Land prices on the outskirts of the capital city have dropped sharply and transactions have cooled down, a development that has worried investors but been welcomed by experts who consider it a good sign as land prices approach real market value.

Land prices in many construction projects are falling, with those on the black market in Kim Chung-Di Trach new urban area along Highway 32 falling below 10 million (US$476) per square metre.

Land prices at the Gleximco new urban area along Le Trong Tan Road have also decreased by between VND6 and VND12 million ($285-$571) depending on location, said Nguyen Van Bac, a land broker at a real estate agent on Nguyen Ngoc Nai Street.

Until the recent price falls, residential land was considered as a safe channel for investors due to stable prices. Two months ago, land prices in Thach Ban, Gia Lam District were offered at VND60-65 million per square metre; now they have fallen to VND53-58 million per square metre. Similarly, land prices in Gia Lam District have also decreased by between VND1-2 million per square metre depending on location.

A land broker in Long Bien District said that during the past two months, his office could not sell any plot of land. The real estate market was almost frozen, he said.

Nguyen Trung Kien, a land trader in Gia Lam District, attributed the slow pace of land transactions to a new policy from the central bank that limited lending for the real estate and securities sectors. As a result, fewer people were borrowing capital from banks.

According to central bank governor Nguyen Van Giau, loan interest rates for non-manufacturing sectors such as real estate and securities reached 25 per cent per year and borrowers can not afford such high lending rates.

Le Xuan Truong, director of a joint-stock real estate company, said the real estate market in Ha Noi had been in a virtual fever for a long time, with investors pushing up selling price far from the land’s original price.

The market is temporarily frozen, some speculators suffered heavy losses or went bankrupt, as this is more likely to occur when lending from commercial banks is tightened. As a result, investors have to withdraw gradually from the real estate market.

This month, the central bank requested credit institutions and banks to develop plans and maintain credit growth below 20 per cent for the entire year. Under the request, banks and credit institutions are required to reduce credit growth and the ratio of outstanding loans to non-manufacturing sectors, especially real estate and securities markets.

Dang Hung Vo, a senior adviser to the Ministry of Natural Resources and Environment, said the message from the State Bank showed that capital for real estate would be scarce, but the real estate bubble would not burst and real estate prices still remained relatively high.

Vo emphasised that price decrease in real estate were a good sign showing that the market was approaching its real value.

Source: VNE/VNS