Investors Struggle with Bank Loans to Buy Land in Hopes of Gaining Profit
In recent times, as the land market shows signs of recovery in certain areas, investors are eagerly looking for opportunities to buy land at discounted prices. Many investors, including brokers, are willing to take on the risk by borrowing money from banks in the hopes of profiting from the price difference when the market recovers or within a 3-6 month period. With low interest rates, investors believe that the potential for profit from rising land prices is still favorable.
However, not all investors are successful in holding onto their land. Some investors are forced to sell their properties within a few months, while others, despite planning to hold onto their investments for 1-2 years, become impatient due to the large loan amounts and the uncertainty of when the land prices will increase. Consequently, a situation has arisen in the southern land market where investors sell their purchased properties at lower prices than what they initially paid within a few months.
Financial constraints also make it challenging for some investors to hold onto the land for the long term. Unstable incomes and the slow recovery of the land market contribute to some investors having to sell their properties earlier than planned. Although investors calculate the interest to be paid to the bank based on the assumption of lower land price increases in the future, the actual price increases depend on various market factors. In this challenging environment, borrowing money from banks to hold onto land carries significant risks for investors.
Recently, some brokers who also invest in land have started to monitor and seize opportunities to buy properties at favorable prices. If they are able to profit from the price difference, it is considered a successful investment. In cases where they cannot profit, brokers resort to borrowing money from banks and waiting for further market developments. According to industry experts, not every land investment yields a smooth and profitable outcome, especially when investors have to borrow money at high interest rates, reducing the duration of their investment. Considering the overall market difficulties and the uncertainty of the land market’s return to its previous state, it is not easy to achieve high profits by borrowing money from banks to invest in land.
Currently, the market is showing positive signs, with potential price breakthroughs expected from mid-2024 onwards. In the first three months of 2024, there has been a surge in large-scale land investment groups. This trend is expected to accelerate the land price increase cycle.
However, the recovery of the overall market depends on several factors, including income levels, the financial situation of the population, and confidence in the market. Therefore, investors should carefully consider using high leverage to enter the market at this stage.
Looking ahead, Vo Hong Thang, Director of Consulting and Project Development Services at DKRA Group, predicts that with recent housing laws and land regulations, land splitting and selling activities will be more strictly managed. The new laws stipulate that the transfer of land use rights with existing technical infrastructure in real estate projects for individual construction of residential houses in special urban, type I, type II, and type III areas is prohibited unless the land use rights are auctioned for investment projects according to land regulations. In other areas, provincial People’s Committees will determine the conditions for transferring land use rights with existing technical infrastructure for individuals to construct residential houses.
This indicates that the government has started tightening regulations to limit land splitting and selling. Therefore, in the future when the market fully recovers (from 2025 to 2026), there will be opportunities for land price increases to a certain extent. However, unlike previous cycles, this new cycle will not experience speculative land fever or drastic price increases to avoid the occurrence of a real estate bubble. The expectation of a sudden surge in land prices is unlikely to happen in the near future.