Doctoral thesis summary: Building indicators kit for real estate market (applied in the capital of Hanoi)

This study allows the autor to focus on the one hand on clarifying some approaches to the methodology of the establishment of the REM index; on the other hand, it analyzes and evaluates the current status of establishment of Vietnam’s REM index. Also, it will illustrate the experiences of certain countries in determining the REM index and recommend some methods of application in Vietnam.

PREAMBLE

1 Urgency of study

Real estate market (REM) is an important market whose capital accounts for a large amount of the national economy The volatility of the REM has a direct impact on the economy and society Therefore, the measurement, the evaluation and the trend forecast

of the REM’s volatility is a very important task in order to implement the policy of macroeconomic stabilization, to undergo timely reaction preventing and overcoming the instability, the collapse of the REM, to help the market players make suitable decisions consistent with the market trend

Due to this situation, the author has chosen the topic: "Building indicators kit for real estate market (applied in the capital of Hanoi)" for his dissertation

2 Overview of studies related to the dissertation

REM index has been studied by several authors in the world such as Sherwin Rosen, Quigley Jaymon Mason, Bailey, Rebert J.Shiller, David Zetland and some Asian authors However, these studies have not figured out the establishment and calculation methods of the REM in certain emerging REMs There are also a number

of studies on Vietnam’s REM index These are initial studies of their nature But they still have some shortcomings in calculation methods, data collection

3 Purposes of study

This study allows the autor to focus on the one hand on clarifying some approaches

to the methodology of the establishment of the REM index On the other hand, it analyzes and evaluates the current status of establishment of Vietnam’s REM index Also, it will illustrate the experiences of certain countries in determining the REM index and recommend some methods of application in Vietnam On the basis of the findings, this study will help propose the orientations, the solutions to the improvement of establishment of Vietnam’s REM index until 2020 and the years to come

4 Objects and scopes of study

Objects of study: the index and methods of determining the REM index which is suitable for Vietnam This study encompasses only the establishment of certain subindex

of the the REM index on a small scale (REMI index) such as real estate price index and residential transaction volume, one of the most important index of the REM Analyzing and evaluating the current status, this study focuses on the period from 2000 to 2014; Caculating and verifying the method of determining the REM index, it concentrates on REM of Hanoi City from 2011 to 2014

5 Approaches and methodologies

REM index was studies in a systematic, synchronized manner and in a context of in Vietnam’s emerging REM whereas the information system is still incomplete This study uses a combination of research methods Qualitative research has been conducted

by interviewing the specialists of the establishment of the REM index Quantitative research has been used in order to calculate the REM index of Hanoi City

6 Distributions of the study

Academic approaches: (1) Systemize the basic theoretical approaches to the

measurable indicators and methods of determining index measuring the evolutions of the REM; (2) Complete the necessary procedures to establish the REM index

Empirical approach: (1) Study the experiences of certain countries which have successfully established the REM index; (2) Analyze and evaluate the current status of REM index in Vietnam in recent years; (3) Calculate and determine the REM index of Hanoi City based on the generated methods; (4) Propose groups of solutions to complete the establishment of Vietnam’s REM index in Vietnam until 2020 and the years to come; (5) Propose groups of necessary conditions to ensure the completion of the proposed solutions to the establishment of Vietnam’s REM index

7 Structure of the study

This study has been divided into 3 chapters Chapter 1: Chapter 1: Some theoretical

and practical approaches to the establishment of the REM index Chapter 2: Current status of the establishment of Vietnam’s REM index and the calculation of the REM index of Hanoi City Chapter 3: Orientations and solutions to the completion of Vietnam’s REM index until 2020

CHAPTER 1 SOME THEORETICAL AND PRACTICAL APPROACHES TO THE

ESTABLISHMENT OF THE REM INDEX

1.1 Overview of real estate and real estate market (REM)

1.1.1 Overview of the real estate

1.1.1.1 Concepts of real estate: Different concepts of real estate can be generalized as

follows: “Real estate is not only the immovable properties, ground resources but is all that is created by human labour attached to land under the three-dimensional space which constitutes a physical and functional form with determined structure.”

1.1.1.2 Features of the property: Each real estate has a certain number of attributes;

amongs which the fixity is the most important attribute deciding the value of the real estate once being considered as a product on the market

1.1.2 Overview of the real estate market

1.1.2.1 The concepts of real estate market: real estate market is a combination of real

estate transactions based on commodity relations, currencies whereas the mechanism is influenced by the expectations of the market participants adjacent to the governmental and political intervention in the market

1.1.2.2 The segments of real estate market: real estate market has different segments

depending on the purpose of classification and the nature of real estate commodities

1.1.2.3 The characteristics of real estate market: besides the common characteristics like

other markets, real estate market has its particular characteristics

1.1.2.4 The role of the real estate market: real estate market an important role in the

socioeconomic development

1.2 Theoretical approaches to the establishment of the REM index

1.2.1 Definition of the REM index

The REM index encompasses different indicators which are established based on the principles of statistical sience It provides the measuring tools and the indicators for the status of the REM for certain market areas throughout different periods

1.2.2 The roles and significance of the REM index

The REM index is essential for the citizens, real estate investors, financial institutions, policy makers and other real estate market participants The REM index can also be used

to predict the evolution trends of the REM in the future

1.2.3 Classifications of the REM index

1.2.3.1 Pursuant to the purpose of use of the index: The index includes the indicators

reflecting the supply and demand of real estate; the market size; the price and trade trends; the balance and imbalance of the market and finally the transparency of the REM

1.2.3.2 Puruant to the aggregate-level of the index: the REM index includes the

individual one and the one in the aggregate (on a small and large scale)

1.2.4 Method of determining the REM index, advantages and disadvantages of the different methods

1.2.4.1 Method of determining the REM index

The methods of determining the REM index have individual characteristics such as method of simple average; method of weighted average

Using econometric model to determine the REM index includes a number of different methods, but in general concentrates on the Hedonic Pricing Method (Hedonic); Repeat sales regression and Mix-adjusted method

1.2.4.2 The advantages and disadvantages of the different methods of determining the REM index: The calculation of the REM index is difficult due to the particular

characteristics of real estate products These characteristics result in different advantages and disadvantages of each method Therefore, the user has to analyze and evaluate in order to find out the appropriate method

1.2.5 Influencing factors of the determination of the REM index

Source: Data collected and processed by NCS

Diagram 1.1 Influencing factors of the determination of the REM index

The calculation process of the REM index is influenced by many factors, including indirect factors and direct factors

Indire

ct

factor

s

The transparency of the REM

The role of the state administration vis-à-vis the

information system of the REM

Mindset, perception of the role of the index

REM index

1.2.6 Establishment procedure of the REM index

The establishment procedure of the REM index can be generalized as follows: allocate the market and select the representative real estate product; collect data in the initial period, collect data in the reference period, calculate the REM index

1.3 The experiences of certain countries in determining the REM index and lessons for Vietnam

The experiences of certain countries in establishing and publishing the REM index could be considered as lessons in establishing Vietnam’s REM index That is to say that the transparentising of the REM information plays an important role for the information source, data in order to calculate the REM index; the indicators which reflect the volatility of the real estate prices and real estate transaction volumes are very important; the used index must be consistent with the characteristics of the real estate market and the collection possibility of the respective data; the selection of the range of the REM index depends on the level of evolution of the REM; The frequency of the REM index depends on the level of development of the market and the capacity of calculating the index; the selection of method of determining of the index must be consistent with the data collection possibility; the establishment of the REM index has to follow certain procedure and the organization of

the establishment of the index could be undertaken by different entities

CHAPTER 2 CURRENT STATUS OF THE ESTABLISHMENT OF VIETNAM’S REM INDEX

AND THE CALCULATION OF THE REM INDEX OF HANOI CITY

2.1 Summary of the development process of Vietnam’s REM

2.1.1 Development phase of the unofficial REM

After 1954, the REM has not formed in Vietnam yet Since 1986 only few types of markets have been formed, but not the REM due to the lack of legal framework for its operations The 1980 constitution has neither provided an enough legal framework for the operations of the REM in a legal manner

2.1.2The formation and development phase of the official REM

The 1992 Constitution has created a legal framework for the constitutional and official formation of the REM Along with the amendments of the 1992 Constitution, the land law enacted in 1993 has enabled the legal framework for the development of the REM The year of 1992 is considered as the first milestone of the official formation of Vietnam’s REM Since then, the REM has developped with various vicissitudes

2.2 Analyze the current status of the establishment of Vietnam’s REM index in recent years

2.2.1 The determined REM index

2.2.1.1 The REM index determined by the market participants: In recent years, the real

estate consultancy organizations, real estate brokers, real estate financing organizations, real estate trading companies have conducted the data collection, calculation in order to determine some index related to the REM

2.2.1.2 The REM index determined by the state authorities: Pursuant to the Circular No

20/2010 / TT-BXD dated October 27th, 2010 of the Ministry of Construction, Hanoi City has been establishing and publishing the apartment price index

Source: Data retrieved from the Department of Construction of Hanoi City and

processed by NCS

Diagram 2.1 Apartment price index of Hanoi City

Danang, Ho Chi Minh and Can Tho cities haven’t established the REM index yet The General Statistics Office Of Vietnam publishes the housing prices and building material prices The National Financial Supervisory Commission has also analyzed, evaluated the development status of the REM, the capital market, money market and the housing price evolution over the years

2.2.2.2 The real estate price index determined by the method of average prices:

transaction volume index and price index of each specific real estate product will be determined based on the average arithmetic values of the transactions volumes and price index of each specific real estate product, specific project, one or several areas of the local market

2.2.2.3 The real estate price index determined by the method of combination-adjusted:

The real estate price index will be determined by the method specified by the Ministry of Construction, namely the arithmetic average method This is a combination of the average (arithmetic and weighted) values and the real estate valuation and adjustment techniques By its nature, this method of determining the real estate price index specified

Mid-range apartment Mid-range apartment Mid-range apartment

High-end apartment Mid-range apartment Mid-range apartment

by the Ministry of Construction can be considered as one kind of the method of combination-adjusted which is already applied worldwide

2.2.3 The establishment procedure of the REM index: The establishment of the REM index

determined by the market participants can be conducted in particular manner The establishment of the REM index determined by the state authorities will be conducted in

common manner

2.2.4 Types of REM index publishing

The REM index can be published via the trade publications, the flyers, the websites, the public media and the conferences

2.3 Overview of current status os the establishment of Vietnam’s REM index

2.3.1 The achievements

The REM index established in the recent years are the remarkable results, the premises to find out more solution to the completion of the procedure and methods of determining Vietnam’s REM index in the years to come

2.3.2 Limitations and weaknesses

- The quantities of information reflecting the status and development trend of the REM are very limited

- The qualities of information reflecting the status and development trend of the REM are still inadequate

Table 2.1 The reliability of information reflecting the evolution of the real estate prices

Unit: %

Information provider Number of

responses

Very reliable Reliable Unreliable

Source: Data collected from survey by NCS

The above-mentioned information shows the fact that the information provided by the real estate trading companies, real estate exchange and the public media has a low reliability

while the one provided by the state authorities has higher reliability but is very limited

2.3.3 Roots of the limitations and weaknesses

2.3.3.1 Objective root

a) Low level of market transparency of the REM:

- Information related to the development of REM: The access to the information

related to the development of the REM and respective real estate projects is very limited

2.3.3 The cause of these problems and limitations

2006-Giai đoạn 2011

2009-Giai đoạn 2013

2012-Sau khi quy hoạch điều chỉnh Trong giai đoạn thực hiện quy hoạch Sau khi công bố quy hoạch Không quan tâm

Source: Data retrieved by NCS from various reports of the Ministry of Construction

Graphic 2.2 Portion of citizenship who knows the planning information

This current status shows that the publicity and transparency of information related to the implementation of the master plan is inadequate

- Information related to the real estate status:

Table 2.2 Ratio of the issuance of land use rights certificates in some cities

Unit: %

Source: Data retrieved from the state authorities’ reports by NCS

In reality, the transparency of the current real estate status is still at a low level The process of issuance of land use rights and house ownership certificates is delayed and has caused the lack of legal basis of a considerable portion of the real estate As a result, they cannot be circulated officially on the market

- Information related to real estate transactions: in reality, the real estate

transactions in the unofficial market still account a big number; the access to the information related to the real estate demand, transaction prices is still limited

Source: Data retrieved by NCS from the reports of the Ministry of Construction as of 2013

Diagram 2.3 Types of real estate transactions

b) Mindset vis-à-vis the role and the significance of the REM index doesn’t meet the requirements: The state authorities are not fully aware of the role and the

significance of the REM index Therefore, the issuance of policy and the development of the implementation plan is still delayed; it’s difficult for the local authorities to coordinate

c) The roles of the state administration vis-à-vis the REM information remains limited: The state assumes the regulatory, market orientation roles by providing a legal

framework so that the market players can access the information in an easy and official manner But in reality, this fact is still inadequate and hasn’t created a fairness, equity in the market

d) Lack of experiences in establishing the REM index: the experiences of the

advanced countries in establishing the REM index haven’t been gained systematically

in order to be applied in Vietnam

Difficult access

Information related to real estate

b) The range of the determined index is not consistent with the actual development

of the market: the way of determining the market area in the course of the calculation of

the REM index doesn’t reflect the difference of the market trends

c) Methods of determining the REM index is still inadequate: simple calculation methods are mostly used Method of determining the REM index specified by the Ministry of Construction was initially approached the ones applied worldwide The calculation techniques of this method is more complicated, but still inadequate

d) Resources for the establishment of the REM index are very limited: the data collection, the calculation of the REM index face difficulties in terms of cost planning, cost allocation to hire consulting agencies to carry out this task

e) The sanctions relating to the responsibilities for the information providing and the establishment of the REM index are incomplete: The responsibilities for the information

providing and the establishment of the REM index at the management level specified in the legal documents are not efficient enough

2.4 Calculate the REM index of Hanoi city

2.4.1 Summary of the development process of Hanoi’s REM

2.4.1.1 Overview of Hanoi City: Hanoi is a city with special characteristics It is also the

capital of the Socialist Republic of Vietnam According to the urban planning, Hanoi’s spatial organizations of Hanoi will be developped accordance with the model of conurbanation

2.4.1.2 Overview of Hanoi’s REM development: Likely to the REMs in other Vietnam’s

large cities, Hanoi’s REM has experienced different development periods from its date

of origin till this day

2.4.1.3 Overview of the price evolution of Hanoi’s real estate from 2000 till this day: From

2000 till this day, Hanoi’s real estate prices have experiences different growth and decline periods The first period was from 2000 till 2006 as the growth period boomed in 2000 and ended in 2003 while the decline and freezing period happened between 2004 and mid 2006; The second period started from the mid 2006 and lasts till this day as the growth period started in mid 2006 and ended in 2008; the downward drift, the decline and freezing period happened between 2008 and mid 2013, and the recovery period started in end of 2003 and lasts until this day

2.4.2 The requirements of the index, index type and method of determining Hanoi’s REM index

2.4.2.1 The requirements of the index: Hanoi’s determined REM index has to fulfill

some basic requirements

2.4.2.2 Index selection: The REM index has synthetized characteristics on a small scale

(REMI index) is the most expected index The REMI can be determined as per following

- REMIt: REM index in the reference period;

- REMI1: REM index in the initial period;

- a, b, c: weighted factors which measure the degrees of influence of the real estate transaction prices, the transaction volumes and the numer of days of successful transactions;

- Iprice t ,Isales t,Iday t

: volatility of the real estate prices, the transaction volumes and the numer of days of successful transactions at the date of initial period

The basic disadvantage of the REMI index is the difficulty in determining the exact influencing proportion of each weighted factors (weighted factors a, b, c) and in determining the exact duration of the successful transactions Therefore, the selected index types are the subindex of the REMI index, including REM index and the index of Hanoi’s apartment transaction volumes

Hanoi’s REM index is determined for the period from the 1 quarter of 2012 until the 4 quarter of 2014 on the basis of quarterly frequency First quarter of 2011 was selected as initial date

2.4.2.3 Select the method of determining the index: Hanoi’s REM index will be

calculated by applying the method of determining specified by the Ministry of Construction as per following general formula:

a) For the REM price index:

I W

W RPI

1 ÐS ÐSj 1 ÐSj

(2.2)

In which:

- RPI: REM price index of Hanoi city;

- I BÐSj: Price index of the real estate number j (j=1n);

- W BÐSj: weighted transaction value of the real estate number j;

- n: number of real estate types which was selected to calculate the index