Waning confidence holds back housing recovery in Vietnam

The rebound in Vietnam's property market from a three-year slump may be delayed until next year as families struggle to access affordable loans and confidence lags, according to CBRE.

Only 1,500 condominiums were sold in Hanoi in the first quarter, said CBRE.

While that was a fivefold rise from the 279 sold in the same period two years ago, it was still down from the peak in 2009, when more than 15,000 units were sold in the capital.

In Ho Chi Minh City, first-quarter sales more than tripled to 2,263. That compared with a peak of 13,000 homes sold in 2010.

"We've still got issues that are holding us back," said Richard Leech, an executive director of CBRE. "Although we have had economic stability, there is a lack of confidence, a fear that interest rates are going back up."

First-quarter home sales reflected difficulties in a property market where entire subdivisions on city outskirts remained unfinished and empty, Leech said.

The economy continues to be stymied by bad debt at banks, of which a third were tied to soured property loans at the end of 2012. Lenders are putting together a loan package to stimulate the market and policymakers cut rates last month to boost growth.

In May last year, the central bank approved 30 trillion dong (HK$11 billion) of financing for five banks to use for low-interest home loans, yet few buyers had participated in the programme, Leech said.

Declining home values hurt Vietnamese sense of wealth, said Adam McCarty, a chief economist at Mekong Economics. When that dropped, people reduced spending, which rippled across the economy.

"Most people's wealth is tied up in real estate," McCarty said. "They are seeing their wealth go down on paper about 30 per cent in the last few years."

Just a few years ago, ordinary Vietnamese were "gambling" on apartments, putting down deposits with plans to resell the units in a month or two, McCarty said. When the market slumped, they could not sell the homes.

Some pockets of the housing market were seeing improvement, particularly holiday properties along the central coast and upscale homes in the centres of Hanoi and Ho Chi Minh City, Leech said. Foreign investors were showing more confidence in the market than local buyers.