Vietnamese Property Market Slows

21 July 2011

The property market in Vietnam has slowed down as interest rate rises take effect. The interest rate increases were part of anti-inflationary steps initiated by the government, and they have certainly been effective as residential property prices have fallen by an average of 17% compared to a year ago.

 

It looks as if there may not be any immediate improvement in the situation, as the latest consumer price index increased at its fastest rate for more than two years, which suggests that more interest rate rises could be necessary in the very near future.

 

Refinancing rates in Vietnam are currently at 14%, and the bank of Vietnam has already increased interest rates twice during the second quarter in an attempt to control inflation.

 

As the consumer price index increased to 20.8% in June, it's likely that even foreign investors will choose to look elsewhere, at least in the short-term. However analysts still predict good long-term growth for Vietnam, and expect individual foreign investors to return within the next few years.

 

The Vietnamese dong is also depreciating, and the country has a low level of foreign reserves. This is quite serious as the majority of transactions are completed in US dollars, and there are fears that the property market could come to a standstill if the country runs out of its reserve of US dollars.

 

Apparently the dong has been devalued against the dollar five times since June 2008 due to the government’s attempt to reduce its trade deficit, and this has prompted many people to switch their savings towards gold and US dollars, further weakening the local currency. Late last year the IMF warned that the bank of Vietnam was estimated to have just US$12 billion in reserve.

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