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Deflation a genuine threat to real-estate market   2008-11-10 - VNS

In HCM City, property prices as well as payment capacities have slid continuously over the last few months.

 Many experts are warning that theVietnamese real estate market may fall into deflation for about three years as an indirect impact of the world financial crisis.

They say that the initial signs are already there, with persistent declines in both selling and purchasing power of commodities.

In HCM City, which is the country’s hottest market, property prices as well as payment capacities have slid continuously over the last few months.

Ho Van Phuc, a property broker at the University Village Project in Nha Be District, said: "Compared with some months ago, property prices have decreased significantly. Meanwhile, the number of people who want to sell their properties is much higher than those who want to buy them."

"At the Thai Son apartment project No 2, the price of one square metre is down to VND7 million. The rate is only 1.5 times higher than the basic rate fixed four or five years ago. In spite of such low prices, the project owner cannot find customers," Phuc said.

"If compared with the rates recorded at the peak time, prices of many popular property projects now are down by 70 per cent," he added.

A similar situation faces luxury property projects. Prices of properties at the Tan An and Thai Son No1 in Nha Be District decreased from VND24 and 30 million per sq.m five months ago to VND13 and 15 million at present.

Prices of one sq.m at the Him Lam-Kenh Te Project in District 2 have crashed from VND90 million early this year to between VND28 and 35 million.

Sharp decreases in prices have also been seen at property projects around the Thu Thiem New Urban Area. Land plots for constructing villas on Luong Dinh Cua Street are now being sold for only VND18 and 20 million per sq.m, much lower than the old rates of VND45 and 50 million.

What is even more significant is that although the property rates have gone down strongly, only a handful of buyers are in the market.

Explaining the slowdown that may lead to deflation, experts say that some months ago the real estate market began its downward trend due to tightened monetary policies by the Government, but now it is suffering the indirect influence of the world financial crisis.

The Vietnamese property market is at the primary development stage, so it has not deeply integrated into the world market. But it was still affected by the world crisis because its major investors were foreigners, they said.

In recent years, the strong participation of foreign investors in the domestic property market had created fierce competition with domestic investors, considerably heating up the local market, and sending land prices soaring 200 and 300 per cent within three years.

Domestic investors started feeling the pinch early this year when the Government implemented its credit tightening policies.

Now, foreign investors cannot avoid the impacts of the world financial crisis since most of them are major investment funds or multinational groups with roles in the world property and financial markets.

In other words, both domestic and foreign property investors are facing hard times, so the domestic real estate market has no dynamism to develop at this time, according to experts.

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