Real estate is always the investment channel preferred by investors because of its high profits. In the context that the market is in a downward trend, capital flows from real estate tend to shift to more attractive and safer investment channels.
Real estate declines on a large scale
Land prices soared during 2016-2018 in all segments, attracting many investors with the psychology of “buying is profitable”. In fact, over the past 20 years, real estate has helped many people to get rich but many people have gone bankrupt. History of 10 years ago showed that only investors bought real estate in 2006 and sold in 2008 reached a super profit, while the buyers after 2008 were mostly lost.
Observing the real estate situation in the first six months of the year, it is easy to see that only the apartment and real estate market with value not exceeding 10 billion dong in HCM City retains heat. The reason may be due to supply disruption as a result of legal procedures. In contrast, other segments have shown signs of decreasing liquidity, especially real estate with a value of 10 billion dong or more.
In particular, many segments’ prices that rose sharply in previous years such as in Phu Quoc have dropped by 10-30%, but it is difficult to boost sales. This situation also appears in the real estate segment in suburban areas, where new growth drivers in 2018-2019 also began to show signs of reversal due to increased selling pressure.
One of the reasons for dragging down the real estate market due to the State Bank of Vietnam (SBV)’s tightening credit policy on real estate and the interest rate level is likely to increase again. Currently, with the exception of the four leading banks including Vietnam Bank for Agriculture and Rural Development (Agribank), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), other banks continue to raise deposit rates up to eight percent or even higher.
In parallel with the increase in interest rates, the valuation of mortgaged real estate assets has also been tightened in the direction of depreciation. This is an important factor affecting the market and this situation pushes the real estate market in 2020 into quietness. With the forecast of real estate investment channel to cool down in 2020, investors can temporarily migrate through three passive investment channels to deposit at banks in US dollar and gold.
The strong increase in USD/VND exchange rate in the second quarter made investors pay attention to buying and holding US dollar. However, after that the exchange rate suddenly dropped sharply so this demand quickly cooled down. Not only individual investors, commercial banks are no longer interested in seeking profits from investment to enjoy the exchange rate difference. The reason is that the foreign currency source is quite abundant and SBV restricts commercial banks to lend US dollar to businesses.
By the end of the year, the foreign exchange rate is expected to remain stable due to strong domestic supply of foreign currencies, such as a trade balance surplus of $7 billion, foreign direct investment (FDI) and indirect investment (FII) poured in sharply, remittance rose noticeably in the last months of the year. According to the World Bank’s (WB) forecast, the amount of remittances in 2019 is estimated at $16.7 billion, equivalent to the level of $16 billion in 2018.
Gold is hard to predict
For many years, world gold prices have been relatively stable, making gold holders less profitable than bank deposits. However, in the last months of the year, the world gold price soared from $1,280/ oz at the beginning of the year to $1,453/ oz on November 8 (equivalent to an increase of 13.5%).
Accordingly, SJC gold price from 36.6 million dong/ tael to 41.9 million dong/ tael (up 14.7%). This is a very high increase helps gold holders obtain large profits. However, due to the sudden increase in gold prices and fluctuations that make forecasting prices not easy, there are not many more investors jumping into this channel, except for those who have chosen this channel for a long time.
It is predicted that the exchange rate will increase in 2020 because the US dollar remains relatively strong, although the US Federal Reserve (Fed) has lowered interest rates to ensure the US economy continues to have more motivation to support growth. Therefore, the USD/ VND exchange rate will face pressure to increase in the context that other strong currencies such as euro, Japanese Yen are weak to boost the economy. However, because the government still applies prudent monetary policy, along with low inflation and stable economy, the highest exchange rate increase is only three to five percent.
Meanwhile, the world gold price in 2020 is having two scenarios including below $1,400/ oz and over $1,500/ oz. With the current situation, the former is most possibly to happen. Therefore, it is unlikely that domestic gold price will accelerate sharply as in 2019.
From the above analysis, the general trend is that many investors will choose to deposit at banks with the interest rate of 7-8.5 percent per year. This rate is relatively attractive and compared to the investment channel of US dollar or gold. In particular, this is also a safe investment channel compared to real estate, gold and US dollar.
