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

Abstract

Purpose This paper aims to explore factors influencing apartment price volatility in the two biggest cities in Vietnam, Hanoi and Ho Chi Minh City. Design/methodology/approach The study uses the supply and demand approach and provides a literature review of previous studies to develop four main hypotheses using four determinants of apartment price volatility in Vietnam: gross domestic product (GDP), inflation rate, lending interest rate and construction cost. Subsequently, the Vector Error Correction Model (VECM) is used to analyze a monthly data sample of 117. Findings The research highlights the important role of construction costs in apartment price volatility in 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 apartment price volatility in both Hanoi and Ho Chi Minh City. Research limitations/implications Limitations related to data transparency of the real estate industry in Vietnam lead 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, inflation rate, lending interest rate and construction cost. Practical implications The study provides evidence of differences in how the above determinants affect apartment price volatility in Hanoi and Ho Chi Minh City, which helps investors and policymakers to make informed decisions 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 Vietnam to ensure a stable real estate market, contributing to the stability of the national economy. Originality/value This paper provides a new approach using VECM to analyze both long-run and short-run relationships between macroeconomic and sectoral independent variables and apartment price volatility in the two biggest cities in Vietnam.