Vietnam’s Challenge: Meeting the Inflation Threat

Like many other countries in the region, Vietnam's economy is export-driven, energy dependent and labor intensive. Vietnam's economy had been working very well as long as energy remained cheap and American consumption was high. But as the credit crisis hit the U.S. and consumers spent less, and rising oil and food prices led to double-digit inflation throughout the region, Vietnam's economy took a downturn. Imported oil surpassed export earnings and created a trade deficit which ballooned to US$14 billion in the first five months of 2008, from US$11 billion for all of last year. “We're in a situation now, and have been, where we have very big capital inflows financing a big trade deficit,” said Jonathon Pincus of the United Nations Development Program.

The global rise in oil and food prices has worsened inflation, which has also increased due to an explosion of credit from banks looking to profit from the boom. Many smaller and newer joint-stock banks that were opened up in the last few years, got heavily involved in real estate and the stock exchange, and expanded their credit by over 100 percent in 2007, which also has contributed to inflation.

Vietnam improves real estate market transparency

The country ranks 11th in the JLL list of 28 markets that had the largest transparency score change in the past two years since the firm’s last index in 2006.

Yet Vietnam’s overall ranking is still as low as 77 out of the 86 economies surveyed by JLL for the Real Estate Transparency Index.

The index ranks economies based on performance measurements, market fundamentals, listed vehicles, legal and regulatory environment, and transaction processes.

It categorizes the surveyed economies into five groups of high, transparent, semi, low and opaque levels.

How real estate developers contriving in the age of inflation?

More and more domestic real estate developers are now seeking foreign partners to develop their projects. The developers can get land for projects allocated, but they are not financially capable enough to develop the projects.



Meanwhile, according to the HCM City Real Estate Association, many foreign investors are eyeing real estate projects in Vietnam. They mostly come from South Korea, Malaysia, Singapore and the Middle East.



However, observers said that except for a small number transactions in which shares were transferred at low prices, the market has not witnessed any successful deals so far.