa projects are being offered for rent, or even left vacant, but still, the price is expensive.

Nonetheless, these segments are expected to bring high profits for investors in 2022. Another notable mention is super luxury villas and apartments for the upper class at prime locations and integrated with a variety of services. While the trend is still new in Vietnam, this is no doubt would attract a lot of interest from the high-income groups in the coming time.

Besides inflation, what factors would have a major impact on the real estate market?

The two main factors having direct impacts on the real estate market are inflation and the supply-demand. The inflation would result in higher construction costs due to rising input materials, and eventually the final prices of the products.

On the other hand, higher interest rates would make it more difficult for people to seek banks’ loans for house purchases.

In Vietnam at the moment, there remains a shortage of housing supplies, mainly due to speculative investment. This makes those with real demand for housing unable to find options at affordable prices, as prices continue to rise against their true values.

Speculative investments are causing a waste of land resources and the growing number of vacant residential areas. 

What are your recommendations to both real estate companies and investors?

Vietnam’s solid macro-fundamentals in 2020 continue to be a strong foundation for the development of the real estate market. The remaining issue would be the imbalance of the supply-demand when demand is significantly higher.

In this context, the domination of speculative investments would lead to rising prices and the risk of price bubbles. Just over the past few months, land prices in Hanoi went up by 2.5-3 folds, which is a sign of a price bubble.

Investors, therefore, should be cautious and take a thorough look into any project. There should be also strict management from the state to ensure the transparency of the real estate market.

A clear legal framework is essential to resolve all disputes related to housing projects and the real estate market overall, as well as measures to fully address speculative investments, with tax policies being a key instrument here.

All of these measures would help the market to develop healthily and sustainably.

Thank you for your time!