Real estate is always considered as a haven channel to minimize risks when the inflation rate is high. However, experts say that big inflationary waves can also slow down economic growth and reduce demand for real estate rental or purchase.
Right in the firsts months of the year, inflation control in VietNam has become a significant problem, putting a lot of pressure on macroeconomic management.
According to the General Statistics Office, on average, in the first two months of 2022, CPI increased by 1.68% over the same period last year, core inflation increased by 0.67%.
Su Ngoc Khuong, Senior Director of Savills Vietnam, said that under the impact of the Russia - Ukraine war as well as the still-existing effects of Covid-19, the goal of keeping inflation below 4% is very challenging for investors as well as the economy and fiscal policy.
“This goal can only be achieved if the post-Covid-19 economic recovery goes as expected and the war situation between Russia and Ukraine is settled through early negotiations.” , Mr. Khuong said.
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| Real estate is considered a haven channel to help reduce risks when inflation is high |
According to analysis by Savills World Research, if inflation occurs due to economic growth, real estate demand will be pushed up and help increase real estate values. However, if inflation is driven by costs such as raw materials, rising labor costs (cost-push inflation), a constraint on the supply of real estate is unavoidable. Cost-push inflation is also difficult to predict, often due to unforeseen events such as the environment and geopolitics.
According to Mr. Khuong, in the face of fluctuations such as wars, epidemics, and financial crisis, there are 3 big asset paradises: oil, precious metals and real estate.
In Vietnam recently, the supply of residential real estate is very limited. People mainly invest in land plots, while residential real estate products including land plots and properties on land only account for a lower proportion.
Therefore, Mr. Khuong said, in the context of world economic and political instability, rapid inflation and tight supply, Real estate market, including residential and commercial segments in Vietnam, is assessed to increase significantly in the coming time and is an useful investment channel to help reduce risks in the context of inflation.
There will be investors forced to sell off assets
However, the senior director of Savills also emphasized that when inflation occurs, although real estate prices increase, the market cannot afford to buy, there is no liquidity. At the same time, many investors also use financial leverage to invest in real estate, making low-liquid assets a great burden for them as well as putting pressure on the banking system.
"That's why in today's complicated stat of affairs, it is especially important to carefully consider when using financial leverage to invest in real estate, to avoid repeating the situation of "dead on the property pile" happened in the past". said Mr. Khuong. Adding that, in the next 9-12 months, some investors will be forced to sell off their assets because they can't bear the pressure from financial support tools isn't entirely impossible.
However, the speculative nature of this group is not large, making it difficult to manipulate the market, affecting the price level. Besides, the supply of housing in Vietnam in the coming time is still very limited, so a reduction in real estate prices is very unlikely.
Analyzing this point of view, Mr. Khuong said that, looking at the history of the first crisis of the world economy in 1917, which originated in the US until now, there is only one crisis that caused real estate prices to fall which was the decrease happened in 2007-2008 with a decrease of 30-40%.
Particularly in Vietnam, although from 1975 to now, the economy has also experienced a number of events such as the crisis of 1997-1998, 2007-2008, 2011-2012 and most recently the period of 2020-2021. Only in the 2011-2012 period does the real estate prices in the whole market decreased by 30% because investors used too much financial leverage at that time. While in the other period, after each of those economic crisis, real estate prices increase.
Therefore, Mr. Khuong advised investors, before deciding to put money down, it is necessary to pay attention to the price and legality of real estate. For investors who intend to sell real estate at this time, it is necessary to carefully consider the purpose of the money after the sale of that property. "It would be reasonable if this money was invested in more effective investment channels amid the epidemic and international political instability," Mr. Khuong said.
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