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It goes without saying how crucial the health of the property sector is to Vietnam’s economy, as it is both a source of growth and persistent risks.

Experts Warn Against the Overheating Real Estate Market
Photo Credit: Quantas
HSBC recently released the report in which HSBC gave out some warnings about the overheating real estates market.
There is a concern that the property market may run away from still challenging economic fundamentals
If needed, there is scope to introduce more macro-prudential policies, but this will require a delicate balance
While May data held up, the fourth wave of COVID-19 is posing notable risks to a sustained recovery
A double-edged sword
It goes without saying how crucial the health of the property sector is to Vietnam’s economy, as it is both a source of growth and persistent risks. While a lack of official property market information remains a challenge, publicly available data suggests rising housing prices in major cities, particularly in the luxury segment, over the past two years. This is in part driven by an accommodative monetary policy; the domestic market appears to be the main driver behind growing property demand.
An eye on property
The State Bank of Vietnam (SBV) has recently vowed to tighten credit allocation to the property market. Indeed, it has implemented a series of macro-prudential policies to mitigate property risks in recent years. If needed, there is scope for the SBV to introduce tighter measures on capital requirements. That being said, it also must maintain a delicate balance in curtailing excessive credit lending to real estate developers while reducing immediate COVID-19 risks to the sector.
Sailing through the worst storm
Another wave of COVID-19 has swept through Southeast Asia, which even Vietnam cannot escape. Cases have risen rapidly, particularly in industrial parks, impeding manufacturing operations. While May’s data remained relatively resilient, the current wave may pose notable downside risks to the official 2021 growth target of 6.5%. Thus, to put a sustained recovery back on track, the key is to swiftly contain the virus and accelerate the country’s vaccination programme.
A delicate balance
The persistence of COVID-19 overshadows existing risks to growth in many countries. In the case of Vietnam, it is the real estate sector. In this month’s Vietnam at a glance, HSBC looks at recent developments in the property market. However, the lack of official data makes it increasingly difficult to grasp the overall picture of the market. HSBC relies on publicly available information (e.g. media reports and real estate service providers) to better understand the sector, and to lay out the key implications.
Vietnam’s policymakers have been keeping a keen eye on the real estate sector in recent years. Indeed, the property market is essentially too big to ignore. Real estate activity accounts for between 5% and 15% of GDP in ASEAN, and in the case of Vietnam, the ratio is around 8% of GDP. More importantly, the memory of a housing bubble of 2007-12, which ultimately led to a prolonged banking crisis, looms large in the collective conscience. 
Even after a gradual recovery in the banking sector, real estate loans continue to account for a large proportion of bank balance sheets. While some banks do not have a specific classification on loans to the real estate sector, balance sheets of the “Big-4” SOE banks reveal a key linkage with the associated construction sector. After all, Vietnam still relies heavily on high credit growth to fuel its economy.
While the real estate market has been hit by the pandemic, there are signs that it is recovering. Although output fell in y-o-y terms in 2Q20 and 3Q20, it registered a strong rebound from 4Q20.
The same can also be seen in terms of improving new launches and sold units since 4Q20 (CBRE, 6 March 2021). Meanwhile, media reports frequently indicate that property prices continue to rise. Take Ho Chi Minh City (HCMC) as an example, the average property price rose 11% y-o-y as of 3Q20. Like many countries, this is partly due to accommodative monetary policy that offers low interest rates and abundant liquidity. 
Meanwhile, it is also driven by a sharp rise in the price of luxury condos, growing 9% y-o-y in 2020 vs. a 4-5% y-o-y price increase in the mid-end and affordable segments. Demand for luxury and high-end properties remains elevated, with their market share increasing from less than 30% of total units sold in 2019 to more than 70% in 2020. 
FDI data suggests that even though new FDI inflows into the real estate sector increased more than 200% y-o-y as of May, FDI was largely concentrated in manufacturing. This means that price rises are mainly due to domestic investors.
There is no question this has attracted the attention of policymakers. In mid-April, SBV’s Governor Nguyen Thi Thu Hong called for commercial banks to enhance their risk management operations, vowing to step up measures to tighten credit allocation in risky areas, including real estate. The rapid growth of credit since the beginning of 2021 was cited as the main reason. Available data suggests that credit growth in the real estate sector accelerated to 15% y-o-y in January and February, exceeding the SBV’s target of 12%. By mid-April, total credit growth reached more than 15% y-o-y.

DIEP NGUYEN