Vietnam's mini apartment dilemma: low cost vs high risks

March 7, 2024 | 03:14 pm PT
Nguyen Hoang Nam Businessman
For people born in the 70s like me, it was not uncommon for a family of 4-5 to live in a collective apartment of just 18 m2 through decades.

Back then, in Hanoi and other major cities, people who were state employees, including officials and factory workers, were almost automatically allocated housing in apartment complexes that still exist today: Kim Lien, Trung Tu, Giang Vo, Thanh Cong...

Those who "were allocated a house" felt lucky as if they had won the lottery, so if there were any inconveniences due to the small size, or having to share toilets and utility areas with neighbors, they were not much of a problem, and the space could always be expanded by installing cage-like extensions, or even constructing new rooms.

Expansion was something minor. Back then, many homes were renovated to include pig pens or chicken coops in any available space to improve living conditions. Authorities knew, but they also knew that the people's needs were real, so they would turn a blind eye to things. During the subsidy period, which was fraught with difficulties, ensuring a minimum supply of food for the family was a top priority. The need for living space was less urgent, and just "having a roof over one's head" was enough.

But that was almost half a century ago. While many people are still shocked by the mini apartment fire that killed 56 people in Hanoi in September last year, there's now news of a mini apartment built in 2017 with a damaged main pillar also in the capital Hanoi, forcing nearly 60 families to evacuate.

Fortunately, there were no casualties, but this situation reminds us of the need to look deeper into the root of the problem, to find safe housing solutions for a large part of the urban population.

This morning I visited five reputable real estate websites, trying to find homes for sale under VND1.5 billion ($60,851) in Hanoi. I discovered that all the apartments in this price range are mini apartments. My survey indicates that mini apartments are the only viable option for people with limited savings.

Despite sounding contradictory to the survey above, I must affirm something: mini apartments are not cheap, and their investors have made a fortune off them. To be able to offer an apartment price that fits people's budget while still making significant profit, most of them have cut corners and offer only the bare minimum in terms of apartment size, the area of common spaces, the water supply and drainage system, the structure, fire protection systems...

...and then there’s also taxes to pay.

After the mini apartment fire in Hanoi, the prime minister and the Ministry of Construction asked localities to inspect buildings for fire safety violations. An inspection of nearly 70,000 buildings in Hanoi found the following amounts of structures at high risk of fire and explosion: 2,600 apartment buildings, 385 mini apartments, over 30,000 business service rental properties, and over 36,000 residential houses that doubled as production businesses.

A survey by Hanoi's Thanh Xuan District showed that nearly all mini apartments in the area had violated fire safety regulations. In authorities’ reports on these buildings, the common refrain is: "Violating fire safety regulations, and if not promptly prevented, may lead to a direct risk of fire, explosion and cause serious consequences."

The Hanoi Department of Construction's report also revealed that investors tend to maximize the apartment area while cutting down on the investment cost for infrastructure, resulting in a lack of building amenities, inadequate fire safety, and insufficient emergency escape routes.

While a high-rise apartment building must comply with a series of legal regulations, standards, and obtain numerous permits from regulatory bodies, undergo supervision during construction, and be inspected before being put into use, a mini apartment only needs a building permit from the district and does not require quality inspection.

While the investors of high-rise apartment projects have to pay 10% VAT and 20% corporate income tax, in addition to maintenance funds, registration fees, and fire insurance, the contracts between mini apartment investors and residents are just handwritten, and the investors hardly pay any taxes.

For the reasons mentioned above, it can be concluded that mini apartments are currently priced reasonably (i.e., not "cheap") because they have "evaded" management, and this is precisely the potential risk to the safety of residents.

But if mini apartments are not an option, what should be chosen instead? In my opinion, we should intensely develop two models: social housing and affordable housing. For social housing, Vietnam has a plan for one million units, but it seems that the places that need them the most do not have enough of them. At a conference on Feb. 22, the minister of construction pointed out that in 2024, Hanoi only registered about 1,200 such units, and HCMC about 3,800 units. These numbers are too low and cannot meet the urgent housing demand in the two mega-cities.

Therefore, additional policies for affordable housing are needed. The current real estate market crisis has clearly exposed the reality that businesses are focusing too much on the luxury segment while neglecting the affordable segment - where millions of people have a need to buy, while the supply only accounted for 6% of demand in 2023.

The safety of the people is always a top priority. Social welfare and housing solutions must be carefully considered, accompanied by uncompromising conditions on construction standards.

Instead of being lax and neglecting the supervision of the quality and construction standards of mini apartments, which can easily lead to consequences, a more long-term solution is to encourage them through policies and procedures for the affordable housing segment, so that mini apartments can disappear from the housing market.

Mini apartments, if not properly managed, will always come at much too high a cost.

*Nguyen Hoang Nam is the general director of social housing development firm G-Home.

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