Incentives to boost affordable apartment supply

The Ministry of Construction is drafting a bill to promote the development of affordable apartments that includes a 50 percent cut in land use fees and credit and bank credit at interest rates of 7-8 percent.

Industry insiders warned the cap would work only if the government delivers on its promise on reducing land use fees and cuts red tape.

The proposal also sets a cap of VND20 million ($860) per square meter for the selling price, and VND1.5 billion ($64,700) for a 70-square-meter unit.

Vu Van Phan, deputy director of the Department of Housing and Real Estate Market Management, said authorities expect this policy to help balance out the housing market, in which the affordable sector has received little investment in recent years.

The proposal is the latest effort by the government to promote affordable housing amid dwindling supply in the segment, making it difficult for people to own a home.

An average two-bedroom flat in HCMC and Hanoi costs VND2 billion ($86,300), 28 times the average annual salary of fresh graduates, a survey by recruitment firm Navigos found last year.

HCMC authorities spoke in the past about getting apartments priced at VND11.5 million ($500) per square meter built, but they never materialized. Most apartments in the city now cost at least VND25 million ($1,100) per square meter.

Businesses said a cap of VND20 million ($860) per square meter is achievable as along as the government reduces land uses fees and eases administrative procedures.

Le Huu Nghia, director of HCMC-based construction firm Le Thanh, said land fees account for up to 30 percent of the price of an apartment.

This means with a reduction in the fees, developers could easily build apartments for as low as VND18 million ($780) per square meter, he said.

Ngo Quang Phuc, CEO of property developer Phu Dong Group in southern Binh Duong Province, said if the government reduces the time it takes to issue building permits, affordable apartments would be possible and allow more people to own property.

Su Ngoc Khuong, senior director at real estate service firm Savills Vietnam, said a project with a price of VND25 million ($1,100) per square meter typically sees a 20 percent increase due to administrative procedures.

The chairman of the Ho Chi Minh City Real Estate Association, Le Hoang Chau, concurred, saying: "What is most important is that the Ministry of Construction simplifies administrative procedures for these projects to lower their costs."

He also proposed that a higher price cap of VND25 million ($1,100) be applied to Hanoi and Ho Chi Minh City where real estate prices are higher than the country’s average.

Apartments that cost less than VND2 billion ($86,300) per unit always see an absorption rate of 100 percent, indicating the high demand in the affordable segment, he said.