Will more FDI create another real estate bubble?

VietNamNet Bridge - The strong inflow of FDI into the real estate sector could be a problem rather than good news, analysts say.


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Dan Tri newspaper quoted a report from JLL Vietnam as saying that hundreds of millions of US dollars in FDI is expected to enter Vietnam.

The high stable GDP growth rate, developed tourism and FTAs are attracting more investors. Vietnam is also spending big money to develop infrastructure, including the 2,000 kilometers of highway and subway in Hanoi and HCMC.

Meanwhile, the HCMC Real Estate Association (HOREA) reported that of $30 billion worth of FDI registered in 2018, over $6.5 billion was reserved for the real estate sector. The figure amounted to 21.3 percent of total FDI capital. Japanese, Korean, Singaporean and Chinese were the biggest investors in the field.

The high stable GDP growth rate, developed tourism and FTAs are attracting more investors. Vietnam is also spending big money to develop infrastructure, including the 2,000 kilometers of highway and subway in Hanoi and HCMC.

Dinh Trong Thinh from the Finance Academy said Vietnam needs to be cautious when receiving capital flow into the real estate sector, warning that there are latent risks, especially a real estate bubble.

Thinh noted that some years ago, Vietnam saw a massive influx of FDI into resorts in coastal areas. Many investors registered projects to obtain land leasing rights and then transferred the projects for profits.

The expert said that the big volume of capital into the real estate market may lead to rampant investments. 

“A lot of investment capital can create a real estate bubble. One day, if foreign investors withdraw capital and run away, this will deal a strong blow to investors,” Thinh said.

“If so, the banks which provide loans to investors to implement projects will have to deal with bad debts,” he warned.

Another finance expert commented that a real estate bubble, when it bursts, would affect many other business fields, not only the banking sector.

Vietnamese investors typically follow foreign investors to inject money into the real estate sector. As such, a big amount of capital will go to property projects rather than production and business, which need capital.

“If the bubble bursts, the scenario of 2007-2008 will be repeated,” he warned. “If so, Vietnam will once again have to spend big money to settle the problems.”

Commenting about the motivation for economic development, Thinh said Vietnam needs to accelerate production growth, economic restructuring, agriculture and the private sector.

Real estate is one of the favorite investment fields of foreign investors. In 2017, FDI capital into the sector reached a 7-year high with $3 billion worth of committed capital.


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Mai Chi

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