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1 Name: Đinh Thanh Ngân o Student ID: 2115027112
2 Name: Võ Trương Ngọc Trâm o Student ID: 2115027121
3 Name: Vũ Trí Huy o Student ID: 21150271134
4 Name: Nguyễn Bùi Hoài Mỹ o Student ID: 2115027053
5 Name: Trần Thị Khánh Hân o Student ID: 2115027044
6 Name: Huỳnh Ngọc Quế Trân o Student ID: 2115027123
7 Name: Nguyễn Hoàng Huy o Student ID: 2115027139
8 Name: Phạm Gia Bảo o Student ID: 2115027133
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The U.S economy, the largest globally, plays a crucial role in industrial development, modern agriculture, and international trade and finance Changes in the U.S economy significantly impact global stability, as evidenced by the 2007 Financial Crisis, which triggered the worldwide economic downturn of 2008 This crisis resulted in the loss of $10 trillion, 30 million job losses, and pushed 50 million people back into poverty, culminating in the collapse of Lehman Brothers The primary catalyst for this financial turmoil was the real estate market's collapse, exacerbated by mortgage lenders disregarding borrowers' affordability, leading to a surge in defaults and a freeze in the housing market Additionally, lenders sold mortgage loans to investment banks, which bundled these debts into collateralized debt obligations (CDOs), further stagnating capital flows and causing a severe "real estate bubble" burst that adversely affected all sectors of the global economy The world learned a costly lesson from this crisis.
Since the end of 2020, Vietnam's real estate market has experienced unprecedented growth, with rapidly rising land prices across the country However, experts express concerns about the potential for a "real estate bubble" as prices escalate quickly and reach high levels This situation mirrors the conditions seen a decade ago, raising fears of a future crisis that could be even larger in scale To mitigate these risks, it is crucial to reflect on past lessons and develop effective strategies to prevent and address potential downturns in the market.
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Seeing the importance of the above work, the team chose to study the topic "Us real estate bubble in 2007-2008 and lessons for Vietnam.
Part 1: General overview of the state of the "real estate bubble".
Part 2: US real estate bubble in 2007 - 2008
Part 3: The state of Vietnam's real estate market in 2007 - 2008.
Lessons learned for Vietnam after the real estate bubble in the US in 2007 - 2008
The essay examines the "real estate bubble," exploring its development, causes, and consequences, particularly how the burst of this bubble triggered a global economic crisis It also investigates the implications of this crisis on Vietnam's real estate market, assessing whether the economic turmoil had a significant impact on local conditions Ultimately, the article offers valuable lessons and suggests potential solutions to mitigate similar issues in the future.
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GENERAL REASONING ISSUES
Economic bubble phenomenon in general
In recent times, the media frequently discusses terms like "stock bubble" and "real estate bubble," highlighting the prevalence of economic bubbles throughout history Notable examples include the South Sea Company bubble of 1720 and the Great Depression that spanned from 1929 to 1933, illustrating the recurring nature of these financial phenomena.
Economic bubbles, such as the Japanese Economic Bubble of the 1980s, the Dotcom Bubble from 1995 to 2000, and the Poseidon Bubble in the 1970s, represent a recurring phenomenon in financial markets characterized by a rapid increase in asset prices beyond their intrinsic value These bubbles typically emerge after a market depression, leading to a surge in prices that eventually becomes unsustainable As prices escalate, investor enthusiasm can create a "fever" around certain sectors, luring many into the illusion of continued growth However, this speculative rise is often followed by a dramatic decline, known as a "bubble burst," where panic selling ensues as investors rush to recover their investments This massive sell-off, driven by overwhelming supply and minimal demand, results in significant financial losses and can lead to widespread economic downturns, impacting the broader market and society.
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The mechanism of the real estate bubble
The "Greater Fool Theory" explains the real estate bubble, suggesting that there are always buyers willing to purchase overvalued properties, hoping to sell them to even more uninformed speculators This cycle inflates prices until the bubble bursts, leaving no buyers willing to pay inflated rates In Vietnam, rapid GDP growth has led many individuals and businesses to invest heavily in real estate, viewing it as a lucrative asset for storage and speculation However, high credit growth from commercial banks, coupled with lax lending practices, has further fueled this speculative frenzy The influx of brokers and secondary investors has driven prices to unprecedented heights Unfortunately, regulatory authorities have failed to implement timely measures to control the market through taxes, planning, and credit management, allowing the bubble to grow unchecked Economists warn that such economic bubbles pose serious risks, as their collapse can lead to significant wealth destruction and prolonged economic instability.
TIEU LUAN MOI download : skknchat123@gmail.com uncertainty The consequences not only devastate a country's economy, but its influence can sometimes spread beyond its borders.
A few points about the real estate bubble in Vietnam in recent years
In recent years, Vietnam's real estate market has experienced significant growth, attracting attention despite rising land prices and signs of a potential bubble The market, still relatively young at over 30 years, faces challenges from global economic integration and the risk of external crises However, the government has effectively managed credit flow into real estate, making it harder for investors to borrow, while low deposit interest rates contribute to a more stable environment Buyers are becoming more informed, leading industry experts like Matthew Powell from Savills Hanoi to assert that the market is not in a dangerous bubble but is instead experiencing steady growth within a safe zone.
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THE U.S REAL ESTATE BUBBLE FROM 2007 TO 2008
Causes of the real estate bubble in the US from 2007 to 2008
Subprime lending is a prevalent mortgage option in the United States, primarily targeting borrowers with poor credit histories These subprime borrowers often face issues like overdue payments, potential court actions, or even bankruptcy, resulting in low credit scores and unfavorable debt-to-income ratios Consequently, loans for these individuals typically come with higher interest rates compared to standard lending While there is no specific regulation governing subprime lending, it is noted that most subprime borrowers have credit scores below 620, representing nearly 25 percent of the U.S population.
Subprime housing mortgages emerged as a significant sector in the early 21st century, becoming a profitable venture for both lending banks and real estate speculators These substandard loans are characterized by high risks, as they are secured by real estate assets, which can fluctuate in value and lead to financial instability.
The real estate bubble was determined to be caused by commercial banks lending
The surge in demand for "substandard" home loans can be attributed to the low-interest rates and accessible borrowing options provided by the US Federal Reserve (FED) This strategy aims to stimulate production and consumption, ultimately aiding in the recovery of the US economy from recession following the financial crisis.
Between May 2001 and December 2002, the Federal Reserve significantly reduced the lending rate from 6.5% to 1.75% through 11 cuts This period saw a notable increase in subprime mortgage lending, which rose to 21% of all mortgage loans from 2004 to 2006, reflecting a 9% increase compared to the years 1996 to 2004.
In 2006, the total value of subprime mortgages in the United States soared to $600 billion, accounting for one-fifth of the home loan market This significant increase highlights the impact of changes in the policy rate, as illustrated by the blue line in the accompanying data.
The housing market is thriving due to increased personal incomes, low mortgage rates, and easy access to credit, prompting many individuals to seize profit opportunities Buyers are eager to purchase homes, driven by the belief that prices will continue to rise and the relatively simple process of acquiring property in the U.S requires only a 20% down payment, with the remainder financed over 20 years or more With low interest rates, buying a home often proves more cost-effective than renting, allowing for potential profits upon resale In 2005, statistics revealed that 28% of homes purchased were for speculative reasons, while 12% were acquired purely for investment Homebuyers often overlook risks, confident that the ongoing appreciation in property values will enable them to easily repay their loans.
Lenders are increasingly confident as the risk of default diminishes with rising house prices, leading to an increase in homeowner property values Commercial banks can now extend "substandard" home loans widely, supported by investments from financial institutions and government-sponsored entities like Fannie Mae and Freddie Mac These entities acquire loans from commercial banks, converting them into mortgage-backed securities to sell to major firms and investment banks, such as Bear Stearns and Merrill Lynch, which subsequently issue bonds based on these assets.
Download TIEU LUAN MOI at skknchat123@gmail.com Mortgage loan documents are being sold to various U.S banks and international banks as a means of asset accumulation, leveraging the credibility of the issuing banks.
The securitization of mortgage loans has escalated beyond state regulation, leading to a series of speculative activities that have overheated the housing market This surge in speculation has driven housing prices to unsustainable levels, creating a significant "bubble." Consequently, the inevitable bursting of this bubble looms as a critical concern for the economy.
In early 2006, rising interest rates led to a sudden spike in home loan debt, causing many homeowners to struggle with payments as the U.S real estate market froze and demand plummeted alongside falling housing prices This situation resulted in an increase in bad debts and defaults, putting U.S banks and credit institutions at risk of significant losses Furthermore, these problematic mortgage loans were securitized and traded on the stock market, leading to a home loan crisis that extended beyond the U.S to countries such as New Zealand, Germany, France, Australia, and Japan, all of which were involved in similar securities.
The housing bubble burst in the U.S at the end of 2007 and the beginning of 2008 due to banks easing lending standards for home loans aimed at speculators This practice, combined with the securitization of these loans, led to a widespread financial crisis that affected countries in Europe and Asia.
The evolution of the real estate bubble in the US from 2007 to 2008
Since 2001, the U.S housing market has experienced a bubble, with Americans increasingly borrowing to purchase homes despite high interest rates in 2004-2005 During economic downturns, house prices tend to decline significantly, and by the end of 2005, the housing bubble started to lose momentum.
In 2001, the U.S housing market experienced a significant bubble, spurred by the Federal Reserve's decision to lower interest rates from 6.5% to 1.75% through 11 cuts This move aimed to stimulate a faltering economy following the Dot-Com industry's collapse, leading to a surge of excitement in the real estate sector.
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U.S home prices rose continuously between 2000 and 2005 In just five years, the sales of newly built homes increased by 41.14% (from 907,907 units per month to 1,283,000 units per month) In 2000, the average price of a home in use was $139,000, but by 2001 it had reached $139,700 and tended to rise until 2005 House prices rose continuously from 2001 until 2005 at a rapid pace of $219,600 in 2005 for existing homes and reached a record level in the second quarter of 2005 The median price of homes in use nationwide in April 2005 was $206,000, up 15.1 percent from April
In 2004, the median home price reached $179,000, marking the most significant increase since November 1980, when prices surged by 15.6% year on year Regional variations show that the West experienced the highest price jump, with homes averaging $305,000, reflecting a 21% rise.
In 2005, house prices in the central region's states reached unprecedented heights, with Florida leading the nation in price growth during the first quarter The median home price in Bradenton soared to $275,100, marking a 45.6% increase from 2004, while Sarasota's median price rose to $326,300 (up 36%) and the West Palm Beach area, including Boca Raton and Delray Beach, reached $362,800 (up 35.9%) Other states like Arizona, California, and Hawaii also experienced significant price surges of 25% compared to the previous year Additionally, the trading volume for both used and newly built homes surged, with transactions increasing by 2,102,000 units per month during this period.
Between 2001 and 2005, homeownership rates peaked, reaching 69.2% in 2004, the highest recorded However, signs of a market slowdown emerged in the fourth quarter of 2005 Despite rising property prices in various countries in 2006, the US real estate market remained subdued, with new home construction dropping by 4% in February 2006, marking the largest decline in six years, from 882,000 units in January to 848,000 units.
In 2007, the housing market experienced a significant decline, with house prices and transactions dropping from 1,283,000 to 776,000 units The North American Organization of Realtors reported a total of 4,910,000 transactions Between August 2007 and August 2008, over 770,000 U.S homes faced bank debt as families struggled to meet mortgage payments, leading to widespread repayment difficulties Consequently, many home loan institutions encountered challenges in recovering their debts.
Rising interest rates can significantly impact low-income individuals, especially during economic downturns As the economy struggles, these individuals face increased repayment burdens, leading to higher unemployment rates and a greater risk of defaulting on loans.
In Cleveland, Ohio, a wave of foreclosures left many home buyers unable to pay their debts, leading to the sale of their assets This city was the initial epicenter of a crisis that eventually spread throughout the United States and beyond Statistics reveal that approximately one in ten homes in Cleveland have been repossessed for commercial purposes, leaving immigrants with aspirations of homeownership disappointed By the third quarter of 2007, U.S home prices plummeted to their lowest levels since the financial crisis of the 1930s.
In the wake of significant financial turmoil, several U.S credit institutions, including New Century Financial Corporation, declared bankruptcy, while others like Countrywide Financial Corporation experienced drastic declines in their stock prices This instability led to widespread panic among depositors, prompting many to withdraw their funds and exacerbating the credit scarcity crisis In response, the U.S government allocated over $900 billion in 2008 to address the fallout from the housing bubble, with more than half of this support directed towards government-backed mortgage companies, Fannie Mae and Freddie Mac, as well as the Federal Housing Administration Additionally, the "Bad Property Rescue" Program was introduced, offering a new loan option with a low interest rate of 4%, a loan term extension to 40 years, and grace periods for overdue payments.
In response to the 2008 global financial crisis, the U.S Federal Reserve adopted a near-zero interest rate policy to stimulate lending and support businesses The Fed aimed to maintain these low short-term interest rates until 2015, alongside implementing three quantitative easing (QE) packages in 2008, 2010, and beyond to further revive the economy.
2012, respectively These are the bailouts the Fed has put in place to rescue U.S. financial markets amid rising unemployment and low GDP growth.
Following various measures implemented by the Government and the Federal Reserve to address the real estate crisis, the U.S housing market is experiencing a notable recovery In 2013, this recovery accelerated, as indicated by the S&P/Case-Shiller Composite Index of Home Prices, which revealed rising home prices in 20 major U.S cities as of June 25, 2013.
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Consequences of the U.S real estate bubble from 2007 to 2008
The housing bubble significantly impacts the real estate market, surrounding communities, and the broader economy It often leads to insolvency, prompting individuals to seek unprofitable mortgage options Consequently, homeowners may alter their retirement plans, extending their working years to manage financial obligations Following the burst of the housing bubble, many face the risk of losing their homes or savings.
Between 2001 and 2006, employment in the residential construction sector increased by 29.1%, significantly faster than the 12.7% increase in the entire construction sector.
In contrast, between 2006 and 2009, employment in nonfarm payrolls in residential construction decreased by 36.6%, while employment in the entire construction sector decreased by 21.5%.
Changes in employment in non-agricultural payrolls, some select industries 2001 - 2009.
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The impact of the housing bubble is not limited to the construction sector Between
Between 2001 and 2006, the cement and concrete products sector saw a 5.1% rise in employment, while construction machinery employment grew by 9.0% In contrast, the real estate credit industry experienced significant growth, with employment in mortgage lending increasing by 52.0% and non-mortgage lending brokerage soaring by 119.5%.
The collapse of the housing bubble led to substantial job losses in industries reliant on residential construction, with employment in mortgage and non-mortgage lending and real estate credit plummeting by 54.5% and 44.0% from 2006 to 2009 Additionally, the wood products sector experienced a 35% decline in jobs, while cement and concrete products faced a reduction of 24.4%.
The 2007-2009 U.S financial crisis was significantly triggered by the bursting of the housing bubble in late 2005, which led to a slowdown in the economy and unpayable loans from housing investors to financial institutions By mid-2007, several financial institutions involved in secondary housing credit began to fail, resulting in declining stock prices The crisis reached its peak in October 2008, affecting even major banks like Lehman Brothers, Morgan Stanley, Citigroup, and AIG This credit crunch severely impacted the U.S economy, contributing to the auto industry crisis from 2008 to 2010, as many Americans who had speculated on housing investments found themselves unable to sell their homes and burdened with bank debt, leading to a decrease in overall consumer spending, particularly in the automotive sector.
The Dow Jones Industrial Average (DJIA) - an index that calculates the value of the
30 largest companies and most shareholders in the US, as of the close of March 9,
2009, was 6,547.05, the lowest level since April 1997 Within 6 weeks, the index dropped 20%.
Financial institutions from developed countries, particularly in Europe, are actively involved in the US secondary housing credit market Consequently, the collapse of the US housing bubble poses significant risks to these European banks, mirroring the challenges faced by their American counterparts The countries most affected by financial instability include the UK, Iceland, Ireland, Belgium, and Spain.
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In September 2007, Northern Rock, a UK bank, faced a crisis due to a rapid withdrawal of deposits, leading to its nationalization This event not only impacted Northern Rock but also put pressure on other banks across the country By 2008, the effects of this financial turmoil continued to resonate, particularly with Bradford.
Bingley plc is set to undergo a split into two distinct entities, while other banks such as Catholic Building Society and Alliance & Leicester are also facing ownership changes Additionally, the London Scottish Bank and Dunfermline Building Society are under special scrutiny from the British Government.
Iceland experienced a significant banking crisis in 2008, marked by a 1.5% decline in GDP during the first quarter, the steepest drop since 1983 Major banks, including Glitnir, Straumur Investment Bank, and Reykjavík Savings Bank, faced nationalization, while Kaupthing and Landsbanki came under the oversight of the national financial supervisory authority.
In early 2008, the Bank of Ireland experienced a significant credit rating downgrade, leading to a dramatic 99% decline in its share price compared to its peak in 2007 By early 2009, Anglo Irish Bank was nationalized, while Allied Irish Banks faced severe stock devaluation and implemented necessary reforms to secure a government restructuring loan.
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REAL ESTATE MARKET IN 2007 - 2008 LESSONS
The impact of the U.S real estate bubble on Vietnam
In the short term, Vietnam is expected to experience a limited and lighter impact from the current crisis compared to other economies This is largely due to the country's banking system being insulated from the direct influences of global financial centers and international money flows Additionally, Vietnam faces minimal risks associated with subprime investments and maintains a low reliance on financial leverage, while its financial services sector and stock market remain relatively young.
If the U.S housing crisis continues to escalate, Vietnam could face significant economic repercussions The situation may lead to a credit breakdown within the U.S economy, causing banks to hesitate in lending due to unclear risks This low cash solvency among banks will result in reduced business and household lending, including mortgages and consumer loans Consequently, these factors could exert deflationary pressure on the global economy, driving down commodity prices As consumer demand in the U.S declines, export-oriented economies like Vietnam and other ASEAN countries will inevitably be affected.
The Vietnamese currency market remains largely unaffected by the US subprime mortgage crisis, as no Vietnamese banks are involved in real estate mortgage lending in the US or have branches there Since the end of 2005, Vietnam's commercial banks have maintained a surplus of available capital, contributing to a decline in VND deposit interest rates by approximately 0.06% to 0.44% per year during the first nine months of 2007 Although USD deposit interest rates have risen, this increase is primarily driven by heightened import demand rather than foreign banks withdrawing capital from Vietnam.
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The situation of the bubble that created the fever in Vietnam's real estate market
The 2008 housing bubble marked a significant historical event characterized by a swift surge in real estate prices, followed by a sudden and drastic decline This period highlighted the volatility of the real estate market and its impact on the economy.
In 2008, the real estate market experienced two distinct seasons, characterized by a rapid price surge at the beginning of the year followed by a dramatic collapse by year's end During the early months, real estate prices in Ho Chi Minh City and the Southeast region soared, increasing by the hour and reaching unprecedented heights, leading to significant profits for investors and speculators However, by the end of the year, the market faced a severe downturn as the bubble burst, causing land prices to plummet back to their true values and leaving those who chased the inflated prices to face harsh consequences.
Between December 2007 and February 2008, land prices surged by an astonishing average of 300%, with some areas experiencing increases of up to 500% During this brief period, the real estate market became incredibly competitive, with sellers overwhelmed by demand and apartment projects facing shortages This "economic bubble" resulted in significant, often unreasonable profits for investors, who were described as "enjoying the fall of the sky" due to the inflated price increases that far surpassed typical investment returns In major cities like Hanoi and Ho Chi Minh City, housing prices soared to around 1 billion VND per square meter, and the number of buyers registering for new projects frequently outnumbered available units by 7 to 10 times.
In early 2008, the housing market experienced a significant surge, with prices rising 2 to 3 times compared to early 2007 This increase was evidenced by long queues of eager buyers seeking apartments in popular projects such as The Vista, Sky Garden 3, River View, and Phu Hoang Anh.
In Ho Chi Minh City are testaments to this unusual supply-demand relationship.
The recent surge in housing prices has generated a "virtual demand," driven by the anticipation of profit from purchasing apartments and reselling housing registration slips.
The rapid increase in high-end housing prices has stimulated "affordable" housing prices and agricultural land prices have also increased Land prices belong to
In recent years, the cost of "affordable" real estate projects has surged from approximately 2-3 million VND per square meter to between 8-10 million VND per square meter Similarly, the price of garden land has seen a significant increase, rising from around 400-500 thousand VND per square meter to 3-4 million VND per square meter This dramatic shift in pricing occurred during the last month of 2007 and the first month of the following year.
In 2008, our country experienced a significant surge in housing prices, marking the peak of the real estate boom Investors could easily gain at least 50 million through repeated buying and selling of properties In some instances, audacious transactions yielded profits as high as $10,000.
The soaring housing prices during this period prompted both domestic and foreign investors to channel their capital into the real estate market, driven by optimism about Vietnam's urbanization and growth potential The peak of this housing bubble occurred between 2007 and 2008, affecting areas from South Saigon to neighboring regions like Nhon Trach, Long Thanh, and Binh Duong, where land prices surged by at least three times the market rate This rapid increase in demand led to a corresponding rise in supply; however, the real estate demand was largely speculative As commodity prices escalated by February 2008 and inflation indicators began to rise, the State Bank took immediate action to stabilize the currency market by issuing mandatory bills.
In response to concerns about a potentially overheated real estate market and its impact on currency stability, commercial banks have halted new lending for real estate projects This shift has created challenges for investors and the overall real estate sector.
The real estate market is facing significant challenges, with many projects either halted or reduced in progress due to capital shortages Some ongoing projects are being transferred to new investors, while those nearing completion are being rushed to sell in an effort to recover funds As a result, housing prices have stabilized and are beginning to decline In response to these issues, the State Bank of Vietnam adjusted commercial banks' credit interest rates to enhance their reserve capabilities, leading to a rise in interest rates Consequently, the real estate sector is struggling to secure loans, which typically would result in scarcity and increased prices However, contrary to this principle, housing prices continue to level off and decrease.
The restriction of loans to the real estate market has effectively curtailed capital for real estate speculation, particularly in completed projects By June 2008, the real estate sector faced significant challenges, with prices plummeting, especially in areas farther from the city center, where values dropped by 20-30% over the following three months Experts suggested that the market had hit rock bottom However, by August and September, consumer prices began to stabilize, prompting the State Bank of Vietnam to lower credit rates, leading commercial banks to follow suit by reducing their lending rates.
Despite a decrease in credit interest rates, the current rates of 14-15% remain unsuitable for stimulating the French real estate market, where rates typically hover around 5% in developed nations In October and November, housing prices declined in numerous cities, leading many speculators to exit the market amid ongoing stagnation and strained bank debt Investors in older urban areas like Ha Tay have also faced disappointment, as their hopes for price increases have not materialized.
Ha Tay was imported into Hanoi did not come to fruition The pressure to repay bank debt has caused housing prices to once again plummet.
At this time, the total outstanding loans for real estate investment loans at credit institutions in the country is over VND 115,000 billion (accounting for 9.5% of the total
TIEU LUAN MOI download : skknchat123@gmail.com outstanding debt of the whole economy), of which the two largest cities, Hanoi and
Ho Chi Minh City accounts for approximately 75% of the nation's total outstanding real estate loans, with experts estimating that bad debts in this sector could reach nearly 5% of the overall outstanding debt This level of bad debt raises concerns about the stability of banking activities in the region As we transition from 2008, these financial challenges will become increasingly significant.
In 2009, real estate investment loan contracts required borrowers to repay both principal and interest, coinciding with a significant decline in property values, which dropped by 30-40%, and in some areas, even by 50-60% After six months of persistent price decreases, the market faced substantial challenges.
In 2008, housing prices plummeted by an average of 50% from their peak, with some projects experiencing a staggering 70% loss in value For instance, properties in District 9 and Nha Be district of Ho Chi Minh City, which once commanded prices of around 30 million VND per square meter during the market frenzy, saw their values drop to just 8-12 million VND per square meter following the burst of the housing bubble.
The cause of Vietnam's real estate bubble
Since the early 2000s, the influx of money from the credit system has fueled a significant real estate price boom, which came to a halt with the introduction of the stricter Land Law of 2003 Although the market experienced a temporary freeze, the surge in credit availability, marked by a 41.5% increase in 2004 and a staggering 53.9% in 2007, reignited a new wave of soaring land prices, ultimately leading to the largest asset bubble in history that impacted the entire economy.
The dramatic surge in land prices, rising by several hundred percent in a short timeframe, has sparked widespread speculation across all sectors of society This speculative environment draws significant capital from individual investors, private enterprises, and even state-owned corporations As a result, a notable trend emerges where numerous businesses are opting to abandon their production and operational activities.
Download TIEU LUAN MOI at skknchat123@gmail.com, which explores the dynamics of speculative capital in real estate The article highlights the significant role of financial leverage, emphasizing how bank credit is maximally utilized for production and business activities, subsequently redirected towards real estate speculation.
The real estate market is currently booming, prompting businesses to rapidly pursue new projects through loans However, the tightening of credit in 2008, coupled with soaring deposit rates from 9-10% to 17-18%, led to numerous unfinished projects and a significant decline in consumer confidence This crisis resulted in a prolonged downturn that took years to overcome Analyzing the 2008 real estate crisis reveals five key contributing factors.
In 2007, Vietnam experienced remarkable economic growth, with a GDP increase of 8.48%, marking it as a pivotal year for the country's overall economic development Notably, Ho Chi Minh City reported an impressive GRDP growth rate of 12.6%, the highest in the past decade.
1997, leading to the fact that many businesses and people are easy to make money and real estate is the investment channel of choice for storage, For business, including speculation.
The surge in credit growth in 2007, exceeding 37%, was primarily driven by policies of credit easing and subprime lending, with a significant portion funneled into real estate investments This influx of social capital into the real estate sector, coupled with lax control over the intended use of credit loans, contributed to a speculative bubble in the market The combination of easy monetary policies and an uncontrolled money supply led to rapid inflation in real estate prices across various regions, making a crisis inevitable.
The overheating of the banking system has resulted in weakened credit risk management, particularly in real estate lending, where capital sources are inadequately monitored This increase in lending risk has prompted management agencies to impose restrictions on credit issuance, ultimately causing the financial plans of numerous real estate projects to fail.
Incomplete policy institutions in the real estate sector are causing significant issues in project development, resulting in investors collecting funds from buyers without fulfilling their promises This has led to a loss of consumer trust in the industry.
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The market struggles to recover despite project owners' attempts to reduce selling prices, as an influx of investors in the secondary real estate sector, including brokers and land and home stockholders, has emerged This surge, combined with rapid fluctuations in real estate prices, indicates a growing trend of speculation that is fueling the ongoing price frenzy.
The global economic crisis of 2008 and domestic macroeconomic issues significantly intensified the challenges faced by Vietnam's real estate market Vietnam's entry into the WTO has notably boosted the real estate sector, leading to a surge in demand from foreign investors This influx not only presents a substantial opportunity for market growth but also offers investors the potential for significant profits in the evolving real estate landscape.
The recent surge in housing prices in Vietnam's real estate market has raised concerns about a potential bubble, primarily driven by rampant land speculation This speculation stems from restrictive state regulations and land management practices, allowing speculators to reap significant profits while posing serious risks to the economy and society If the real estate bubble bursts, it could lead to widespread investor bankruptcies and economic paralysis, exacerbating the challenges faced by low- and middle-income families in affording housing and widening the wealth gap To ensure stable and sustainable economic development, the government must implement stricter regulations to curb land speculation and similar practices across various commodities.
Lessons learned from the U.S real estate craze
a) Lessons learned for the State
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Governments should implement macroeconomic policies with caution to maintain stable financial markets and reduce systemic risks Key measures include establishing capital requirements, assessing future loss risks, ensuring adequate liquidity ratios, and conducting thorough valuations Interventions must align with market principles to preserve macroeconomic stability, harmonize interests across various sectors, and prevent transferring the burden of economic crises onto citizens and consumers.
To foster a robust financial system in Vietnam, it is essential to implement effective financial monitoring and management tools, including a legal framework for supervision and the establishment of long-term investment institutions and credit rating agencies In a competitive open economy, Vietnamese businesses face significant risks, necessitating transparent market information and effective coordination among various agencies As globalization progresses, the importance of a reliable information system grows, with macroeconomic policies relying on accurate and timely data Establishing specialized agencies to collect and disseminate information is crucial to prevent misinformation that could hinder decision-making Additionally, the government must ensure transparency regarding bailouts, similar to the detailed tracking of projects funded by the U.S stimulus package, which builds public trust and stimulates economic growth.
The central bank must effectively manage monetary policies by enhancing regulations and institutions to align with international standards This involves strengthening oversight and supervision, as well as implementing forecasting and hedging strategies to safeguard the stability of the domestic financial system.
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The government must implement social security policies effectively, especially during crises when the number of people in need rises, leading to an increase in poverty and unemployment The U.S experience highlights the importance of early intervention by the government in unstable markets, as delays can result in severe losses and higher recovery costs In times of crisis, proactive government involvement in financial markets is essential, and Vietnam should maintain a substantial reserve to facilitate timely interventions when necessary Additionally, commercial banks can learn valuable lessons from these practices to enhance their resilience during economic downturns.
Commercial banks need to prioritize credit risk management by closely monitoring high-risk lending sectors, including real estate, securities, and derivative credit products By integrating credit activities with credit insurance, banks can enhance customer confidence and mitigate the risk of a domino effect in financial stability.
Businesses pursuing diversification and market expansion must develop a comprehensive plan to assess the nature, approach, and potential impacts of crises This assessment is crucial for effective risk management and preparing for future challenges Additionally, reinforcing trust among investors, state agencies, and consumers is a vital lesson for sustainable growth.
Vietnam must develop effective strategies to address its real estate crisis by identifying the root causes and implementing solutions The U.S real estate crisis was primarily driven by banks offering subprime loans to individuals with poor credit histories and no employment In response, the U.S introduced economic stimulus measures aimed at job creation and income enhancement, which enabled borrowers to repay debts, boost home sales, and reduce inventory levels, ultimately revitalizing the real estate market.
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Government's specific solution group
The State Bank of Vietnam is implementing monetary tightening measures and adjusting real estate-related taxes to curb inflation and speculation, aiming to reduce housing prices by 15% to 20% in regions with abnormal price surges By decreasing credit lending for real estate from 70% to potentially as low as 35%, the bank seeks to control the "real estate bubble" and ensure prices align with true market value Additionally, the government is introducing higher taxes and fees to promote effective real estate use, while imposing strict tariffs and elevated taxes on rapid buying and selling activities to deter speculative practices among investors.
Land users benefit from the lowest tax rates, while owners of multiple unused properties face progressive tax rates based on the number of real estates held To enhance the real estate market in Vietnam, it is essential to improve the legal framework and policy mechanisms, ensuring transparency in transactions Establishing a network of real estate exchanges and refining the market structure is crucial The government should eliminate the land price bracket and empower local People's Committees and reliable state agencies to set land prices based on local conditions and intended land use This approach will uphold land rights, ensure fair compensation during land recovery, and support the development of viable projects Additionally, the state must strengthen the criminal code regarding speculative crimes, implementing specific and stringent penalties.
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The government is enhancing investment channels like the stock market to promote stability and growth A stable stock market with rising prices can positively influence the real estate market by reducing speculation Additionally, increasing interest rates on bank savings deposits may lead individuals to withdraw their investments from real estate, which is perceived as riskier and less liquid compared to other investment options.
To accelerate the approval of real estate investment projects, it is essential to unify land settlement processes, which will alleviate concerns about housing shortages Effective land planning and usage will guide the allocation of land for urban development and residential areas, fostering a stable and healthy real estate market By adjusting market behaviors, we aim for sustainable growth that meets consumer needs, supports investor interests, and addresses the public's desire for asset preservation through home and land ownership.
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While some argue that real estate has minimal impact on overall economic growth, it actually serves as a crucial starting point for various industries, including construction, materials, tourism, and resorts This sector plays a significant role in the economy, heavily influencing many other sectors In both a global context and specifically in Vietnam, real estate is recognized as a vital financial component essential for long-term economic development.
In recent years, Vietnam's real estate market has exhibited signs of a burgeoning bubble, with property prices soaring in various regions Despite the challenges posed by the Covid-19 pandemic and the daily increase in prices, investors continue to flock to real estate opportunities.
Recent "land fever" in various regions has raised concerns about the potential for a "real estate bubble" and the risk of a new crisis However, it can be concluded that the Vietnamese real estate market remains stable.
The "real estate bubble" is currently stable, yet it raises concerns for everyone It is crucial to mitigate the bubble's expansion, and both businesses and individuals must collaborate with the government to implement targeted strategies that foster sustainable economic growth.
The U.S financial crisis of 2007-2008, triggered by the real estate bubble, had far-reaching effects on the global economy, leading to a decline in stock prices and lax lending practices Vietnam, like many other countries, felt the repercussions both in the short and long term, impacting its economic and financial stability While the recent surge in land prices is not directly linked to this crisis, the insights gained from the U.S experience serve as crucial lessons for Vietnam and other nations in mitigating the risks associated with potential real estate bubbles.
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An economic bubble refers to a situation where asset prices inflate significantly beyond their intrinsic value, often driven by speculative behavior In Vietnam, the current state of the economic bubble has raised concerns among analysts, as rapid growth in certain sectors may indicate unsustainable price increases Understanding the dynamics of this bubble is crucial for investors and policymakers to mitigate potential risks in the Vietnamese economy.
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