Low-cost Accommodation Remains a Difficult Problem

 

In early 2007, the house price was sharply rising after many rushed to buy. The higher the price is, the more people rush to purchase on fears of supply shortage. This is happening in both Hanoi and Ho Chi Minh City. For example, an apartment in My Dinh residential zone, Hanoi was quoted at VND12 million per square metre in 2006, but now the rate has soared to VND17-18 million per square metre. In Ho Chi Minh City, people are queuing to buy Green View apartments in Phu My Hung at a price of VND2.8-4.2 billion. A V-star apartment in Ho Chi Minh City also costs VND1.2-1.7 billion. It is even easier to sell apartments above the 9^th floor at higher prices, some VND20-50 million more for each apartment.

Bitexco, the investor of The Manor luxury residential square in Hanoi, said small and medium-sized apartments, priced from VND2.5 billion to nearly VND5 billion, have been sold out. Since early February, Bitexco increased the price of apartments and offices in Officetel I & II buildings at The Manor square by 10 per cent. With the hotter market, the company plans to raise the price by an additional 10 per cent. According to Bitexco’s report, each apartment bears profit over VND800 million.

 

The housing fever has revitalised many idle projects in 2006. Food and electronics producers have extended into real estate fields since 2007. In Ho Chi Minh City, Chuong Duong Beverage Co. has built a high-rise building, while Southern Seed Co. has also constructed a high-rise building at 282 Le Van Sy Street.

 

In Hanoi, billions of US dollars continue being injected into the real estate market, especially hotels and luxury accommodations. Japan’s Riviera and CKS Finance Co. recently signed an agreement with Hanoi’s government to build a five-star hotel in southwestern Me Tri culture and sports area in Tu Liem District. All foreign investors pin high hopes on potential profit from accommodations for high-income earners.

 

From 2003 to 2006 when the real estate market was frozen, a low income earner was hardly able to buy an apartment. A house is now completely unaffordable for him or her, while housing prices continue rising.

 

Although banks are providing preferential loans for house buyers, the targeted customers are not low-paid employees. To access to a soft loan, equal to 70-80 per cent of the house value, debtors must have a monthly income of VND10 million upwards.

 

In a cheaper new urban zone, apartment price per square metre ranges between VND5 million and VND10 million, depending on locations and surrounding conditions. In other words, the cheapest 60-square metre apartment in Hanoi’s outlying districts of Gia Lam, Tu Lien and Thanh Tri is about VND300 million. For instance, a person with a monthly salary of VND5 million, after paying taxes and spending on daily consumption - about VND3 million - needs to save 12 years to buy the cheapest apartment.

 

In 2006-2010, Hanoi needs to build more than 110,000 apartments for low-paid persons. Ho Chi Minh City also needs an additional 100,000 houses for low-income earners and more than 50,000 rented houses for workers. However, most real estate companies dislike investing in this field, because profit is not high and the risk is significant. Hence, this is a hard problem for major cities. At present, when the price of apartments goes up VND1-3 million per square metre, houses for the poor in outlying areas are even more likely to be unaffordable.