VietNamNet Bridge – The National Assembly’s Economic Committee recently admitted that it would not extend any further help to the domestic real estate market.

Luxury homes continue to be constructed despite the lack of demand.

Committee Chairman Nguyen Van Giau said "It is wrong for enterprises to think that the government will rescue them. With such high rates of bad debts, we can’t rescue the real estate sector even if we wanted to."

Another reason that the government could not give a hand to the property market was because the action might encourage reckless business. Bad debts would never be reduced if firms thought that they could do anything and the state will bear the losses for them.

In its Economic Report No.8 released on March 7, the Committee cited the State Bank of Vietnam's statistics, saying that as of September 2012, the real estate sector accounted for 19.25% of all banking bad debts and this had caused difficulties for the construction materials and construction sectors.

The construction sector created 3.3 million jobs, which is around 6.4% of the country’s total workforce, while the construction material sector provides employment for over 500,000 people.

In order to ensure sustainable economic development, the sectors that have highest debts and fastest development in recent years such as real estate would have to make adjustments.

While real estate companies are seeing their debts increase due to interest on their loans, the banking system is also threatened because of tightened liquidity.

The NA Economic Committee has pointed out the many difficulties when dealing with bad debts in real estate sector.

The most prominent problem is the mismatch between supply and demand. Investors have mostly focused on high-end housing while the majority of demands is among lower income groups. "Vietnam's property prices are considered high compared to other countries while our per capita income is low." the report said.

Moreover, firms have placed too much expectation on the property market. Due to widespread speculation, people have developed a false belief that the house prices would only go up.

Vietnamese property prices have risen to 25 times more than average incomes over the past 20 years. This figure is much higher if compared with European countries whose property prices are only seven times higher than average annual incomes, and far greater than 6.2 and 5.2 times in Thailand and Singapore.

Source: DTriNews