Influences upon Real Estate Investment Decisions and Some Recommendations

36 | Dương Thị Bình Minh & Nguyễn Thị Mỹ Linh Influences upon Real Estate Investment Decisions 
Influences upon Real Estate Investment Decisions and 
Some Recommendations 
DƯƠNG THỊ BÌNH MINH* & NGUYỄN THỊ MỸ LINH** 
ABSTRACT 
Vietnam’s real estate bubble has busted while the local market has been volatile and sensitive to 
socioeconomic effects (i.e. changes in policy, fluctuations in money and gold markets, etc.). The paper 
tries to assess factors influencing decisions to put money in real estate either as a supplier or a 
consumer and then suggest some solutions to the sustainable growth of the realty market in terms of 
demand and supply sides. The data is collated via surveys and direct interviews with real estate 
investors in HCMC as from Oct. 25, 2011 to Nov. 15, 2011; and the sampling population is 215 
investors. The multiple linear regression results show that real estate investment decisions are 
influenced by five factors: (1) the governmental policy on the realty market, (2) property tax and land-
use fees, (3) national economic factors, (4) socio-cultural factors and population, and (5) impacts of 
related markets. The regression function also reveals the significance of each variable to real estate 
investment decisions. Accordingly, these provide a solid foundation for solutions to the sustainable 
growth of Vietnam’s realty market. 
Keywords: real estate, realty market, factors affecting investment decisions, investment in realty 
market 
1. INTRODUCTION 
Vietnam’s realty market, as some experts put it, has a lot of potential; and the sustainable growth of 
the market will stimulate the national socioeconomic development. In addition, under the pressure of 
population growth and rapid urbanization, demands for residential and other-purpose properties have 
sharply risen. Therefore, it is crucial to strengthen the supply sources of the realty market and make it 
accessible to people in need. However, it is a fact that the realty market is facing many subjective and 
objective hardships which have dampened the enthusiasm of potential investors. Hence, it is advised to 
revive investors’ confidence. Accordingly, the paper will assess factors influencing real estate 
investment decisions and then recommend some solutions to the sustainable growth of this market in 
terms of demand and supply sides. 
2. DATA COLLATION AND METHODOLOGY 
a. Data: 
The data is collated via direct interviews with real estate investors (either individuals or 
organizations) in HCMC as from Oct. 25, 2011 to Nov. 15, 2011 in accordance with existing models. 
* Professor, Doctor of Philosophy, University of Economics – HCMC – Email : dbminh@ueh.edu.vn 
** Master of Economics, HCMC University of Industry -Email : mylinhdhcn@yahoo.com.vn 
 UEH-JED No.209 January 2012 | 37 
b. Methodology: 
The paper employs and combines many methods, of which the decisive one is the factor analysis 
with the support of a regression model, to evaluate impacts of influential factors on real estate 
investment decisions. The software MS Excel and SPSS will also be utilized. 
3. FACTORS AFFECTING REAL ESTATE INVESTMENT DECISIONS 
Real estate is a special commodity, and property investment decisions are affected not merely by 
prices and relationship between supply and demand but also by many other factors which can be split 
into two groups. Group 1 includes natural factors of real estate such as location, area, shape, structure, 
legal status, convenience and comfort, and profitability. Group 2 consists of socioeconomic and political 
factors. The paper focuses on factors of group 2. 
- Price fluctuations and relationship between supply and demand: Real estate demand, in general, is 
the quantity of this commodity for which customers are willing and able to buy. Real estate supply 
represents the services and quantity supplied at any point in time together with the price at which 
suppliers are willing and able to sell. It depends on market segments that the elasticity of demand may 
be different. Meanwhile, due to the fact that real estate supply fluctuates more slowly than the demand, 
the elasticity of the supply is dependent on the time lag. 
Like other commodities, real estate price is determined by the relation between supply and demand. 
The supply reflects sellers’ behavior which will be satisfied by profits earned from sales of real estate. 
The demand relates to buyers’ behavior whose satisfaction depends on benefits generated by such real 
estate and the personal financial capacity. Discrepancies in income and demands lead to different 
segments of target customers of the real estate market; and the supply of real estate of a certain type 
depends heavily on the rate of return from investment in each segment. 
- Legal factor: The national legal system stipulates rights and obligations attached to the ownership 
or use of property. Thus, this system makes an essential prerequisite for the healthy operation of the 
realty market and directly affects real estate investment decisions. 
- Policies on land zoning and use: Land zoning, in essence, is to make a plan for land-use purposes of 
a certain region; and it may partly change the original land-use nature in this region and surrounding 
areas, and thereby affect the supply and demand of land stock in particular and real estate in general. 
Therefore, land zoning projects of the central and local authorities greatly influence real estate 
investment decisions. 
- Tax policy: Taxation, besides ensuring the budget income, is also employed to tackle 
macroeconomic issues such as stimulating or controlling economic growth velocity, enhancing or 
reducing capital accumulation, broadening or narrowing down payment capacity of the public, and 
redistributing income, etc. Thus, depending on each development stage of the national economy, the 
government has to work out appropriate tax policies, which  ... 209 January 2012 | 39 
The multiple regression model is employed to evaluate effects of influential factors on real estate 
investment decisions. The evaluation model is written as follows: 
F = β0 + β1 A + β2 B + β3 C + β4 D + β5 E 
Where, 
Dependent variable: 
F: Real estate investment decisions 
Independent variables: 
A: The governmental policy on the real estate market (excluding tax policy) 
B: Tax policy and land-use fees 
C: National economic factors 
D: Socio-cultural factors and population 
E: Impacts of related markets 
β0: Influential level of miscellaneous factors 
β1, β2, β3, β4, β5: Standardized regression coefficients representing the significance of factors 
affecting investment decision (F). 
It is hypothesized that: 
H0: β1 = β2 = β3 = β4 = β5 = 0 (The model is unsuitable.) 
H1: There is at least a coefficient βi which is other than zero (i = 1 5) (The model is suitable.). 
Through surveys and direct interviews with 215 real estate investors in HCMC and the 5-level Likert 
scale, the effect levels of influential factors on real estate investment decisions are described as follows: 
Table 1: The effect levels of influential factors on real estate investment decisions 
Group Effect levels Mean 
A 
a1 
Policies on the realty 
market 
Land zoning and land use policy 3.25 
a2 Housing investment and trade policy 3.13 
a3 Policy on the real estate market transparency 3.24 
B 
b1 
Tax policy and land-
use fees 
Property tax 2.47 
b2 Income tax on transfer of property 2.94 
b3 VAT on residential property 2.85 
b4 Stamp duty 2.88 
b5 Land-use costs 2.93 
C 
c1 
National economic 
factors 
Per capita income 3.03 
c2 Inflation rate 3.09 
c3 Individual/household income 3.25 
40 | Dương Thị Bình Minh & Nguyễn Thị Mỹ Linh Influences upon Real Estate Investment Decisions 
c4 
Property market price 
3.35 
c5 Urbanization 3.07 
c6 Credit policy on real estate 3.28 
c7 
Impacts of capital flows (e.g. FDI, funds, etc.) within the national 
economy 
3.04 
D 
d1 Socio-cultural factor 
and population growth 
National or regional population growth 3.83 
d2 Occupational restructuring 3.36 
d3 
Socio-cultural environment (i.e. security, ecological environment, 
etc.) 
3.37 
E 
e1 
Impacts of related 
markets 
Related financial markets (i.e. stock market, forex market, etc.) 3.36 
e2 Related commodity market (i.e. gold, raw materials, labor, etc.) 3.57 
e3 Tourism, labor markets, etc. 3.55 
b. Model testing: 
- Defining the Cronbach’s Alpha: The Cronbach’s Alpha (reliability coefficient) is identified to test 
the significant level of variables before running factors analyses. Reliability coefficients of variables are 
set forth in Table 2. 
Table 2: Stat of reliability coefficients 
Factors 
Cronbach's 
Alpha 
Cronbach's Alpha Based on 
Standardized Items 
N of 
Items 
The governmental policy on the real estate market – 
Group A 
.6295 .6334 3 
Tax policy and land-use fees – Group B .9365 .9343 5 
National economic factors – Group C .9435 .9473 7 
Socio-cultural factor and population growth – 
Group D 
.5965 .5960 3 
Impacts of related markets – Group E .9635 .9640 3 
Investment decisions - Group F (Dependent 
variable) .6041 .6036 3 
According to the above results, there exists a correlation among variables of each group, as almost all 
reliability coefficients are larger than or equal to 0.6. 
- Exploratory factor analysis (EFA): Variables with accepted reliability coefficient are included in 
EFA. Then, the convergence of observed variables will be tested in order to sort out significant factors 
for regression analyses. The Kaiser-Meyer-Olkin (KMO) test will be utilized to test the fit of factor 
 UEH-JED No.209 January 2012 | 41 
analysis. Accordingly, the KMO coefficient must range between 0.5 and 1 for a satisfactory factor 
analysis to proceed. 
+ Components of independent variables 
KMO and Bartlett's Test 
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .729 
Bartlett's Test of Sphericity 
Approx. Chi-Square 5160.744 
Df 210 
Sig. .000 
 Rotated Component Matrix (a) 
 Component 
 1 2 3 4 5 
c1 .846 
c2 .800 
c3 .906 
c4 .801 
c5 .799 
c6 .884 
c7 .798 
b1 .736 
b2 .880 
b3 .924 
b4 .905 
b5 .890 
e1 .946 
e2 .941 
e3 .917 
a1 .604 
a2 .702 
a3 .643 
d1 .673 
d2 .780 
d3 .750 
42 | Dương Thị Bình Minh & Nguyễn Thị Mỹ Linh Influences upon Real Estate Investment Decisions 
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser 
Normalization. 
(a) Rotation converged in 5 iterations. 
With KMO=0.729 and Sig.=0.000, independent variables satisfy convergence conditions. EFA 
produces five components which are independent variables and will be utilized in the multiple linear 
regression model. 
+ Components of dependent variables 
KMO and Bartlett's Test 
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .610 
Bartlett's Test of 
Sphericity 
Approx. Chi-Square 71.575 
 Df 3 
 Sig. .000 
Component Matrix (a) 
 Component 
 1 
f1 .749 
f2 .812 
f3 .677 
Extraction Method: Principal Component Analysis. 
One component extracted 
With KMO=0.610 and Sig.=0.000, dependent variables satisfy convergence conditions. EFA 
produces one component which is the dependent variable and will be utilized in the multiple linear 
regression model. 
c. Testing results: 
The multiple regression method is employed to test the research model in which F (Group F) is the 
dependent variable and A, B, C, D, E of corresponding groups are independent variables. The regression 
results are as follows: 
 UEH-JED No.209 January 2012 | 43 
Model Summary 
Model R R Square Adjusted R Square Std. Error of the Estimate 
1 .865(a) .749 .743 .50695707 
(a) Predictors: (Constant), D, A, E, B, C 
Coefficients (a) 
Model 
Unstandardized 
Coefficients 
Standardized 
Coefficients t Sig. Collinearity Statistics 
 Std. Error  Tolerance VIF 
1 (Constant) 9.032E-17 .035 .000 1.000 
 C .182 .035 .182 5.248 .000 1.000 1.000 
 B .329 .035 .329 9.481 .000 1.000 1.000 
 E .149 .035 .149 4.299 .000 1.000 1.000 
 A .755 .035 .755 21.783 .000 1.000 1.000 
 D .126 .035 .126 3.640 .000 1.000 1.000 
(a) Dependent Variable: F 
The results show that the significant level of the statistical probability (t) is smaller than 5% and thus 
all independent variables in the model contain explanatory significance. In order words, the null 
hypothesis is rejected and H1 is accepted. 
Besides, in order to estimate the goodness of fit of the model, determination coefficients of R2 or 
adjusted R2 will be taken into account. This coefficient expresses the explanatory level of the regression 
model. The closer to 1 the coefficient is, the more the research model fits the data. Vice versa, the model 
is not fit for the data if such the coefficient gets closer to zero. The regression results show that the 
adjusted R2 is 0.743; that is, 74.3% of real estate investment decisions can be explained by independent 
variables of the model; and thus it is possible to conclude that the model fits the data. The regression 
function can be written as follows: 
F = 0.182 C + 0.329 B + 0.149 E + 0.755A + 0.126D 
5. POLICY IMPLICATIONS 
Per the aforementioned analyses, real estate investment decisions have a positive relation with 
variables of the model. The effect level (β) of variables in order of their importance is as follows: the 
governmental policy on the real estate market, excluding tax policy, or Group A (0.755), tax policy and 
land-use fees –Group B (0.329), national economic factors – Group C (0.182), impacts of related 
markets – Group E (0.149), and socio-cultural factors and population – Group D (0.126). These results 
allow the author to offer following solutions to the sustainable growth of the realty market. 
44 | Dương Thị Bình Minh & Nguyễn Thị Mỹ Linh Influences upon Real Estate Investment Decisions 
a. Policies on the real estate market: 
This group has the greatest effect on real estate investment decisions. Therefore, it is suggested that 
the promulgation and implementation of governmental policies should be synchronized to establish 
legal corridors for the sustainable growth of the realty market; and simultaneously, full compliance with 
real estate law must be ensured and regularly inspected. Due to the fact that the payback time of real 
estate projects is very long, policies and legal stipulations must be strategic, stable, and not overlapped 
in order to avoid adverse effects on investment decisions. 
b. Tax policy and land-use fees: 
Regarding tax policy and other financial obligations as instruments of state control, it is advised to 
attend to the followings: 
- Residential real estate should be taxed to ensure equality among real estate users. 
- Annual property tax should be based on the profitability of the real estate. Therefore, different land-
use purposes must be taxed differently. 
- Tax on vacant or unused property should be higher than that on occupied one to prevent acts of 
cornering and speculating on the realty market, limit wasteful use of land, and increase the supply of 
commodities. 
- Higher tax rates should be imposed on extra value added to the real estates by publicly-invested 
infrastructure development. 
- Tax laws on earnings from transfer of real estate should be amended. 
- The financial obligations assumed by land owners and renters should be illuminated. 
c. General factors of the national economy: 
Among factors in this group, realty market price and credit policy are considered as the most 
important by investors. Therefore, the government should aim to stabilize the market price and enable 
investors to get access to formal source of finance via commercial banks, mortgages and remortgages, 
real estate savings programs, real estate stocks and bonds, real estate investment trusts, repos, etc. In 
addition, the government should enable those in need of real estate (especially housing for low-income 
persons) to access residential property. Yet this support should be in favor of the demand side instead of 
the supply side. 
Due to the fact that most of real estate investors in Vietnam rely on loans from commercial banks 
(i.e. 60 to 70 percent of real estate investments are from bank loans), it is advised that the interest rate 
policy should be stable enough to minimize risks of high capital cost which have recently pushed many 
investors to a dead alley. At macroeconomic level, inflation control and a stable growth rate should be 
ensured. 
 d. Impacts of related markets: 
- Stabilize the forex market: There should be effective financial policies for curbing inflation, 
improving the trade balance, promoting export, and attracting foreign investments in the local realty 
market in particular and the national economy in general. Moreover, the fact that policy is amended 
casually and market administration is done perfunctorily has reduced investors’ confidence. 
 UEH-JED No.209 January 2012 | 45 
- Manage the gold market: Gold is a precious metal which can be used as a means of payment or for 
reserve and thus can be used to acquire expensive commodities such as real estate. However, while the 
realty market is destitute of financial sources for its sustainable development, the government should 
adopt specific measures to effectively administer the gold market, and prevent volatility as well as 
upheavals in the market which can instigate gold speculation and adversely affect the realty market. 
- Guarantee the local supply of raw materials: Domestic production of building materials should be 
encouraged to substitute imports, reduce the trade deficit, improve the supply of foreign exchange, and 
particularly lower real estate prices that tend to rise incessantly because of increased prices of imported 
building materials. 
e. Socio-cultural factors and population: 
In addition to aforementioned factors, socio-cultural factors and population also affect decisions on 
investment in the realty market. Therefore, via rational migration policies, occupational restructuring, 
and high-quality public services, the real estate demand will definitely go up, pushing the supply up and 
attracting more investors. 
6. CONCLUSION 
The paper has evaluated factors affecting real estate investment decisions and the significance of 
each factor and recommended several measures to enhance investment in and sales of immovable assets, 
which can be deemed as a standard to evaluate the sustainable development of the real estate market. 
Hopefully, through some aforementioned recommendations, the supply of real estate would be more 
abundant, meeting the national socioeconomic development, and contributing to the sustainable growth 
of the realty market 
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