Shaky foundations

THESE ARE TROUBLED times for Vietnam's luxury property market. Massive oversupply means prices for new upmarket homes have halved since 2004.

The rapid rate of construction has outpaced demand in the residential market to such an extent that commentators warn of stagnancy until the supply and demand equilibrium is restored.

Paul Mason, managing director of eHomes-Vietnam, says the better new apartment projects coming on to the market today are selling at between US$1,000 and US$1,100 a square metre. Two years ago these same projects might well have commanded nearly double this price.

Analysts partly blame land law changes in 2004 for the oversupply. They stopped large tracts of land from being parcelled into smaller lots, which meant large developments were built that the market cannot absorb. Many speculators who put down deposits on homes sold off-plan a year or two ago are finding their hopes of selling for a profit during the construction period dashed. This is putting others off.

Mr Mason says last year was a particularly difficult year for developers, with speculators being far more cautious than the year before.

'While Vietnam's more experienced developers have been able to demand incremental price increases, speculators hoping to flip properties for a quick profit have found that they are left with properties that no one wants to buy,' he says. 'Further complicating the issue is the inability of the secondary market to get direct bank finance for property purchases.