Determinants of apartment price volatility in Vietnam: a comparison between Hanoi and Ho Chi Minh City

• Date: 19 September 2023
• Pages: 249-271
• DOI: https://doi.org/10.1108/IJHMA-06-2023-0081
• Published date: 19 September 2023
• Subject Matter: Property management & built environment,Real estate & property,Housing markets
• Author: Nhung Thi Nguyen,Lan Hoang Mai Nguyen,Quyen Do,Linh Khanh Luu

Determinants of apartment price

volatility in Vietnam: a

comparison between Hanoi

and Ho Chi Minh City

Nhung Thi Nguyen,Lan Hoang Mai Nguyen,Quyen Do and

Linh Khanh Luu

Faculty of Finance and Banking, VNU University of Economics and Business,

Hanoi, Vietnam

Abstract

Purpose –This paper aims to explorefactors inf‌luencing apartment price volatility in the two biggest cities

in Vietnam, Hanoiand Ho Chi Minh City.

Design/methodology/approach –The study uses the supply and demand approach and provides a

literature review of previousstudies to develop four main hypotheses using four determinantsof apartment

price volatilityin Vietnam: gross domestic product(GDP), inf‌lation rate, lending interest rate and construction

cost. Subsequently, the VectorError Correction Model (VECM) is used to analyze a monthly data sample of

117.

Findings –The research highlightsthe important role of construction costs in apartment price volatilityin

the two largest cities.Moreover, there are signif‌icant differences in how all four determinants affect apartment

price volatility in the two cities. In addition, there is a long-run relationship between the determinants and

apartmentprice volatility in both Hanoi and Ho Chi Minh City.

Research limitations/implications –Limitations related to data transparency of the real estate

industry in Vietnamlead to three main limitations of this paper, including:this paper only collects a sample of

117 valid monthly observations; apartment price volatility is calculated by changes in the apartment price

index instead of apartment price standard deviation; and this paper is limited by only four determinants,

those being GDP, inf‌lationrate, lending interest rate and construction cost.

Practical implications –The study provides evidence of differences in how the above determinants

affect apartment price volatilityin Hanoi and Ho Chi Minh City, which helps investors and policymakers to

make informeddecisions relating to the real estate market in the two biggest cities in Vietnam.

Social implications –This paper makes several recommendations to policymakers and investors in

Vietnamto ensure a stable real estate market, contributing to thestability of the national economy.

Originality/value –This paper providesa new approach using VECM to analyze bothlong-run and short-

run relationshipsbetween macroeconomicand sectoral independentvariables and apartmentprice volatility in

the two biggestcities in Vietnam.

Keywords Apartment price, Price volatility, Real-estate sector

Paper type Research paper

1. Introduction

In many countries, the real estate industryaccounts for a large proportion of gross domestic

product (GDP). Forinstance, in the USA and China, this sector accounts for17% and 29% of

GDP, respectively (the NationalAssociation of Realtors, 2022;National Bureau of Economic

Research, 2022), while the f‌igure is 14% for a period from 2019 to 2021 in Vietnam. This

Determinants

of apartment

price volatility

249

Received14 June 2023

Revised18 August 2023

Accepted28 August 2023

InternationalJournal of Housing

Marketsand Analysis

Vol.18 No. 1, 2025

pp. 249-271

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-06-2023-0081

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1753-8270.htm

sector has grown so massively that its every movement had considerable impact on the

overall health of the national or globaleconomy. Indeed, in 2008, the bursting of the housing

price bubble led to economic downturns in the USA, provoking the global f‌inancial crisis.

Specif‌ically, due to subprime lending, many f‌inancial institutions became insolvent and

illiquid in the run-up to the crisis. Liquidityloss and solvency fears created a feedback cycle

of diminished f‌inancing, reduced housing demand, falling housing prices, more borrower

losses and further damage to the f‌inancial system (Schnabl and Hoffmann, 2008;Kim and

Renaud, 2009). This resulted in widespreadlayoffs and extended periods of unemployment

worldwide in all industries.

Considered as property that symbolizeswealth, housing is an essential component of the

real estate market. Housing price risk is among the most signif‌icant economic risks that

individuals and organizationshave to face (Shiller, 1989). Schulz and Werwatz (2004) argue

that f‌luctuations in apartmentprices have consistently worried residents andparticipants in

the housing market who own or want to own a house, while declines in house pricesresult in

capital losses for homeowners (Feinstein and McFadden, 1987;Mankiw and Weil, 1989).

Besides this, changes in house prices can bringabout many consequences for the economy.

The greater the volatility of housing prices, the greater the probability of negative home

equity and more severe mortgage foreclosure losses (Pennington-Cross, 2003). Davis and

Heathcote (2005) point out that residential investment is more than twice as volatile as

business investment, making it diff‌icult for the government to formulate effective

regulations as well(Nguyen and Bui, 2019).

In Vietnam, there have been signif‌icant f‌luctuations in house prices for many years. The

period from 1990 to 2002 experienced two “housing bubbles”due to high demand and the

situation of subdivisions for sale.Then, house prices fell sharply over a period from 2012 to

2013 but increased dramatically in the period from 2014 to 2020. As of 2020, house prices

had increased by at least three times on averagecompared to 2011. After being “frozen”due

to the epidemic of Covid-19 and social distancing in 2021, house prices recovered quickly

and started to set a new price f‌loor (Linh, 2022). Accordingto Can (2023), Vietnam’s housing

market in 2023 still faces manyrisks that result from unstable macroeconomic factors such

as inf‌lation, interest rates and exchangerates, while Phan (2022) highlights a lack of supply

due to legal factors, as well as high but suppressed demanddue to the inf‌lated house prices

of the preceding two years. This current situation has caused many scholars to turn their

minds to the topic of house prices inVietnam. Huynh (2015) and Chung et al. (2018) focus on

the determinants of apartmentprices in Ho Chi Minh City and Hanoi (such as the land size of

the apartment complex, housing unit size, apartment grade, building age, building density

and proximity to urban factors), while Seo (2018) and Bui (2020) focusonly on the impact of

tax policy, households’disposable income and interest rates,accordingly. Recently, Nguyen

et al. (2021) determined dynamic apartmentprices by analyzing the comprehensive effect of

multiple factors (such as construction cost, income per capita, lending rate and urban rent

expense) on house prices and the issue of bubbles in Hanoi.

It can therefore be seen that in Vietnam, most researchers just focus on the single-factor

impact of price without measuring the change or volatility of real estate prices. This

research gap motivates authors to investigate determinants of apartment price volatility in

Vietnam. Due to limitations related to data transparency, this article only focuses on

apartment prices in the two biggest Vietnamese cities, Hanoi and Ho Chi Minh City, from

Q1.2013 to Q3.2022. Two macroeconomicfactors (including GDP and inf‌lation rate) and two

sectoral factors (such as lending interest rate and construction cost) are introduced as

dependent variables, while the independent variable is apartment price volatility. All

monthly variables analyzed by the vector error correctionmodel (VECM) show the long-run

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