Vietnam property market under pressure

Last week, the New York Times reported on the excess supply in the Vietnamese property market.

Frightening points from the article include:

  • “The country’s central bank says borrowers have stopped paying back 1 out of every 10 loans in the banking system, but Fitch Ratings said the percentage of bad loans might be much higher.”
  • “Young people are finding it harder to find jobs; nearly 20 percent of small and medium-size companies have gone out of business during the past year; and municipal infrastructure projects are being delayed or canceled.”
  • “There is so much excess supply of office space in Ho Chi Minh City that rents in the most desirable neighborhoods are half the level of three years ago.”

There are two closely related problems that could arise from this situation of declining property values.  The first is a prolonged period of economic malaise and credit contraction.  The second is the risk of loan defaults as building projects go bankrupt leaving collateral with little value.

Vietnam is a relatively small economy and does not appear to have garnered much scrutiny.  However, this is a similar picture to what occurred in Thailand in 1997.  It was believed that ‘what happens in Thailand, stays in Thailand’ given the relatively small importance of Thailand’s economy at the time.  In hindsight, the meltdown in Thailand precipitated the Asian currency crisis.

Crises tend to arise from unexpected places, and I seek to at least be aware of where those places might be.  In addition, I file this in the back of my mind as likely supportive of generally tough economic conditions across Asia as a whole.

source: NY Times

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