As China’s Evergrande scandal continues to unravel with no end in sight, the Vietnamese property market should be watching the fallout closely. The Washington Post reports that the same development tactics that plunged Evergrande (and subsequently China’s entire real estate market) into disarray are all too common in Vietnam.
There are some stark similarities between the two countries’ respective real estate markets. Like China, Vietnam has an obsession with real estate. In fact, both countries boast a home ownership rate in the 90th percentile. Vietnamese real estate investments are huge drivers of capital, but Vietnam’s real estate rush has paved the way for residential property pre-sales to become the most common avenue for people in Vietnam to acquire real estate.
Pre-sales may be advantageous to both the buyer and the developer, especially in a growing market like Vietnam’s. Buyers are able to lock in the present prices before the units are finished, which is typically two years later, while developers benefit from speedier financial returns. It’s also a tactic that Evergrande exploited before miring China’s economy.
As China’s southern neighbor, Vietnam has a front-row seat to the considerable risk that pre-sales can wreak on the real estate market. Scores of Chinese buyers were left in the lurch when Evergrande collapsed after paying for properties that were never built. But Vietnam is also grappling with their pre-sales backfiring as well as some developers fail to uphold their side of the pre-sale bargain and never constructing the project at all. As of now, Vietnam’s central bank is instructing its commercial lenders to limit credit in order to avoid a bubble, but both buyer and developers in Vietnam are still hastily making pre-sale deals, indicating that the Vietnamese real estate market is already on shaky ground.