Red tape drives up prices, causes demise of affordable housing

This segment, also called C-grade, has seen prices go up to VND30-35 million ($1,306-1,524) without any changes or improvements in quality, they said at the Housing Development 2021-2025 Conference recently held by the Vietnam Association of Realtors (VAR).

Nguyen Hoang, head of research and development at real estate consultancy DKRA, said his company has seen no houses or apartments priced at below $1,000 in the last 12 months, and tenants, buyers and investors have flocked to the VND30-35 million ($1,306-1,524) category.

Besides, houses in this segment are no longer available in downtown areas any more, and so buyers must accept moving to outlying areas, he added.

VAR vice chairman Nguyen Van Dinh said house prices have soared in the past year since legal requirements for developing a housing project take three to five years, pushing costs up, making it impossible to sell cheaply.

So in the next five years action should be taken, especially quick approval by local authorities, to bring back affordable housing, he added.

Nguyen Manh Khoi, deputy head of the Ministry of Construction’s department of housing and real estate management, said 75-80 percent of demand is for C-grade houses, but since there is desperate demand for urban housing, buyers have to acquiesce to prices of VND30 million ($1,306) or more, which in turn drives prices even higher.

He also admitted that this situation indicated the lack of effective policies in recent times to spur long-term housing development for middle- and low- income people.

Solutions

Dinh said an immediate solution would be to use better construction technology to reduce costs. Investment procedures and formalities should be bridged, he said, pointing out they account for 10-20 percent of a project’s cost and rising with proximity to central urban zones.

Many housing projects forecast to cost around VND20 million per square meter, after taking five years, or even 10 in some cases, to get legal approval, end up having to increase their price to at least VND30 million to break even, he said.

Banks need to reduce interest rates on loans to the property industry with longer term mechanisms to reduce development costs, he added.

The State Bank of Vietnam has in the past few years raised interest rates and lending requirements for loans to the sector, warning of bad debt risk but also seeking to divert credit toward priority sectors such as agriculture, exports, supporting industries, and high-tech.

Hoang said though the legal framework for real estate has improved in recent times, provinces and cities need to approve projects faster if supply is to increase, and limit speculation, the main cause for prices to go out of low-income people’s reach.

But since legal changes take time, the market has to accept short-term piecemeal "fix it where it hurts" solutions targeted at projects in line for approval to address supply problems until long-term solutions could be found, he said.

Since last year real estate consultancies and independent analysts have repeatedly warned about the lack of affordable housing, especially in Hanoi and Ho Chi Minh City, the country’s two most populated urban areas, as developers move into the mid-range and luxury segments for higher profits.