Home Price Inflation in Vietnam: The Cause is Absence of Genuine Market Mechanism, not Speculation

Statistics over the past decade have shown that housing prices in Vietnam’s major cities usually grow 3 to 4 times faster than the growth of the average per capita income increase. From 2000 to 2011, house prices jumped approx 10 times, while gold price climbed 7.3 times, and USD price 1.5 times. As a consequence of this, the gap has been widening through time, making people unable to afford a house even when the domestic home market tumbles.

Although authorities frequently cited over-speculation and herd mentality as major causes for inflation of home market’s prices, former deputy chief of the National Financial Supervisory Commission (NFSC) – Dr Le Xuan Nghia – disagreed. In his calculation, speculation could at most push home prices up by 15% within a short period, and the effect should be dying out fast. However, in reality, Vietnam’s housing market has seen streak of price hikes leading to a hundred times leap in a sustained way.

Therefore, the only culprit for this huge housing price inflation in a poor country like Vietnam could be seen as lack of transparency in managing and organizing the markets. Lengthy and complicated administrative process, red tapes and corruption have really made property prices in some bustling quarters of Hanoi and HCMC among the highest in the world.

According to CBRE, in Q1 and Q2 2012, about a half of apartment buildings are sold lower than $1000/m2, a 30-50% drop from just a year ago. However, lowered prices don’t really help the markets out of its trough. Most people can afford less than VND 1 billion ($47,000) for their home, but VND 2-3 billion apartments segnment is the largest share of supply in the domestic property market. The current Vietnamese per capita income is only US$1,200 would never allow an average salaried person to afford a house.