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"Quantivitive real estate market": Imbalance

Post time: 15/10/2013

In previous articles, we have set out two questions in the Dianam Real Estate Forum (DNRE):

Why the strong demand in Hanoi to house prices, land in Hanoi continues to increase while in Ho Chi Minh city is reduced and the price of land is now back to Hanoi three times the price of housing in Ho Chi Minh City?

If the demand for real estate in an area proportional to the level of infrastructure development, employment and ability to earn income from employment in that region. All three of the above factors will determine the level of investment in the region, or in other words - is the main financial flows. On this view, Ho Chi Minh City totally inferior Hanoi can say is even more powerful in some ways.

So financial flows did not comply with market rules reasonable?

To answer the above two questions , first we will talk about " imbalances rule " also known as " Pareto rule " .

In 1897 , Vilfredo Pareto , an Italian economist , while learning about the distribution of wealth and income in England in the 19th century , were discovered , most of the land area and income is controlled by a small number of people in society . In fact , 20 % of the population control 80 % of wealth and income . In the analysis and subsequent studies , the legendary economist has found that this principle is not only true in many countries , in many historical periods ( true in social situations , there the macro and throughout history ) but also true even with what happened right in his garden ( true for natural phenomena ) . Here, he was seen , only 20% of his pea plants were grown to 80 % for the beans he harvested !

According to this rule , perhaps as well as the amount of money in Hanoi, compared with other regions in the country are in a state of " imbalance " and the rule is Pareto dominant market attractive ? In Vietnam Real Estate Market currently imbalances across regions , even in the entire Vietnam's economy has showed signs of imbalances in capital inflows into the equity ratio real estate is too big .

Mr. Tran Van Huynh , chairman of the Association of Construction Materials Vietnam said that investment in real estate in Vietnam showed large imbalances , while manufacturing firms are undercapitalized and have difficulty in accessing bank loans due to high interest rates . Mr. Huynh for the current real estate market as an underground bomb and prices are not based on any basis . He was concerned that if this bomb detonated , it would be dangerous for the economy .

Here, alongside Pareto rule , we can easily find a different law - completely logical and understandable to everyone . This straightforward rule we discussed in Session " Real Estate Vietnam - look back 20 years " when talking about the role of real estate as a form of currency reserves and protect the population or, field - is to spend . The amount of money that people hold are distributed according to the Pareto rule and Hanoi is important in the disproportionate allocation of this amount . The Hanoi market due in part to the distribution of this decision and the Hanoi market has continued to stand more throughout the small waves from 2008 to date in the city though . HCM , the market is being adjusted so that rather than the law of supply and demand - that needs to be understood is not used for speculation and hoarding .

Considering the current situation , when the government decided to adjust imbalances in the areas of the economy to favor the production of finance will not be smoking too heavily in real estate as in previously . Also in financial instruments (rather than administrative ) , the State can fully regulate the flow of investment and prevent speculation by increasing the levy user charges ( rent ) and / or estate tax production . This will completely change the picture of Vietnam real estate , increase the budget income and operating exactly the same way the majority of other countries in the world .

After trying trying to explain the asymmetry of the line as well as related financial supply - demand , we return to the subject of the previous article : the value of real estate . In many studies of Real Estate Market Vietnam , we have noticed an increase in the value of " land use " a dizzying , awe-inspiring even more people - even the main who are active in the field of real estate business .

For many people in Vietnam , the land, the property houses , cars and motorbikes are asset . This is true? Let's review the definition of real property and consumption :

Image descriptions beside your cash flow . You use the income to cover the cost of their fees are . The amount remaining ( if any) , what would you do ? Buying property or real target ?

Assets : things will increase your income column . For example, interest-bearing securities , real estate leasing , commodities profitable business .

Text production : things only increase the cost of your column . For example, borrowing to spend meager credit , equipment power consumption for entertainment purposes only , such as cars , expensive mobile phones , a membership golf club ...

Thus, when you use their idle funds to purchase the property , the property will bring additional income for you and you become richer . And when you use their idle funds to purchase real goal , you will only incur the cost of his and your finances will be more tight . So , if you want to quickly achieve financial freedom , keep this in mind when managing your money : "Buy a lot of things , do not buy real target ! "

According to the above definitions we need to say it again for accuracy : automobile , motorcycle production targets often ( if not purchasing for business purposes such as transportation , rent ) . As land and housing ? If the land subject to a rental house or a very low amount of tax that land prices , house prices rose faster or sublease income are much higher - the land, property and homes as people will always preferred amount for land , buildings .

Yet if the rent or property taxes will not lower any more and if any " hug " each year to pay land tax of about 1 % of the value (including the state bracket only)? This figure is 3 % in the U.S. and speculation that the U.S. housing need to consider very carefully . If in Vietnam too, the State will be taxed at rates of " land use rights " just as other countries have also seen people land as an asset class worth again? We all remember the words of advice: "Buy a lot of things , do not buy real goal ."

The above analysis tells us why in Vietnam to prioritize cash flow to such property . And while real estate has role asset class (wait rise) , both play a role mining assets (leasing , capital contribution or used) , the value of land use rights will continue to rise , risk creating bubbles are inevitable .

The question here is as follows :

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 ?

Let's find out in the next article of the Symposium " Quantitative real estate market ."

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