Explaining Real Estate Price Hike

Recently, real estate prices have increased in the apartment segment and for land, throughout provinces and cities across the country. The Ministry of Construction gives a series of reasons for this phenomenon.

According to the report by the Ministry of Construction, real estate prices witnessed an increase in 2020 and in the first two months of 2021. In which, there were areas and projects with prices increasing by over 10% compared to the beginning of 2020.

According to the representative of the Housing and Real Estate Market Management Agency (under Ministry of Construction), the phenomena of real estate price increases in localities have many different reasons, for example, when the population increases, the economy is growing, and in the process of industrialization and urbanization, the supply is not sufficient, leading to a gap in supply and demand; investment capital flows are shifted to ensure safety when other investment channels encounter difficulties during the pandemic; and real estate speculators take advantage of factors such as preparing urban planning, preparing to build infrastructure works, and urban expansion, causing information confusion to increase prices in order to gain illicit profits.

In particular, the increase in the market price of raw materials, fuel, and the input cost of real estate projects are also the reasons for the increase in the cost of real estate products.

According to the Housing and Real Estate Market Management Agency, for a real estate project, the cost of land is one of the important input costs affecting the output cost of the project.

However, the structure and proportion of land costs in real estate prices are very different for each project: on average, in urban areas, land use fees account for about 10% of the cost of an apartment; about 20-30% of the cost of low-rise row houses; about 50% of the villa cost (in suburban and rural areas with very cheap land prices, this rate is lower; in urban centers with very high land prices, land use fee is the main cost in the price).

The Government issued Decree 96 in 2019 on the land price bracket which is used as a basis for provincial-level People’s Committees to set and adjust local land price tables. Accordingly, the land price issued by localities has an average increase of about 15-20% compared to the land price list for the period of five years ago.

 “Thus, in case the land cost of a real estate project is directly based on the land price in the issued price list, the increase of land price by about 15-20% of localities will only increase the cost of housing real estate about 1.5-5%,” said the representative of the Housing and Real Estate Market Management Agency.

The Agency said that the application of new land price brackets and lists in localities was not long (as early as January 1, 2020); projects completed and having products offered to the market in 2020 were mainly implemented projects with land prices applied according to the previous price brackets and land price lists.

Therefore, the issuance of new land price lists by localities with prices higher than previous ones is not the main cause leading to the increase in housing and residential land prices of local projects in 2020 and in recent time. However, the increase in land prices will also have some impact on real estate prices in the coming time, especially the prices of houses in existing areas.n

Source: Vietnam Business Forum