Decline in large scale real estate projects
During 2016-2018 land prices soared dramatically in all market segments of real estate, leading many people to invest heavily in this market in the hope of high profit returns. It is also a fact, that in the past 20 years, many people got rich quickly from investing in real estate, while very many investors nearly went bankrupt by investing in land purchases. A chain of events in the past ten years shows that only investors who bought real estate in 2006 and sold out in 2008 gained from their investment and made huge profits, while those who bought buildings and land after the year 2008, mostly lost their money or went bankrupt.
Observing the real estate market in the first six months of the year, it is easy to recognize that only the housing market, valued at around VND 10 bn in Ho Chi Minh City, has maintained its price. This comes from supply disruption due to legal procedures. In contrast, other segments show signs of decreasing liquidity, especially real estate with a value of more than VND 10 bn. In particular, a lot of market segments that rose sharply in previous years, like Phu Quoc, have dropped drastically by 10-30%. This situation also happened in the market segment in the suburbs where new growth motivation in the period 2018-2019 also began to show signs of dramatic reversal due to increased selling.
Foreign currency not attractive
The strong USD/VND exchange rate in the second quarter attracted investor attention to purchasing and holding USD. However, after that, the exchange rate suddenly dropped sharply, causing this demand to die down quickly. In addition to individual investors, commercial banks are no longer interested in such investments to receive profits from disparity of the exchange rate. The reason is that the foreign currency source is now quite abundant and the State Bank restricts commercial banks to lend in USD to enterprises.
By the end of the year, the foreign exchange rate is expected to remain stable due to strong domestic supply of foreign currencies; for example, there is a surplus trade balance of USD 7 bn; foreign direct investment (FDI) and foreign indirect investment (FII) are pouring into the market; and the number of remittances have increased sharply in the remaining months of the year. According to the World Bank (WB) forecast, remittances in 2019 are estimated at USD 16.7 bn, equivalent to USD 16 bn in 2018.
Gold difficult to predict
For many years, world gold price has been relatively stable. For this reason, gold profits are not much higher than bank deposits. However, in the remaining months of the year, the world gold price has soared from 1,280 USD/oz at the beginning of the year to 1,453 USD/oz on 8 November, equivalent to an increase of 13.5%. Accordingly, price of SJC gold increased from VND 36.6 mn/tael to VND 41.9 mn/tael, up by 14.7%.
Bank deposits much safer
Although the US Federal Reserve (Fed) has lowered interest rates to ensure the US economy is continuously growing, the exchange rate is predicted to rise in 2020 due to a strong US dollar. Hence, the USD/VND exchange rate could face pressure to increase in the context that other strong currencies such as the Euro and Japanese Yen are maintained weak to boost the economy. However, because the Government still applies prudent monetary policies, along with low inflation and a stable economy, the exchange rate will only increase at the highest level of 3-5%.
Meanwhile, the world gold price in 2020 may face one of two possibilities. One, it may go below 1,400 USD/oz or over 1,500 USD/oz. According to the current situation, the more likely possibility is that gold price will decline below 1,400 USD/oz. Thus, domestic gold price is not capable of increasing sharply as it has done in 2019.
With reference to factors mentioned above, the general trend shows the fact that many investors will choose to deposit in banks at an interest rate of 7-8.5%/year, based on the deposit amount and select bank. This interest rate is relatively attractive, compared to the investment in US dollar and in gold. Actually, this is a fairly safe investment option as compared to real estate, gold or the US dollar.