Affording homes a challenge even for top 20%

To not spend more than a third of one’s income on a house is the common refrain, and the average monthly incomes for the top 20%, according to the General Statistics Office, are only VND14.5 million (US$571.4) in Hanoi and 13.3 million in HCMC.

The new report, by the Vietnam Association of Realtors, pointed out that a 60-square-meter apartment in the two cities costs VND3.5 billion on average.

Thus if a couple borrow 70% of the property’s value at the current interest rate of 8%, the monthly mortgage payment on a 20-year loan would be VND25-27 million, it said.

Assuming said couple are both in the top 20% bracket and earn a combined VND30 million a month, the monthly loan repayment would still far exceed a third of that amount, it noted.

"If even the top earners in the country have difficulty [buying a home], lower-income groups have almost no chance," the association said.

Similarly, a recent study by real estate trading platform Batdongsan found that it takes nearly 25.8 years for the average worker in their 30s to pay off the mortgage for a 60-square-meter apartment priced at VND3 billion at an interest rate of 4.5%.

Data from global cost-of-living statistics platform Numbeo shows that Vietnam's house price-to-income ratio of 22.8 this year is among the highest in Southeast Asia. The figure is inversely related to affordability.

The association said several factors are to blame for the sharp decline in affordability in recent years. The first is obviously the rapid increase in housing prices in major urban areas, it said.

Batdongsan said housing prices have jumped by 59% over the past five years, while the average income has only increased by 7% a year.

The association listed the shortage of affordable housing priced at below VND30 million per square meter as another factor.

While this segment fits the budget of a majority of buyers, developers focus on the high end for greater profits, leaving the former with few suitable options.

Speculation, where people purchase properties and leave them vacant until prices increase, also contributes to inflated prices and resource wastage.

The ratio of property tax to GDP in Vietnam is only 0.03%, significantly lower than in other countries, which encourages speculation.

There are no additional taxes for people who own multiple properties, and taxes and fees on transactions are among the lowest globally.

The final factor is the cost of mortgage. Home loans often have fixed interest rates only during the initial period, after which floating rates take effect. While the fixed rates have decreased recently, the subsequent floating rates remain high at 10% or more, causing financial stress on borrowers.

To boost affordability, the association said the government should offer more incentives to promote development of affordable and social housing.

It should also improve infrastructure and implement the transit-oriented development model, which uses public transportation as a basis for urban and traffic development to form population concentration points.

"If transport infrastructure is improved, people will no longer feel the need to cluster in city centers and will be more willing to move to areas where developers can build affordable housing," the association added.

Analysts also recommended having a comprehensive tax policy to keep property prices from rising too fast.