Last year the estimated capital injection into the Vietnamese property market reached US$5bn, mainly foreign direct investment (FDI). Many districts within HCMC saw land prices increase 70-200 per cent. Property in Ho Chi Minh City was equally buoyant with average prices more than tripling from the last two years; and the luxury sector was been a key growth area.
However, the beginning of this year marked a slowdown in what many had considered to be unsustainable growth. Higher construction costs due to global oil price hikes and resultant construction material costs, coupled with the governments tight monetary policies aimed at curbing inflation hit hard and transactions plummeted. However, the city’s fundamentals remained strong and demand high, particularly among HCMC’s rapidly expanding middle-class; many of whom had been holding off stepping into the market while prices were so inflated by speculators.
Last August saw a sharp increase in the number of transfers with most being in the VND1.5 billion (US$91,660) and under category, and developers are expected to start switching their focus onto middle-income earners where sales are expected to outstrip those of top-end buyers still wary of the Q1 decline.
The market re-adjustment was effectively engineered by an Vietnamese government aiming for less speculation. It declared that it was to impose a tax of 25 per cent on capital gains in property transactions which would be in addition to a 2 per cent transfer tax already in place, applicable from January.
The move triggered a fall in property prices and reduced inflation rates, and is being hailed as a positive by both middle-income families and the government itself. Speculation in HCMC was blamed for as much as 80 per cent of property transactions with money frequently being pulled out of the country’s stock market to fund it so the government was forced to act. The nation’s consumer price index (CPI) rose by just 1.56 percent in August 2017 less than half of what it was earlier in the year.
The government is expected to loosen its monetary policies once inflation is fully under control, which experts believe will lead to a resurgence in the higher end of the HCMC market with demand from the middle and lower end of the market sustaining the industry in the interim. Healthy returns on property across the board are expected to fully return by year-end 2018, which in the context of the city’s exponential growth over the past decade, would make the latest downturn very much a blip on a curve going in one direction.