The Baffling Real Estate Market: When Prices Rise Weekly, It’s a Frenzy, But When They Stall for a Year, No One Bats an Eye.

The recent land auctions that saw prices soar and speculative “pumping” as well as the previous sporadic feverish periods in land prices across the country have revealed the increasingly enigmatic behavior of buyers. When property prices were on a continuous rise, there was a rush to buy, but now that prices have stabilized, few seem interested.

Mr. Le Minh Duc, Founder of Remaps Joint Stock Company, attributes this to the fact that the primary motivation for purchasing real estate in Vietnam has traditionally been investment. When prices rise, it presents an investment opportunity, but when they stagnate, investors withdraw.

Mr. Duc analyzes that there is a correlation between market activity and property price movements. When developers launch new projects, the market becomes vibrant, and prices tend to increase rapidly. However, when developers encounter legal issues and halt sales, property prices either stagnate or experience a slight decline.

Paradoxically, when prices stabilize or drop, providing an opportunity for more people to become homeowners, buyer behavior tends to be counterintuitive. Many properties remain stagnant in price for years without attracting much attention.

According to Mr. Duc, real estate in Vietnam is perceived as a “financial product,” with the primary demand being investment rather than residential. With investment as the primary motivation, market liquidity drives price increases. Lack of liquidity leads to stagnant or declining prices, regardless of the quantity of products available. “According to our research, up to 80% of the demand for real estate in Vietnam is for investment purposes,” Mr. Duc emphasized.

There have been times when many people had no other investment option but real estate. Only when the property market is booming does it attract a large amount of money; otherwise, investors tend to deposit their funds in banks to earn interest.

Mr. Duc further explains that in some parts of the world, real estate transactions are predominantly driven by the need for housing. For instance, people buy homes to upgrade or relocate rather than for investment purposes, as is often the case in Vietnam. When purchasing a home for residential purposes, customers are less concerned about the potential price increase of the product. Forecasting demand in such cases is more straightforward and relies on population growth and migration patterns.

In contrast, Vietnam’s real estate market is predominantly driven by investment demand, making it challenging to forecast needs. When assets appreciate, demand tends to surge rapidly, and vice versa. “Many people don’t know what else to do except invest in real estate. Only when the property market is booming does it attract a lot of money; otherwise, investors tend to deposit their funds in banks to earn interest,” Mr. Duc added.

According to industry experts, when the real estate market is vibrant, herd mentality takes over, attracting many participants and resulting in high liquidity. However, when prices drop or stagnate, buyers become hesitant to commit.

“Many people go to inquire about prices and bargain hard, but they only buy when the property price increases. This has been a common occurrence among many people at different times. Psychology plays a significant role in influencing real estate buying and selling decisions,” said an anonymous expert.

In the past few years, property prices have been on a continuous upward trajectory. A recent land auction in Hanoi illustrates that even during challenging economic times, real estate prices can be pushed to unprecedented heights, with people competing to buy. Although perplexing, such dynamics have repeatedly played out in the market.

Mr. Pham Duc Toan, CEO of EZ Property, has previously shared his thoughts on this paradoxical phenomenon, attributing it to a market heavily influenced by speculation. In reality, many people buy land without even transferring the title, and the next day, the price has already doubled. As a result, they buy regardless of the high price. The more people invest based on herd mentality and short-term speculation, the more frenzied the transactions become.

Mr. Toan also attributes the difficulty in selling properties at stagnant prices to the relatively small number of financially stable investors seeking good deals. Additionally, after a period of market fluctuations, investors tend to become more cautious and defensive. As a result, many choose to remain on the sidelines, waiting and observing rather than taking action.