Real estate valuation for investment requires deep and continuous thinking about market value

According to Associate Professor, Dr. Nguyen Minh Ngoc, Head of the Department of Valuation - Real Estate Business, University of Finance and Marketing, Ho Chi Minh City, if investors only know about prices and collect information about prices, they will miss a more attractive and effective area of thinking in their investment activities, which is thinking about: Market value.

To better understand issues related to prices, market values as well as the (intrinsic, core) value of real estate, TG&VN had a conversation with Associate Professor, Dr. Nguyen Minh Ngoc, Head of the Department of Valuation - Real Estate Business, University of Finance and Marketing, Ho Chi Minh City.

Dear Associate Professor, Dr. Nguyen Minh Ngoc, price is one of the factors that greatly affects real estate investment activities. Can you explain this more clearly?

Land - real estate carries its own price. The increase in reasonable prices, or mostly unreasonable prices in Vietnam, has stimulated all sectors of society to seek real estate investment activities. The objective reality and subjective developments in the past 30 years of land - real estate prices have caused many individuals and organizations to lose their emotional - financial - rational balance.

Land price - real estate is the monetary expression of the value of that land - real estate, that is, the amount of money to be paid for land - real estate. The price of land - real estate in general is a quantity that changes around the value. When the supply and demand of land - real estate match, the price can reflect and match the value of that land - real estate, this case rarely happens. The price of land - real estate will be higher than their value if the supply is lower than the demand. Conversely, if the supply exceeds the demand, the price will be lower than the value of.

Định giá bất động sản để đầu tư cần tư duy sâu và liên tục về giá trị thị trường

Associate Professor, Dr. Nguyen Minh Ngoc. (Source: RED)

This is classic knowledge in microeconomics . However, for many different reasons, many people often stop (or only know) in general terms like that. They often do not have the ability to apply and develop thinking for real estate investment. People often say "The market has its own voice" or "All theories are gray. Only the tree of life is forever green"... From grasping and understanding general knowledge, real estate investors need to develop their own thinking for each specific decision and method.

So what factors usually influence prices, sir?

Prices are often determined by the supply and demand relationship in the market. However, it is necessary to understand correctly and comprehensively the category of “market”. The market that we often mention in the media such as: apartments, land lots, commercial areas… with popular areas, segments and goods is only a small corner of the total market.

If we look at Vietnam’s 365,000 square kilometers, plus assets on land (including construction works and assets attached to land such as perennial trees, etc.), the overall market is much larger and more diverse. On the other hand, if we only think about prices, collect information about prices, etc., investors will miss a more attractive and effective area of thinking in their investment activities. That is thinking about: Market value.

Many people are still vague about the concept of real estate market value, can you explain this more clearly?

To grasp Market Value, it is necessary to first understand the concepts of Value (intrinsic - core). This issue will be discussed in more detail below. Market value of Real Estate is the functions and uses of Real Estate used for certain purposes. These purposes can be multi-purpose or specific to each individual or organization. In reality, there are extremely diverse goals of different subjects. In other words, the number of Real Estate goals can be up to thousands or more.

People often talk about two categories of real estate market value: use value and exchange value. Real estate is not only used for living, for business, for profit... but also to serve various purposes, sometimes to serve strange purposes.

For example, someone buys a piece of land just to wait for spring to observe the growth of a rare insect; Or there is a type of real estate that is very suitable for raising financial capital. When using this real estate for finance, it will raise 100 billion VND, but if bought and sold freely, the price is only 30 billion VND. In other words, this real estate is financial real estate.

From the above example, thinking about the market value of real estate goes beyond the conventional view of buying and selling or living. They serve certain specialized purposes that come from diverse needs in the market. And the rental price or free sale price cannot be used to measure the value they bring.

Therefore, investors need to personalize each real estate for each segment, each individual customer to accurately detect the market value. The value of real estate that an individual or organization in society can enjoy and feel is considered Market Value (Wider than the price category).

So, market value depends largely on real estate value, sir?

Real estate value is the most interesting and also the most difficult to grasp and measure issue in real estate valuation. From understanding market value, real estate investors can move on to learn and master real estate value issues. Unlike market value, real estate value here is no longer from the word "market". In other words, before there is a market, before the formation of a market, real estate has its own value.

Value is an abstract concept, the meaning of land - real estate in terms of suitability, satisfaction with human needs. Real estate has the ability to satisfy human needs in a single, separate form, but their value is linked to things, phenomena into a total value system through the interaction of the above mentioned primary needs.

Associate Professor, Dr. Nguyen Minh Ngoc has many years of experience in training on real estate valuation in the field. (Source: RED)

From understanding market value, real estate investors can move on to learn and master issues related to real estate value. The market is a category; a form; a set of conventions. Or understand the market as a set of scenarios; a context with fluctuations and phases... There are many views, perspectives, and statements about the market in general, the real estate market in particular. And so the market value of real estate also changes unpredictably.

However, if we go into the inner, the roots of real estate, we will find the core values of real estate. These core values, if attached to the immutable, fundamental needs of human civilization, will create a fundamental value system of real estate that does not depend on any market, anywhere in the world .

Can you give us some specific examples so that our readers can better understand the intrinsic core values of Real Estate?

For example, a primeval forest, an island in a freshwater lake, a cave, a mountain peak… always have value. But there is no separate market (sub-market) for this type of real estate. Another example, a pure, bright red Ruby stone with the color of Pigeon Blood deep in the bottom of Thac Ba Lake, Yen Bai Province has a very large intrinsic value.

However, it does not have market value because of two possible cases: 1/ because it is located under the lake, it has not been found to be put into the operating gemstone market; 2/ the gemstone market has not yet formed in Vietnam or in the world (When people do not consider this Ruby as precious because they do not fully understand it).

If we consider the problem from the perspective of the use value and exchange value of the asset, this stone has no use value (no market value). On the other hand, if this Ruby is found and exchanged for a trip around the world, it will develop its exchange value, transforming into a relationship of market value (the enjoyment and feelings of the person receiving the stone), and is not within the price category. Real estate investment in Vietnam needs to apply this school to identify hidden values, then put them into the real estate market. Even create a branch market for use or exchange.

So, in your opinion, to invest effectively in real estate, what factors should investors pay attention to?

In fact, in many studies on real estate “types” that are considered unique in Vietnam (but popular in the world, or where there is no branch market for that type of real estate in the world), I discovered a type of real estate that has never been known and circulated in the Vietnamese real estate market. The reason is that Vietnam is developing, in the past 30 years, market participants often focus on “types” that are easy to access, with little exploration, little creative thinking…

Therefore, when applying good expertise and real estate valuation capacity, investors can completely find countless valuable "diamonds" lying around in the market that no one picks up. In other words, this is an opportunity for investors to own valuable, sustainable real estate assets at very cheap prices.

However, investors also need to understand the major trends of the world, the natural laws associated with real estate, and need the ability and methods to predict the "turns" of humanity to measure the value of real estate. Noah's Ark would be worthless (or of little value) without the great flood. Noah would not have built the Ark without someone's "whisper" (prediction, dream).

Therefore, real estate valuation for investment requires deep and continuous thinking about Price - Market value - Value (core - intrinsic). Real estate valuation for investment not only has to closely follow and deeply experience in a multi-faceted and multi-layered way in the real estate market in particular and in life in general, but also has to continuously learn and equip academic knowledge until they stop investing.

Thank you!

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