Hanoi Real Estate Market: Undersupply of Affordable Housing

According to a recent report released by the Ministry of Construction, the commercial supply remains lower than the demand. Only 30 percent of construction works are commercialised while the remaining 70 percent are for lodging. Besides, outstanding real estate loans are declining from the end of 2010 and currently accounting for only 7 percent of total outstanding credits.

 

According to industry experts, lending rates are too high; thus, there is no supplemented capital source for the market. If the current economic situation and tightened credit policy persist, the market will weaken gradually and will not be able to revitalise. Inflation still stays high, the real estate market remains inactive, projects are delayed, and property companies will be caught in appalling dilemma. Secondary investors will have to liquidate bank loan-backed investments. Even, many projects, businesses and investors which lose payment capacity may be driven into bankruptcy

 

Although it is essential to pursue tight credit policy to stave off inflation, Deputy Minister Nguyen Tran Nam said, the Government should not brand the property as a nonmanufacturing sector as this largely impacts the market development. At present, the Ministry of Construction has submitted a proposal on classifying and restructuring real estate loans. Fund should be blocked to high-grade property but it should be channelled to affordable housing in order to prevent the market from overheating or freezing. Mr Nam affirmed that a draft resolution of the Government will pull the real estate out of nonmanufacturing sector but outstanding loans and cash flows for it will still be controlled. Previously, the Ministry of Construction asked the State Bank of Vietnam (SBV) to group property segments to apply flexible lending ratio to ensure projects necessary for social security and meet actual social demand.

 

In fact, the property demand in northern Vietnam remains huge, especially in affordable segments. According to operators of real estate trading floor networks in northern Vietnam, the southern market is now saturated and prices are very attractive. This is also the biggest difference between North and South markets. In the north, well-located apartment projects are still finding out buyers. The supply of apartments with retailing prices of US$1,000 per square metre remains short due to high demand. Thus, this market segment will not be seriously affected. On the contrary, upscale housing groups or projects situated in suburban districts are upsetting developers. According to experts, developers should reshuffle their operations and put off ineffective projects.

 

With respect to housing prices, in Ho Chi Minh City, the supply of downmarket houses with retailing prices of US$1,000 per square metres remains bountiful; thus, prices do not change much in a relatively long period. Medium-rated houses with retailing prices of more than US$2,000 per square metre have dropped 20 - 30 percent from 2007. The steepest price drop was seen in luxury housing segment, with a slump of more than 40 percent over 2007. But, prices have risen by 20 - 30 percent a year in all segments in the past years. In the interim, it is normal to see it slow down. However, housing subdivision is distressing investors on the back of tight monetary policy, which leads to a sharp tumble in liquidity.

 

Mr Tran Kim Chung of Central Institute for Economic Management (CIEM) said given the current interest rate of 20 percent per annum and 80 percent of investment capital relying on commercial loans, developers will have to pay a huge cost for loans in five years, leading very high realty prices. Besides, many investors have retreated from traditional markets. Hanoi and Ho Chi Minh City are amongst most affected.

 

The decline in the northern market is deemed very necessary after a long overheating rise. This will bring property prices closer to true values and serve as an alarming bell for property investors who could not make a profit in any property investments.

 

However, to sustain the market development, Vietnam should adopt proper policies for specific market segments. If a segment is undersupplied, it should be supported for development while a limitation should be capped on a saturated segment.