9 negative impacts of land fever investors should know
23/05/2018 17:18 | Source: Vnexpress
The upsurge of land price leads to a real estate bubble, pushing up production costs, creating a virtual tendency and gradually increasing bad debt.

Huynh Phuoc Nghia, Deputy Head of International Business Department at Ho Chi Minh City University of Economics, said land prices in HCMC continuously increased in the past four years (2014-2017), and still keeps the uptrend this year. This is not a good sign. In particular, in 2017, when land fever spreaded throughout Saigon, land prices were pushed up high and saw no sign of cooling down. The market has potentially hidden a bad scenario.

This expert also mentioned the negative impacts caused by the land fever on the real estate market as well as the economy. He urged property investors to be alert to the fever in order to avoid risks and losses.

Incressing cost of renting business premises
As land prices soar, rental costs will also skyrocket. This unexpected expense will raise the cost of goods and related services.

Rising cost of production
The land fever also has a negative impact on production by pushing up the cost of renting a factory, even the factory is taken back to serve another activity that brings larger income. The producing industry will become unstable or stagnant, leading to the rise of product costs.

9 negative impacts of land fever investors should know
The upsurge of land price leads to a real estate bubble, taking bad affects
on the market as well as the economy

More disputes and scams
The nonstop increase of land prices will affect the involved parties’ benefits and interests, thereby creating disputes, frauds and litigation. They may creat bad precedents for the market, affecting the transparency and sustainability of the real estate industry.

More real estate bad debts
When land fever occurs, high profit rate makes people rush to buy land. Many investors even use financial leverage such as mortgaging assets, bank loans for investing in real estate. If banks do not strictly control real estate loans, bad debt will probably increase. Normally, it takes banks many years, even decades to handle all real estate bad debts. The economy has suffered greatly.

Imbalance of capital distribution
The economy suffers big losss as capital flows into real estate more than manufacturing and other industries. Power of the economy is not purely buying land and waiting for price increase. It must be derived from commodity production.

Property bubble
Land fever creates a price bubble, which destabilizes supply and demand, and the bubble will grow bigger when the market develops unsustainably. Whether the bubble downsizes or bursts, it would cause a series of chain disruptions, which would severely damage the economy in the long run.

Tendency of virtual expectations
The land fever also involves investing in crowd effects. Crowd psychology will create virtual expectations and the worst scenario is chain failure.

Fake prosperity
Many people, organizations, and businesses are getting rich quickly by selling land when the fever occurs. However, as a whole, land fever only enriches a group of people without bringing surplus value to society. The gap between the rich and the poor is clearer and clearer due to this fake prosperity.

Unaffordability for low income people
Land fever directly affects house prices. The longer the fever, the higher the house price, and it becomes harder and harder for low-income earners to buy a home.

To handle this issue, the Government must use large resources to set up social housing fund for low income people. In fact, the social housing fund can not meet the housing needs of everyone, so the land fever can cause more social instability.