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"Quantitative real estate market": the real estate bubble

Post time: 15/10/2013

In previous articles , Real Estate Forum Dia Men ( DNRE ) has stopped at two questions :

1 . Affordable price rate of " land use " / value " property on the ground " in Vietnam also follow Pareto rule imbalance ?

2 . Why should we pay attention to both the value of the property and the price of " land use rights " should at any rate be reasonable and avoid the risk of bubbles ?

To answer the first question , we need only look at the price ratio of the above two categories for the types of products : residential housing and condominiums. Consideration will we see that the rate of price " land use " / value " property on the ground " is completely different for the two types of products listed above .

The condominium property not usually valuation of land use and people buying apartments only have to spend a sum of 5% to 10 % for land costs money, money remaining land assets. Land use ratio higher than the residential land many times and apartment model is suitable for areas with high population density, such as Hong Kong, Moscow, Hanoi, Ho Chi Minh City...

The raising of the land use system of densely populated areas is the best way to liberate more public space and improve the service life of residents . Construction cost per square meter apartment today and have higher construction cost per square meter residential home (up to 2 times) , but benefits from the space -saving , planning and creating the urban landscape is of great value that we rarely taken into account.

Put more imagery : when we spend money to buy an apartment , we naturally used together with utilities such as parking areas , landscaping , trees ... that all investment buildings to the construction . Of course , with some apartment model " former life " as Trung Hoa - Nhan Chinh , Trung Yen ... we do not really see the utility for not planning the " new standards " , the apartment house is situated in close , not the public sector , but in some areas later as the Manor , Royal City ... the value of the utility was quite obvious and difficult to deny .

So what makes the residents are not really keen on the apartment ? There are two basic things : Psychological " attached to the land " and the cost of living in the apartment. In the bathroom poll residents about housing issues , we often get answers about the needs of people in the " home " and not like " common home " sense of ownership for the land act important . Moreover, the cost of a house " home " includes only very low land tax , not including service fees , such as condominiums . And the value of land assets condo but account for over 90 % of the total value , but people still give priority option to purchase residential property including the land price of a residential house is can only account for -10% : -20% compared with the value , and -80% : -90 % of the value of " land use rights " of the house .

In summary , the ratio of these two values - the value of land use rights and property values on land - for the condominium segment and residential segment is completely opposite and here we see Pareto rule in the asymmetry of the two values .

We consider the second question : Why do we pay attention to both the value of the property and the price of " land use rights " should at any rate be reasonable and avoid the risk of bubbles ? Here we can calculate the cost of the assets on the ground is not too difficult , and so the value of " land use rights " will be equal to the selling price of a home minus the cost of the asset on the ground of the house . The change in the value of assets on land and follow the rules of the commodity markets in general , often changes in market prices of construction materials , labor rates and often have no where near as common mutation or proportional to the change of regional CPI . However, the value of " land use rights " to change very sharply and make the ups and downs of the real estate market . When we differentiate the two products worth of a property , we will more easily understand the market and to assess the value of real estate products and determine the current state of the market "bubble " or not ?

So what tools should be used to value a real estate product ? Let's return to the definition of " real objective " and " assets " had been mentioned in previous posts . We all know that people buy real estate products for the purpose of buying " assets " and it is also one of the reasons people buy a home or residential priority because the monthly cost is not considered that apartment is subject to a monthly service charge . Are people considered making monthly cost apartments become " real targets " ?

As in Vietnam , land tax is very small house , residential land is not the real headlines when people invest with the goal of " the intended " . With many other countries around the world , the land tax is high , the role " of saving " will immediately disappear where people need the ability to calculate house rent 1 if there is excess land tax or not house and play "property " or become " real targets " .

Forum DNRE said that high property taxes on Vietnam will be the next time and just like in other countries in the world , the valuation of a house will be quite easy , in a way generally, as follows :

Monthly rental price of a home in the world with 0.5 % of the value normally (ie home equity equal to 200 times the monthly rental price - often referred to as " percentage rents property " ) or, in other words, the annual rental rate of about 6 % of the value of the house. Thus, if the estate tax ranges from 1 % to 3 % of the value of the house is always the property . Investors need only consider the possibility that home rental can investment decisions . The event " bubble burst " of real estate in the United States in 2006-2007 comes from the phenomenon by investing in the investment banking system is so easy to borrow investment has led to the phenomenon of rising real estate prices out of control .

Real estate bubble in the United States occur mainly in the real estate markets in California , Florida , New York , Michigan , the Northeast Corridor , and the western states of the American South . At the national level , home prices peaked in early 2005 time , then began to decline rapidly in 2006 and the current reductions can not be the lowest . The rate of foreclosures as borrowers are unable to repay large increase in 2006-2007 led to the crisis in May 8/2007 for the lending market . 10/2007 , Federal Reserve Board called the housing bubble burst condition is " the most dangerous risks for the U.S. economy ."

The real estate bubble may occur in the real estate market locally in terms of local or global . At period end , the bubbles are generally characterized by rising real estate prices suffer from excess income , the percentage of rental real estate prices are too high , along with other economic indicators . After that , prices will fall and make homeowners fall into debt higher than the value of real estate that they own . Real estate bubble in the U.S. took place almost simultaneously with the other bubbles in the UK , Spain and even South Korea .

Recognizing bubbles usually occur relatively late , only after -market adjustments . The fact of the 2008 financial crisis shows that the real estate market in the U.S. has begun to adjust from 2005-2006 . Former Chairman of the U.S. Department of the Federal Reserve Alan Greenspan when it was said: " We've had housing bubbles " and also acknowledged the seismic crisis of credit and mortgage lending in in 2007 , he was soon realized this fact until the end of 2006 sales .

Alan Greenspan, the legendary economist and chairman Board of Governors of the Federal Reserve United States from 1987 to 2006 . From 2001 until his retirement , he has been criticized for the statement to be interpreted as non- monetary provisions , the traditional scope of the Federal Reserve Board , and other people think that he was much more in favor the provisions of President George W. Bush and regulations that could lead to asset bubbles in the U.S. in the 2000s . However, at that time , Greenspan is still considered the leading expert on economic regulation and U.S. currency , and remains influential to this day . As a leading expert , Alan Greenspan has acknowledged the difficulty of accurately determining the status "bubble " in real estate in the United States 2000-2005 .

So the state Real Estate Market Vietnam now , why ?

In Europe, the price of a typical house usually 4-5 times annual salary , when this number to more than 6 times they 've seen it is not normal . And in Vietnam in 2010 per capita income in urban areas such as Hanoi & Ho Chi Minh City is about $ 2,000 / year , while the price of an apartment common here $ 100,000 to $ 150,000 which is more than 50 to 75 times the annual salary. This shows that property prices in Vietnam are in the unusual compared with the world average .

But the rate of rents , why ? A price range of $ 150,000 apartment in Hanoi for rent only reach 500 USD / month or $ 2,000,000 villa rentals are also only about $ 2,000 / month . So the ratio is 300 rental prices for apartments and villas for 1000 - Do you can read the coefficient comparing average rents in the world .

Through the analysis of the ratio of two real estate prices compared to incomes and rents ratio in real estate in Vietnam over the world we can easily identify the current state of real estate market in Vietnam general and Hanoi in particular. So DNRE review of the future of the real estate market will be like Vietnam , we have the same goals in this Symposium to post next time.

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