Among the richest people in Vietnam on the stock market, there is a common feature that businessmen in the Real Estate industry account for the vast majority, with a ratio of 12/20 (data from the last stock trading session of 2016). That is an unusual ratio compared to other economies in the world up to now. Are these signals good or bad?
Is real estate the foundation of development?
The development history of rich or formerly rich countries in the last 300 years shows a common process: Industrial Revolution, transportation – trade and services (including foreign trade and colonial invasion to expand the market) – finance, banking – technology.
Newly rich countries like Japan, China, and South Korea have grown by assembling, manufacturing, and processing for Western capitalist countries, then using that foundation to learn and then turn to research and develop the automobile, electronics, and mechanical industries for export.
There was no real estate development in that process. The list of richest billionaires in those countries all have a very modest number of Real Estate tycoons, even when they were just starting out.
In fact, Real Estate is just a lever to stimulate economic development, that is, it has an indirect effect, stimulating demand for development. Only the economy of Nazi Germany had a rather special development, based on the intervention of the state according to the Keynesian school. Hitler massively built infrastructure such as highways and industrial zones to solve employment and stimulate economic development.
During the 1930s to early 1940s, Nazi Germany experienced rapid growth, partly based on real estate. Thus, the real estate industry, or more precisely the construction industry, only had a direct impact on economic development when investing in infrastructure such as highways, seaports, power plants, industrial parks, and office buildings.
Resort real estate such as resorts and hotels also has the effect of stimulating the development of the tourism service industry.
Residential real estate is mainly used to stimulate economic development. People who want to have a house must work hard to buy it. Having a house means they can work with peace of mind and contribute to economic development. In fact, most of the real estate tycoons in Vietnam are rich thanks to residential real estate, partly resort real estate, office real estate, which means they contribute quite little to economic development.
The real estate industry that Vietnamese tycoons are participating in and making money from is mainly apartments, offices, hotels, and resorts, which do not create material wealth like industrial or agricultural production, and almost do not earn foreign currency (recently, Vietnam has allowed overseas Vietnamese to buy houses in Vietnam).
In addition to the ability to indirectly stimulate economic growth mentioned above, the Real Estate industry only stimulates the development of the construction materials industry. However, sadly, except for cement, bricks, and sand (which are low-tech and cheap products), most construction materials must be imported or imported raw materials and technological lines.
Thus, the real estate industry also contributes to the economic decline, when so much money has to be poured into buying real estate at prices too high compared to income.
Vietnamese real estate tycoons mainly get rich from the difference in land rent when they reclaim cheap land from people, then invest in construction and sell it at prices several dozen times higher. Vietnamese construction and real estate companies are almost not internationally competitive enough to invest abroad, at most they only invest around Laos, Cambodia and Myanmar and then lose interest.
In other words, to put it squarely, the Vietnamese real estate tycoon collects money from the Vietnamese people, takes land from the poor to sell to the rich (having 2 billion to buy a house is no longer poor). Real estate investment must have a close connection with the government (to reclaim land and carry out construction procedures).
The increase in real estate prices also benefits the government because it collects a lot of real estate taxes, but it is extremely disadvantageous for the economy, because it increases the cost of goods, because every industry needs factories, warehouses, and offices that must be bought or rented. The increase in land prices also leads to an increase in road construction costs due to high compensation, leading to the inability to develop infrastructure.
An article about land prices being inflated. @Spiderum
Many people look at the development of Real Estate and mistake it for economic development. In fact, that is just the surface, the pile of houses you see could be just money borrowed from abroad. Because the industries that produce material wealth in Vietnam are not developing? So where does the money come from to invest in Real Estate when it itself does not attract significant foreign currency?
So Real Estate is never considered the engine of economic development but only a lever and a consequence of economic development. You have to earn money to be able to build or buy a big, beautiful and expensive house. If you want to develop tourism and resort services, the quality of service is the deciding factor, not resort real estate.
Economic development has led to the demand for office buildings, not the other way around. In fact, the people who have become rich quickly in recent years have mostly done so by buying and selling real estate, not by producing anything. If the entire economy were like that, it would be too dangerous.
Vietnam is like that. But in recent years, many people are excited when Vietnam has many real estate tycoons, thinking that Vietnam is about to become a dragon. They praise real estate tycoons as saints, as shining examples for the whole people to follow to get rich.
Let’s ask, if everyone gets rich from real estate, where does the money come from to buy houses when there is no production or export capacity to make money? People make the excuse that they need to use real estate to accumulate assets and then become financial capital! In fact, banking and finance are twins with real estate, the main factor of the bubble economy.
If one collapses, the other will die, because neither is based on production or export. The so-called finance from real estate is essentially money borrowed from abroad and from inflated land prices.
The article in the comment below is that fallacy. The author criticizes Vietnamese people for taking shortcuts, having to accumulate capital from Real Estate before developing technology and finance. But in fact, getting rich from Real Estate is taking shortcuts, getting rich quick, doing the economy in a skimming, bubble way, very dangerous for the economy if abused.
The real estate craze has created many socio-economic consequences. Most of the cases of default, debt evasion, bankruptcy, and bad bank debt are related to real estate. But real estate tycoons and the people are not guilty of anything. Because wherever there is a way to make quick money without breaking the law, people will do it. The fault here is the way the macro economy is managed, tolerating the bubble development of the real estate industry.
Article source
The above is the opinion of author Duong Quoc Chinh posted on Facebook at 00:08 on March 26, 2017.
In addition, in the comments section of the author’s original article, many people expressed their personal opinions with opposing opinions. You can refer directly to have a more objective view of Real Estate in particular and the Vietnamese economy in general.
Thank you for reading my sharing, hopefully it has brought more or less useful value to you.
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