Why Vietnam home prices rise non-stop?

This year housing prices in Hanoi and HCMC have reached record levels. In Hanoi, the average price of an apartment is now VND80 million (US$3,030) per square meter, a 33% increase from a year ago, while single-family and town houses cost VND100-200 million.

In HCMC, they have risen respectively by 36% to VND89 million and to VND230-300 million.

Buildings in HCMC. Photo by VnExpress/Quynh Tran

Economist Can Van Luc says rising land costs are a key reason for the price hike. "Rising costs of building materials, labor and bank loans [also] drive up project development expenses."

Pham Viet Thuan, director of the Institute for Resource and Environmental Economics in HCMC, said another reason is developers’ desire for large profits. "When developers set excessively high profit expectations and focus on premium segments, general price levels keep being pushed up."

Ngo Quang Phuc, CEO of southern property developer Phu Dong Group, said high housing prices are caused by many layers of costs, chief among them being land.

Developers often race to acquire all licenses for their projects, but some take years, even a decade, to receive all permits, which increase costs, he added.

"Many projects are stalled not because of funding but due to prolonged approvals, which limit supply and drive prices higher," Luc said. "If this is streamlined, thousands of projects could quickly enter the market, boosting supply and easing prices," he added.

Numerous solutions have been envisaged by authorities, including legal and land administrative reforms, credit incentives and a comprehensive national housing strategy.

Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, said to reduce prices it is essential to lower land costs, which together account for 10% of the prices of apartments and 30% of townhouses. "Developers should also ... accept more reasonable profit margins rather than pursuing excessive expectations."

A long-term solution could be to introduce taxes on vacant properties and second homes to discourage speculation and enforce planning policies that better control supply.

Economist Dinh Trong Thinh proposed a renewed focus on affordable and social housing, a segment almost overlooked for years.

Allocating public or low-cost land for affordable housing is a key requirement, he said. "While construction costs are hard to reduce, the government can use these land reserves for reasonably priced projects."

Thinh said a clear housing finance strategy is needed, with favorable credit, interest and loan terms, to improve access for home buyers.

Accelerating delayed projects is important to improve supply, he added.