Vietnam's Real Estate Market: Monetary Policy, Land Reform, and Structural...

Over the past few years, Vietnam's overall economy has shown a high-speed growth trend driven by manufacturing relocation, foreign capital inflows, and economic reforms. However, not synchronized with the real economy, Vietnam's real estate market, especially housing prices in Hanoi and Ho Chi Minh City, has risen to levels that are clearly mismatched with its development stage.

As of 2025, the average price of new apartments in Hanoi's core areas has exceeded 80 million Vietnamese dong per square meter, equivalent to approximately 21,000 Chinese yuan, almost on par with China's first-tier and strong second-tier cities. But Vietnam's per capita GDP remains below 5,000 US dollars, and this combination of 'developing country income, developed country housing prices' is sparking widespread controversy.

Question

What is the core driving force behind the rise in Vietnam's real estate market?

AIAIGAnswer

The core is not housing demand itself, but long-term loose monetary policy combined with institutional supply constraints.

From 2008 to 2025, Vietnam's benchmark interest rate has been continuously lowered from 15% to 4.5%, forming a monetary easing cycle lasting over a decade. Especially in 2024-2025, against the backdrop of the Federal Reserve maintaining high interest rates, the State Bank of Vietnam still cut rates against the trend to sustain the economic growth target of 7%-8%.

Low interest rates have led to negative real returns on deposits, with a large amount of funds unable to enter manufacturing expansion, ultimately forced to flow into asset sectors such as real estate, driving up asset prices.

Yes, monetary growth is severely decoupled from the real economy.

During the global liquidity tightening phase, Vietnam still sets its annual credit growth target at 15%-16%, with M2 growth maintained above 13%, while the actual GDP growth rate during the same period is only about 5.5%. This means that newly created money is not effectively converted into production efficiency but is concentrated in the asset side, amplifying price volatility.

Institutional reforms have led to more severe supply contraction at the implementation level.

The new land law, effective in 2024, abolished the long-standing government-guided prices that were significantly below market rates, replacing them with an annual land price list and emphasizing market-based valuation. This change directly increased developers' land acquisition costs by 3-5 times.

At the same time, due to local governments' extreme caution regarding 'market pricing' under high-pressure anti-corruption environments, numerous projects have stalled at the land valuation and approval stages, resulting in a de facto supply freeze.

New housing supply has plummeted, exacerbating structural shortages.

In 2024, Hanoi supplied only about 39,000 new apartments for the entire year, averaging one new home for every 231 people; the situation in Ho Chi Minh City was even more extreme, with a population of nearly 10 million but only about 5,000 new residential units added. The supply contraction has directly amplified the impact of any demand changes on prices.

Not ordinary Vietnamese residents, but high-income expatriates and the local capital class.

With the global industrial chain shifting to industrial zones in northern and southern Vietnam, a large number of engineers, managers, and executives from China, South Korea, and Japan have flocked to cities. Their housing needs are concentrated in mid-to-high-end apartments and well-equipped communities.

According to market research data, expatriate tenants account for over 40% of the high-end apartment rental market in Hanoi, with their US dollar or foreign currency income providing realistic support for high housing prices.

Under the current cost structure, affordable housing is no longer commercially viable.

After significant increases in land, compliance, and financing costs, if developers work on affordable projects priced around 40 million Vietnamese dong, they will face losses. The only feasible path is to shift toward high-end development, covering costs and achieving profits through higher unit prices, leading to a systematic rise in the market's statistical average price.

Wealth disparity has intensified, systematically excluding the younger generation from the housing market.

Data shows that the top 10% of households in Vietnam hold about 78% of real estate assets, while the bottom 50% hold only 2%. The price-to-income ratio for people aged 25-35 in Hanoi is as high as 28:1, far exceeding the internationally recognized bubble warning line.

Housing pressure has directly affected social behavior, with marriage rates continuously declining, and 'lack of housing' becoming a core social barrier for young men.

Real estate is deeply tied to fiscal and economic growth, severely constraining policy space.

Real estate directly or indirectly contributes about 12% of GDP and over a quarter of fiscal revenue. Policies such as purchase restrictions, price registration, and social housing are frequently circumvented in implementation, and their scale is insufficient to reverse supply-demand and capital structures.

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