Phu Quoc Island faces possible property bubble
Phu Quoc Island faces possible property bubble
A few years ago there were tentative plans to convert Phu Quoc Island into a special economic region, which had led to land prices skyrocketing across the small island district of Kien Giang Province.
A corner of Phú Quốc.
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Some years ago, a sudden influx of investors had descended on the island, but this enthusiastic rush soon eroded after plans for further development of the island were dropped. However, since early December 2020, land prices have begun to soar again after the National Assembly (NA) approved another plan to make Phu Quoc into Vietnam’s first island city. Many people are now left wondering if this is a sustainable development plan for the fragile environment on the island, and if it will lead to another rush for land buying, causing a second property bubble.
Land prices up again
During the early days of 2021, people across Phu Quoc island were hotly discussing the official decision of the National Assembly to turn their island into a city district. They see this event as a lucrative new beginning which will change their lives, when more and more domestic and international investors will pour in for land speculation. One of the strongest attractions for investors will be the real estate. The property market has remained quiet for several years since the first bubble occurred, but now the bustle and excitement has returned.
Mr. Binh, a senior estate broker in Duong Dong Town, said that large groups of property investors began flocking into Phu Quoc Island in late 2020. Brokerage firms say that property prices have been rising all across the island, with more and more transactions taking place. Land owners have also raised the price of their property by 10% to15% higher than they quoted in last months of 2020. Mr. Binh said that land owners don’t seem to be in a hurry to do transactions while buyers are nervous as the high demand and low supply will cause property prices to escalate by the day.
One director of an estate brokerage company on the island said that investors mainly look for pieces of land worth between VND 500 mn and VND 4 bn, because these are mostly likely to be profitable and in future demand. Investors have found that recent successful transactions have been basically in three resettlement areas, namely, across 73 ha. of Suoi Lon Residential Area in Duong To Ward, 67.5 ha. area of Bac Duong Dong New Urban Area, and 10.2 ha. of the Neighborhood 10 Resettlement Area in Duong Dong Ward with land plots numbered and officially registered and provided with land use right certificates.
Land pieces in other parts of the island are offered for sale, but transactions are slow and buyers still hesitate about such transactions for fear that such pieces of land could be part of a planning scheme. Also, most of the land funds in good places on Phu Quoc Island have already been developed by large investors into resorts and accommodation for holidaymakers.
However, investors are still taking cautious steps because of the fall three or four years ago. At that time, property prices were driven up two to three times higher causing panic among investors. Additionally, division of land plots caused a lot of market interference as well. When the local government noticed property speculators were doing unauthorized acts of dividing large pieces of farmland into smaller plots to make profit, the People’s Committee of Kien Giang Province asked competent agencies in Phu Quoc District to temporarily stop certifying such division of land pieces and change land use purpose. As a result, property prices declined across the island.
Investors need long-term vision
Phu Quoc island has several favorable conditions for infrastructure and services like a port, an airport and the title of a city to attract investors. However, to enjoy sustainable benefits, investors are advised to gather reliable information in order to have clear ideas about planning and legal procedures for each project and avoid tricksters and fraud deals.
Mr. Nguyễn Mạnh Hà, Vice Chairman of the Vietnam Real Estate Association, said that the title of a city will promote property development on the island and over time property prices will increase. Therefore, investments in the Phu Quoc market at present will have opportunity to earn profits later. However, Mr. Hà stressed the importance of making appropriate investment in the right place at the right time before such efforts result in long-term benefits. Investors may consider products of successful investors in locations with great potential for tourist attraction, stable inflow of visitors and constant growth over time. Investment products should be developed in the form of complete complexes and ecosystems that could ensure strong connection and optimum growth.
In addition, experts suggest that investors should have long-term vision. Previously, investors went to Phu Quoc island to grab opportunity, speculate on the market, which caused prices to surge. Now, property prices indicate true value and prices will go up in time to reach appropriate price around the island city of Phu Quoc. They will not be inflated prices. Instead, the property pieces will have more value added to them thanks to suitable planning and policies. Many believe that Phu Quoc will witness the growth of premium urban housing. This will be reason for more reliable planning of the island city for sustainable development. This will be one of the crucial factors that will contribute to the stable development of real estate as planned by city officials.
Mr. Phùng Quốc Bình, Director of the Natural Resources and Environment Department of Kien Giang Province, said that competent provincial agencies and the People’s Committee of Phu Quoc City will collaborate to control the real estate market, and also plan and construct to prevent any possible incident of inflated prices.
The property bubble is a threat not only to Phu Quoc but also the entire society and the economy. First, bad debts at banks will rise, causing drastic impact on banking and the whole economy, because investors and businesses will not be able to pay the debts. Second, credit risks will create a chain reaction, leading to negative effect on the economy, or even cause an economic recession.
Third, investors or businesses could go bankrupt after buying pieces of land and carrying out construction on the island, which means that their projects will be left incomplete or rendered useless. Evidence shows that several resorts or accommodation areas in Phu Quoc have been lying deserted for years after investors poured in billions of dong in such projects. Fourth, it is unclear what the Phu Quoc Administration will do with abandoned projects, as the choice of both maintaining them or demolishing them will face countless difficulties.
