Higher input costs, speculation drive housing prices up

By Vu Le   March 19, 2023 | 06:14 pm PT
Higher input costs, speculation drive housing prices up
Binh Khanh Resettlement Area, Thu Duc City, Ho Chi Minh City in March 2023. Photo by VnExpress/Quynh Tran
The increasing costs of land, materials, labor, legal procedures, and interest rates, as well as speculation, have all been pushing housing prices up for years, according to experts.

In recent market reports, the Ministry of Construction has confirmed that housing prices are currently unaffordable for many people.

Le Huu Nghia, director of construction and real estate firm Le Thanh Company, said housing prices in big cities like Ho Chi Minh City are too high compared to ordinary middle-class incomes.

Nghia said all high-end housing sells at high prices, while a shortage of social housing and affordable commercial housing has led to an increase in the average housing price.

According to him, of the three reasons, housing development projects’ legality-related sluggishness is a huge cost push-up because of its impact on other costs.

It takes 5-7 years or even longer for a project to complete legal procedures, so its developer incurs many costs while waiting.

With loan interest rates of 11-14% a year, the prolonged time period results in an increase of 50-70%, or even 100%, in the project’s total capital cost. The final long-term use home buyer will have to pay more because the project’s production costs have also risen.

The chairman of a firm developing residential real estate projects in HCMC's Thu Duc City also said hefty input costs are the main reason for high housing prices.

He added that land clearance compensation costs, which developers have to pay in advance, have also surged in recent years, and it often takes years to complete the site clearance process.

According to businesspeople and experts, other factors contributing to high housing prices are speculation and price manipulation by some investors.

Both Le Huu Nghia, director of Le Thanh Company, and Huynh Phuoc Nghia, a senior consultant at advisory firm GIBC, suggested simplifying legal procedures.

Economic expert Huynh The Du said the State should ensure the consistency of housing policies and the transparency of real estate-related information.

The government should create channels providing home buyers with enough data and analysis to make informed decisions, while also establishing mechanisms to more effectively screen and allocate capital to the development of different housing segments, he added.

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