Will History Repeat Itself? The Causes of the 1997 Crisis

Credit growth in 2007 suddenly increased: nearly 40%. According to statistics of the Real Estate Association, the financial potential of most real estate businesses is still limited, it is estimated that the current investment capital in real estate in our country is more than 60% of bank loans. Studies by domestic and foreign economists have warned that the current state of the economy has many signs of weakness, which was the cause of the 1997 crisis and the State's inability to control lending banks, potentially posing a real estate credit crisis like in the US at the end of 2007.

Table 6: Will History Repeat Itself? Causes of the 1997 Crisis

Symptom

Vietnam 2007
Current account deficit	Have
Asset bubble	Have
Unhedged foreign currency loans	Have
High ICOR coefficient	Have
Inefficient public investment	Have
Careless control of banks	Have
High bad debt	Have
Cross-borrowing within the group	Have
Short-term foreign debt	Are not
Capital account liberalization	Are not

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(Source: Successful Choice Report by Dr. David Dapice, USA)

Faced with the above situation, in early 2008, the State tightened management with Directive 03 of the State Bank. After the measure of increasing the required reserve and simultaneously increasing key interest rates, the State Bank continued to show its determination to control inflation when it proposed a plan to withdraw more than 20,000 billion VND from circulation, then continued to withdraw another 30,000 billion VND. The banking system, because it had lent too much, especially real estate loans, had to mobilize VND, and almost stopped lending for real estate. Real estate investors associated with banks were allowed to mortgage real estate to buy and borrow up to 70% of the value of the real estate, but now faced difficulties in borrowing for real estate business; so activities in the real estate market stagnated. Thus, in just over 1 month from the beginning of February 2008, real estate was hot, and by March 2008, the real estate market froze again.

The rapid events of the first quarter of 2008 showed the connection between the real estate market and the financial and monetary market, specifically the banking system, which is closely related. In the unstable legal environment, just one situational decision of the State (Directive 03 of the State Bank) had a strong impact on the real estate market. This clearly reflects a major risk in real estate business in Vietnam, which is legal risk.

2.3.3. Vietnam's real estate market is imbalanced in many ways.

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2.3.3.1. The real estate market is local and regional.

The ups and downs, hot and cold developments of the Vietnamese real estate market

see the local situation, associated with the management and investment policies of the State. Except for the first price outbreak in the late 80s and early 90s of the last century due to the transition from subsidized prices that were too low, artificial, and uneconomic, to the initial steps following market prices, the price fevers that followed did not occur simultaneously, nationwide, or in all parts of the real estate market.

Real estate prices vary greatly between localities. Prices in cities are much higher than in provinces. Prices in towns are higher than in districts and towns. Prices in towns are higher than in remote areas. Real estate prices also depend on many types of planning, from overall socio-economic development planning, industry development planning, transportation planning, to land use planning, detailed architectural planning, many of which are unfeasible and slow to implement. Real estate prices are also affected by large investment programs and projects to develop technical infrastructure or social infrastructure. For example, an inner-city road, or an inter-provincial, inter-district, inter-commune road, a highway being built or a new urban area, a high-end apartment building appearing also contributes to the strong change in real estate prices in related areas such as land along the road, around the urban area, in an upward direction.

2.3.3.2. Real estate supply for high-income and low-income peopleasymmetrical

Our country currently has about 1.4 million officials, civil servants and about 800,000 workers working in industrial parks, export processing zones, and industrial zones.

high-tech. Of which, there are about 330 thousand people with housing difficulties who need support and conditions to improve their housing. According to the regulations, "low-income people" are those with an income of 300,000 to 500,000 VND/person/month and currently do not have a house or live in a cramped house with an average area of less than 6m2 / person. In recent times, a series of housing projects have been implemented, but most of them are for people with high incomes, while those with middle and low incomes have not received attention. Meanwhile, the housing demand for people with middle and low incomes - the main target of society - is very large. The State also does not have a support system such as a social housing development fund, subsidies, tax exemptions, and financial support. Local agencies have so far been slow in reporting on the social housing fund. By the end of 2007, Ho Chi Minh City had completed 14 projects under the social housing construction program for low-income people, but at least 6/14 projects had been converted for purposes only for profit; most of them were pushed up by price fever, or were in a state of poor sanitation and security. ( Source: Report of the Inspection Team of the Ho Chi Minh City Department of Construction on the implementation of the Social Housing Program, October 2007 )

The incongruity between the majority of the main subjects of society lacking housing or having difficulty in housing while projects continue to target high-income people; along with the contradiction between land prices in Vietnam being among the highest in the world while most people have the lowest income in the world raises the issue of the State's responsibility to ensure social justice and sustainable development.

2.3.4. State management of the real estate market still has many weaknesses.

2.3.4.1. Multiple agencies managing together

The legal corridor of our country is still quite rigid, creating significant limitations in management. Current legal documents on real estate are not really a development corridor for businesses. In fact, there are currently many ministries and branches participating in management such as: the Ministry of Natural Resources and Environment manages land, the Ministry of Construction on construction works, the Ministry of Justice on transfer documents, the Ministry of Finance on taxes. In particular, the Ministry of Agriculture and Rural Development and the Ministry of Fisheries also manage land as it is now, creating overlap in management, causing difficulties for people and businesses.

2.3.4.2. Overlapping and conflicting laws

Laws in Vietnam are slow to come into effect and have many problems. Laws are issued by the National Assembly, but localities do not implement them immediately because they have to wait for the Government's Decree. Decrees issued by the Government must wait for Circulars from ministries and branches. Along with this slow and overlapping process, sub-law documents often change, one year there is a Circular amending and supplementing one, the next year there is a Circular amending and supplementing one. Therefore, the process of law enforcement has a time lag. For example, the revised Land Law was issued in 2003. But it was not until December 3, 2004 that Decree 197 of the Government on compensation, support and resettlement when the State reclaims land was issued. The Ministry of Finance issued Circular 116/2004/TT-BTC 4 days later, but 2 years later Circular 69/2006 to amend the previous Circular on guidance. ( See Appendix 2 ).

The following two case studies illustrate the reality: Inconsistencies and contradictions in state laws.

Research Box 3:

On August 15, 1999, Mr. A self-leveled and built a house with an area of 100m2 , but when applying for a land use right certificate, the area was already 300m2 . In this case, the Land Law stipulates that land use fees for 100m2 are exempt , the rest must be collected. According to Decree 84/2007, the State will collect 50% of land use fees within the prescribed limit (300m2 ) . However, according to the 2003 Land Law, if people arbitrarily leveled and built houses before July 1, 2004, they will be exempted from 50% of land use fees.

(Source: Saigon Giai Phong newspaper, February 11, 2008, quoted by Chairman of the National Assembly's Committee on National Defense and Security, Le Quang Binh)

Research Box 4

Article 48 of the 2003 Land Law clearly stipulates: “The Land Use Right Certificate is issued to land users according to a uniform form nationwide for all types of land”. However, Clause 1, Article 48 also stipulates: “In case there is property attached to land, that property is recorded on the Land Use Right Certificate, the property owner must register the property ownership according to the provisions of the law on real estate registration”. Instead of being “recognized”, the State only “recorded”.

To solve this problem, in 2005, the National Assembly issued the Housing Law, Clause a, Article 11 states: "In case the homeowner is also the owner of residential land or the owner of an apartment in an apartment building, a Certificate of Land Use Rights and

GCNQSDNƠ”. Thus, the 2003 Land Law did not recognize home ownership, but the 2005 Housing Law recognized it. After the Housing Law was issued, the Ministry of Construction continued to advise the Government to issue Decree 90 and in Clause 4 it stated that “The Ministry of Construction is responsible for printing and issuing GCNQSDNƠ according to the content and paper form prescribed in this Article for uniform application nationwide”. From here, the Department of Natural Resources and Environment and the Construction Department have continuously debated the inadequacies of GCNQSDNƠ and GCNQSHNƠ; one book, two books, adding justice, adding green books, creating more complexity for State management.

2.3.4.3. From the central to local levels, there are delays in promulgation.Sub-law text:

The Law on Real Estate Business took effect on January 1, 2007, but it was not until nearly 10 months (October 15, 2007) that the Government issued Decree 153/2007/ND-CP detailing and guiding the implementation of the Law on Real Estate Business. The delay in the issuance of this Decree occurred during a period of bustling real estate transactions, causing significant consequences for businesses.

This slowness is not only at the Government level, but also at the local level. In general, the situation of issuing documents related to real estate by localities is still slow. According to the reports of provinces and centrally-run cities (collectively referred to as provinces) up to September 2007, the situation of issuing documents by localities is as follows:

64 provinces have issued local land price lists; reaching 100% 48 provinces have issued regulations on residential land allocation limits, reaching 75%

46 provinces have issued regulations on the limit of recognition of land use rights for cases of land use with gardens, ponds, and houses attached to the same plot of land, reaching 71.8%.

40 provinces have issued documents specifying regulations on conditions for granting certificates, time and procedures for granting certificates, reaching 62.5%.

38 provinces have issued documents regulating fees and charges, reaching 59.4%.

(Source: Government Report No. 93/BC-CP)

Thus, the rate of provinces that have not completed and published specific guidance documents is still high, slowing down the implementation of the Land Law.

2.3.5. Illegal land speculation and holding is still quite common.

Speculation is a common behavior in any society with a commodity production system. In the most general sense, speculation is the act of buying and selling valuable goods (such as land) to make high profits by taking advantage of unusual fluctuations in prices, through accumulating goods and waiting for the market to be (artificially) scarce to sell at high prices. In the context of the current market economy, speculation in the real estate sector is inevitable. In terms of economics, because land is an input factor in any production and business sector (especially real estate business), land speculation will increase production costs and limit investment. In terms of society, land speculation will lead to social polarization, the gap between rich and poor will become larger and larger, and will lead to social instability.

In recent years, our country's economy has made important developments, people's lives and incomes have increased rapidly, so the demand for real estate for living and production and business has also increased. Real estate speculation brings huge profits that other investment and business sectors cannot compare to. Therefore, in the economy, there have appeared land speculators to make profits.

Land speculation occurs in many different forms such as: requesting land allocation, receiving land use rights transfer in areas that will be planned for urban areas, residential areas, infrastructure works... but not using them, using them for the wrong purpose or hiring the seller to look after and protect them, waiting for the land price to increase before selling them. According to reports from localities, of the 13,042.6 hectares of illegally transferred agricultural land that have been counted, most of the transferees do not need to use it for agricultural or forestry purposes, but mainly speculate to resell or request to change the land use purpose. The use of land not for the assigned or leased purposes is also quite common. In 2006, through inspections of land use in planning areas and investment projects, thousands of "suspended" plans and "suspended" projects were discovered with a total area of wasted land use of up to 477 hectares.

thousand hectares. Specifically, through inspection, 1,649 "suspended" planning areas with an area of 344,665 hectares were discovered; 1,206 "suspended" projects with an area of 132,463 hectares. In addition, there are 1,288 projects with an area of 31,650 hectares with prolonged land clearance time (some projects lasted up to 10 years). Localities with poor management and wasteful land use are Ha Tay - 93,551 m2 of abandoned land and 1,193,709 m2 of land used for the wrong purpose; Hanoi - more than 6.3 million m2 of land used for the wrong purpose; Ho Chi Minh City - 390,088 m2 of land in violation of management and use; Dak Lak

- 130,523 m2 of wasteland and misused land; Son La - 29,426 m2 of misused land

used for the wrong purpose. ( Source: Report to the National Assembly in the morning session of March 29, 2007 by Minister of Finance Vu Van Ninh ).

In addition, shortcomings in the Law also create conditions for real estate speculation. For example, Article 28 of the 2003 Land Law stipulates that land use planning must be announced within 30 days from the date of approval. Previously, Decree 68/2001/ND-CP dated October 1, 2001 stipulated that this announcement must be made after 30 days from the date of approval. This "negligence" over a long period of time has caused the public announcement of land use planning and plans to be extended indefinitely, making speculative behavior more common.

The above mentioned illegal land speculation and holding have caused the real estate supply and demand in the market to always be in a state of imbalance, real estate prices fluctuate complicatedly, and land prices in some big cities are pushed up unreasonably high. The relationship between supply and demand of real estate is seriously imbalanced. The demand for real estate, mainly for investment for business purposes, is increasing rapidly, while the supply of real estate is limited and increases slowly.

2.3.6. Increasing domestic and foreign investment in the real estate market

2.3.6.1. State economic groups expand into business fields

Real Estate

A recent survey of 200 largest enterprises in Vietnam by UNDP

made the assertion that many companies in Vietnam's "Top 200" are speculating in land and stocks without focusing on their core business.

The UNDP study also shows a worrying trend, that is, many private and equitized companies pay little attention to becoming competitive in the international market. Faced with the attractiveness of the real estate market, state corporations are changing their business strategies according to industries that bring high profits in the short term. Vietnam currently has 8 state economic corporations including: Posts and Telecommunications (VNPT), Coal - Minerals (Vinacomin), Oil and Gas (PetroVietnam), Electricity (EVN), Shipbuilding Industry (Vinashin), Textiles and Garments (Vinatex), Rubber (VRG), Finance and Insurance (Bao Viet). Although the corporations are all outside the construction industry, 4/8 corporations have established real estate companies such as: VinatexLand (Textiles and Garments); VinacominLand (Coal - Minerals), Petroland (Oil and Gas), EVN Land (Electricity). Along with these corporations with little experience in the construction sector, there are also real estate companies of REE Refrigeration and Electrical Engineering, Viettronic Tan Binh, Thanh Cong Textile, Savimex Wood, Kinh Do Food, Vien Dong Paper, and Dong Nai Paint. In the construction sector, there are new member real estate companies such as: HUD Land (of the Housing Investment and Development Corporation), LilamaLand (of the Vietnam Machinery Installation Corporation), Vigracera Land (of the Construction Glass and Ceramics Corporation).

According to the Ministry of Finance, currently 13/70 corporations and state-owned enterprises are investing 2,331 billion VND in real estate. On the other hand, the efficiency of capital use of these corporations and general companies is not high, some corporations and general companies have a debt/equity ratio that is too high, etc. See Appendix 3: Capital, revenue and labor of Vietnamese enterprises by ownership type (2005), it can be seen that state-owned enterprises themselves are not really operating effectively: investment capital is 3 times larger than non-state-owned enterprises but revenue is approximately lower than these enterprises. This fact is even more noteworthy when large state-owned corporations and enterprises, which are considered the "backbone" of the country's economy, in addition to economic tasks, also have political tasks, not simply concerned with business profits, but participate in fields that are not related to their main industry. The author would like to present a typical case as follows:

Research Box 5:

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